We’re headed into the heart of earnings season with about 30% of the S&P 500 companies providing their quarterly results between Monday and Friday. While earnings will clearly remain a catalyst for the market, we’re betting that the first-of-its-kind press conference with Ben Bernanke will probably be a larger driver as analysts and investors alike are on the edge of their seat as to what will be said.
Despite the attention on the Fed, there are a number of attractive trade opportunities among the 1,093 earnings reports in our database.
I’ve been talking about the Healthcare sector for a few months during my CNBC segments for good reason. Since the beginning of March, the sector, as measured by the Health Care Select Sector SPDR ETF (NYSE: XLV), is up about 5% while the S&P 500 is up nothing for the same period. According to our unique ETF Breadth Index data the XLV shares boast one of the highest ratios of new highs to new lows for its constituents, signaling that the sector is breaking higher on buying strength.
The sentiment picture for the XLV shares has been fairly pessimistic as short interest and options activity all suggest that investors have been betting against a continuation in the trend for Healthcare stocks. This suggests that the “crowd” is now underestimating the potential for these companies to benefit from a good earnings season, which would cause the Healthcare bears to start covering their positions by buying these stocks.
Cerner Corp. (NASDAQ: CERN) is in the heart of this situation as the company has seen signs of pessimistic sentiment, despite the technical strength that the stock has displayed. The company is expected to earn $0.76 per share, lower than the $0.84 announced last quarter.
The company has bested expectations every quarter over the last year and has been rewarded with a strong upward trend as a result. We’re betting that the “crowd’s” expectations will be on the low side of actual results, fueling another round of buying that will take the stock back into new high territory.
Look for CERN to continue its strong upward trend after reporting its results Thursday after the market’s close. Consider buying the CERN September 115 Call for about $6.50 per contract to leverage this strong healthcare component.
Money-Doubling Options Trades from Earnings Hits & Misses
Learn how to cut through the rumor and manipulation surrounding corporate earnings announcements and bank money-doubling option trades all year long. Download our FREE trading guide here.
