How I'm Playing This Tricky Market and Preparing for Hidden Landmines
Here's the most important thing for investors to do now as high-profile reports and surprises arrive.
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As the market was preparing to celebrate a strong report from Alphabet GOOGL on Wednesday morning, it was hit by negative surprises from Lilly LLY and Super Micro Computer SMCI. Instead of gapping higher, there was a soft open, but it didn’t take long for dip buyers to step up.
The semiconductor sector SMH is still under pressure, with a drop of 1.8%, but the Lilly damage is not spilling over to others in the pharmaceutical sector. Apple AAPL and Nvidia NVDA are hitting the Magnificent Seven names, but that is offset by strength in Google.
The most promising action is once again in small-caps. The Russell 2000 IWM is trading up 0.67%, which is helping breadth, as it is running 5,800 gainers to 3,400 decliners.
It is a very tricky market with some hidden landmines as earnings reports are released. There will be a few more surprises tonight, along with reports from Microsoft MSFT and Meta META.
I’m focused primarily on trade management in front of upcoming earnings reports. I’ll be looking to make new buys and sales after there is news. The most important thing now is to identify the level of risk that a report will hold and adjust position size. I almost always am caught by surprise by a negative report at least once every quarter. Betting on the outcome of earnings is a tough game, but the real opportunity lies in the trading after the news is out.
I’ve mentioned Hims & Hers HIMS several times recently and plan to trade it when it announces earnings after the close on Monday, November 4. HIMS is taking a hit on Wednesday morning because Lilly had disappointing sales of its obesity drug. One of the reasons that Lily has a problem is that companies such as Hims are competing by selling a compound equivalent at a much lower price.
Both Lilly and Novo Nordisk NVO are pushing the FDA to crack down on compounding of weight loss drugs, which is a substantial risk for HIms and is preventing the stock from trading at much higher prices.
The Hims earnings report next week will reflect the recent strong sales, but the key will be guidance about growth in other areas of the business and plans for the obesity business. Hims has recently bought a compounding facility and is working on expanding its product line to a number of new areas.
Overall, I’ve been playing strong defense, as I believe there are going to be some very big swings on the election news next week. There should be good buying opportunities, and I want to make sure I have plenty of cash.
At the time of publication, Rev Shark was long HIMS.
