Bottoming Action Hits Ahead of Earnings Season
Biotech and other beaten-down groups bounced as the market heads into bank earnings.
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Oil was up a little and interest rates inched down on Friday, but equities had a solid session, with all the major indices gaining ground. Breadth could have been better than 49% positive and there were still about 260 new lows. However, biotechnology and some of the other hardest-hit groups enjoyed a sizable recovery
The action had the feel of bottoming and consolidation ahead of earnings season, which starts on Tuesday with several of the major banks. The banks themselves were strong on Friday. The Financial Select Sector SPDR Fund (XLF) rose 1% after testing its 200-day moving average earlier in the week, so the group heads into its reports from a support level rather than a breakdown.
Diesel Relief
Sentiment got a lift late in the day when President Trump said Russia has agreed to send diesel fuel to the global market after what he called a “highly successful” discussion with Vladimir Putin. Russia will supply more than 300,000 tons immediately and 500,000 tons in November, followed by 1 million tons and then another 3 million tons as its refineries allow. Trump predicted diesel prices will fall “sharply and quickly,” helping farmers, ranchers and truckers.
Refined fuel, more than crude, has been driving the energy inflation problem I wrote about on Tuesday, with diesel at record prices. The first shipment is small, roughly half a day of U.S. diesel use, so the relief depends on how quickly the larger amounts arrive. However, anything that eases diesel supply takes some pressure off inflation, off the Fed and off the rate-sensitive stocks that have been crushed.
Setting Up for the Secondary Stocks
This week showed how quickly money can move out of the AI leaders and into everything else. Friday showed that beaten-down groups can hold a bounce without help from a frightening AI headline. One day isn’t a trend, but the conditions are lining up. Many stocks are severely oversold, earnings season will shift focus to individual companies, and the fourth quarter is historically the strongest stretch of the year.
Next week, I want to see follow through. If the bank reports are well received and the lagging groups can build on Friday’s gains, the case for a broader market strengthens. If the new-low list stays stubbornly high, the bottoming process needs more time.
Game Plan
I’m continuing to add selectively to favored names and keeping plenty of cash for when the action confirms the turn. The setup for secondary stocks is better than it has been in weeks. I was looking hard for new additions but decided to stay patient.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
