Earnings season is underway, and early price action is providing two possible clues about the market.
I was looking forward to this earnings season in particular... why? Because I wanted to see if the price action from the record highs last fall, to the lows Christmas eve were reflected in the earnings reports. Would we get some sort of a confirmation or a rejection.
I pointed out how $STZ fell from October to December on no news, and when their earnings came out a few weeks ago, the stock plummeted on a miss, confirming the price action that had preceded the report.
Would we see this earnings season not only confirm the price action from last fall, but also bring in a renewed wave of selling? Or would this earnings season market yet another refresh for the market, setting us up for, yet again, another move to record highs?
There was one earnings report last week in particular that really stuck out as providing two clues about the market, giving a little insight into the decline late last year and what lies ahead.
JP Morgan reported earnings this past Wednesday and the headline was not pretty:
The stock plummeted pre-market, hitting a low of $97.55
From there the stock rallied the rest of the week. The stock now rests over key support/resistance and back near the highs of early December.
The stock is now some 15% higher than its lows of late last year.
The two takeaways from the JPM report and price action.... (1) the price action from the record highs in October to the multi year lows of December was confirmed via the earnings report. (2) the price action off the recent lows and late last week are implying that earnings are going to be better the next report.
We saw upside price action on many financials this past week. $BAC $GS $JPM $C all were rallying as earnings report came in.
$XLF overtook a key support/resistance line as well:
The price action is telling you earnings are going to get better from here... as much as price action from October was telling you to expect a disappointing report this time around.
Obviously it is still very early in the earnings season. Perhaps financials are bucking the trend and we will see reports not only confirm the October to December swoon, but also see price action react negatively, implying earnings that are going to weaken further.
If that is the case the bears may have finally seen the light. However I think this will be just another failed collapse. I see the same excuses being thrown around, by the very same people, that we saw in 2016. How fake the market was back then. It's fake again. Or perhaps its never been real...
Something else to think about. As prices fell, the corporate share buyback machines were buying more of themselves than they could at record highs. That remains not only a driver for upside, in my opinion, but also an earnings booster. And with the interest rate hike cycle on hold, I don't think that story is going to change any time soon.
My opinion today based upon the small litmus test we saw last week with financials, is that the late 2018 swoon ran its course into the Christmas eve lows and odds are we have already seen the lows for the year.