Earnings season is just ramping up. Alcoa announced after the close last night and appears to have slightly surpassed expectations. Articles on
Marketwatch.com and other sites in the past few days are suggesting earnings overall will disappoint.
The S&P 500 jumped up 4.7% in just four days and has shown no strength since then. This may be hesitation about making further commitments with earnings season starting. Another factor may be the chart pattern of the S&P. It has reached prior highs set last fall, that were retested a couple of times without a successful breakout. The S&P has returned to that resistance level and so far is backing off:
Seasonally, the S&P's track record is about a wash. For example, over the next 7 weeks, the S&P has gained an average of 1.4%, with gains in 16 out of 31
years, for a 52% success rate. In other words, sideways.
With the market sitting right up at a well-defined resistance level, and an uncertain earnings seasonal starting, it certainly wouldn't be a high
probability trade to bet on further upside right now.
Is it worth betting on the downside? It can be risky. While there isn't a strong seasonal bias right now, looking at the bigger picture, such as a weekly
chart of the S&P, the market is still in an uptrend from the 2009 low. Any pullbacks may be short-lived, and bearish trades can quickly give back their
The best play right now may be to wait for some major companies to announce and see how the market responds. If earnings seem to be holding up and the market responds positively, many good upside trades will be possible. I expect Amazon and Apple to have good earnings reports. But I will also be looking at many basic industry stocks, like CAT.
For the most part, the seasonal patterns of most sector ETFs are like the S&P's – sideways for several weeks. While the number of stocks with strong seasonal track records right now is significantly lower right now, most likely due to the caution expressed every year leading into Q4 earnings, there are always some interesting trade candidates. For example, BDX, which I mentioned here a few days ago, is still moving upwards on above-average volume. It has a strong upwardly-biased seasonal for the next several weeks, and its earnings aren't due for another month (Feb 5th).
OIH, the Oil Service stocks ETF, has pulled back slightly on low volume. OIH's seasonal chart shows a good upward bias over the next 4 to 6 weeks. But there are a couple of sectors that have a downward bias this time of year.
XLF, the SPDRs Select Sector Financial ETF, has decreased an average 3.3% over the next 2 weeks, and 4.7% over the next 7 weeks, with losses in 10 out of 14 years:
Tech is the other sector standing out with a negative bias. XLK, the SPDRs Select Sector Technology ETF, has decreased an average 4.6% over the next 8
weeks, with losses in 12 out of 14 years:
Many stocks I've highlighted in recent Seasonal Forecaster newsletters are holding up well, but it may be time to take profits. The odds favor an
overall market pullback right now. As the stocks with good seasonal track records put their earnings announcements behind them, many good high
probability setups should appear.
In the meantime, the VIX has fallen to an incredible 13.62. I'm going to spend my time investigating possible straddle trades on major stocks reporting in early February. Our last two straddle trades each hit 20+% profits within a week. Stay tuned.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal-forecaster
By Gregg Harris, MarketTamer Chief Technical Strategist
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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