Be Prepared for Big Moves as Big Earnings Arrive
While most indexes are reasonably good shape, one is in the most precarious position.
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The market had a euphoric start on Friday as it followed through on Thursday's bounce-back rally, but the action stalled after about two hours, and stocks drifted lower the rest of the day. At the closing bell, breadth had dropped to around 3,800 advancers to 5,500 decliners, and small-caps IWM lagged with a decline of around 0.4%.
It was a rough week for the major indexes, with some ugly selling hitting on Wednesday. The main problem was persistently weak bonds and higher interest rates. Tesla's TSLA earnings helped the bullish cause on Thursday, but the bonds weakened again on Friday.
A growing belief that Donald Trump will win the election and create new economic growth is helping equities on the one hand, but it also causes increased concerns about inflation, which is hurting equities on the other hand.
Technically, the indexes remain in reasonably good shape, but the Russell 2000 is in the most precarious position as it retests its 50-day simple moving average after hitting new highs last week. The S&P 500 and Nasdaq 100 are set for significant volatility next week when we are hit with major earnings reports from the Magnificent Seven (MAGS) and hundreds of other names. We will also have the backdrop of emotions surrounding the election and some nervousness about what will happen if there is no clear presidential winner quite quickly.
It has been a pretty good market for stock-picking and trading, and that should continue as we see more earnings reports and new leaders and laggards.
We have a tremendous amount of news flow in the next two weeks, so be ready for some big moves.
Have a great weekend. I'll see you on Monday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
