Welcome to Earnings Season … Mind the Interest Rates

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U.S. stocks may have traded in a choppy manner through last week’s holiday-shortened four-session set, but underneath the surface, the bid in the S&P 500 as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has remained. Through that lens, I still see the S&P 500 move toward the 2,500 mark over the course of the coming weeks/months, i.e. toward the $250 area in the SPY exchange-traded fund.

Welcome to Earnings Season ... Mind the Interest Rates

Lest we forget to see and respect both sides of the market, interest rates have staged a significant rally over the past two weeks and thus have once again become front and center for investors as the two-week rally now has the 10-year U.S. Treasury Note at levels last seen in early May. If interest rates are indeed headed higher still, this could weigh on growth stock pockets and thus keep the equity indices somewhat range bound.

The top three things on my notepad as we enter this week are:

  1. The Technology-Heavy Nasdaq 100 as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) remains overbought by my eye, both on the daily and on the weekly charts. The low $130s are a near-term downside target on the daily chart, while on the weekly chart, ultimately the $120s look to be a better mean reversion area.
  2. Interest Rates — The debate over whether interest rates are heading higher continues, and it’s becoming increasingly palpable. At present four of the largest five central banks are whistling at marginally hawkish tone, which is to say that the path of least resistance for interest rates may indeed be higher. That should provide a bid under financial stocks like banks but may pressure more growth oriented sectors like technology.
  3. Earnings Season for the second quarter is set to kick off this week with large banks like JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) on tap this Friday.

Market Charts


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The Nasdaq 100 QQQ ETF through the multiyear lens remains significantly overbought versus the up-trend in this time frame and in my eye has plenty more consolidation to do before a meaningful and sustainable next leg higher can come to fruition.


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On the daily chart too, we see that the QQQ ETF could have more room toward the low $130s before the lower end of its up-trending channel gets reached, which often results after the upper end of the channel gets overshot.

While I don’t have any position in this space right now, I am considering a small short position in the QQQ ETF toward the low-to-mid $130s upon any bounce.


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I understand that for many retail investors and traders, interest rates rarely become part of the equation when evaluating stock trades, yet when interest rates move they very much dictate what happens to the stock market. On the above chart I plotted the yield of the 10-year U.S. treasury note. The rally over the past two weeks now has 10-year yields back at the very upper end of this multiyear downtrend. To break out or not to break out that is the question. If rates do indeed head toward 3% then more stock sectors could come under pressure while financials hold a bid. This in turn could result in more volatility for stocks, something that few investors are positioned for at the moment.

Lastly, with earnings season kicking off this week and into much higher gear the following week, plenty of opportunities will arise from a trading perspective once stocks have reported their earnings and investors position according to new information they receive.

In summary, while the month of July tends to be a positive month for S&P 500, it also tends to see somewhat of an uptick in volatility, which may once again hold true this year.

Check out Serge’s Trade of the Day for July 10.

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To see a list of the companies reporting earnings today, click here

For a list of this week’s economic reports due out, click here. (

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