Earnings are clearly propping up the markets at this point.
Just a quick glance at the chart will show you that $ES_F was heading downwards pretty aggressively until the first red line; the first big E.R. reports of the season. $NKE and $MU crushed their reports, and the markets responded upwards…but not on weak volume.
[check out the chart in better detail over on tradingview here.]
The second red-line shows another save of $SPY … aided by beats by $RHT and $PAYX.
Rinse and repeat for a while…then the final line is on April 6th, when the first big bank earnings came out.
$GS – Missed EPS 0.66% but big revenue beat
$WFC – Beat top and bottom
$C Beat top bigly, slight miss bottom line.
The markets were happy with that but then geopolitical tensions settled in towards the end of the day which caused the markets to pull back.
The upside resumed yesterday, once again on good earnings.
But that’s good isn’t it?</4>
Well, it should be.
The issue I see is illustrated by the purple price line. If you look at the OBV at this price level vs the OBV when the S&P 500 Index 0.81% was at this level before, we are way below where we used to be OBV wise. This divergence is bearish.
The money flow indicator shows that there has been some buying, but the size of the buying has dropped on each spike since the largest one. The Chaikin Oscillator follows a very similar pattern (as it should, confirming each other).
So I think we will indeed see some more upside in the near-term…but some large E.R. misses or another geopolitical event could really pull us down viciously.
Or maybe we continue to float up slowly throughout the rest of E.R. If that happens, I’d want to see the OBV and the Chaikin Oscillator start to move up aggressively to at least where we were in early March. If that doesn’t occur the markets may very well collapse at the end of the season (if not before that).
How To Trade It
Same thing I’ve been saying in my last few posts. Make sure you hedge some of your larger positions and you have some of your portfolio allocated to cash. Take profits more aggressively; scaling out [and/or diagonal credit rolls] ideally to realize most of your gains while maintaining some exposure to further upside.
As always, stay safe out there. If you’re on a losing streak…you’re doing something wrong. Reconsider your strategy before following the same thing and blowing up an account.
Today in history, Apollo 13 returned to Earth in 1970. The full story [official or otherwise, for the conspiracy theorists out there] is fitting for the market conditions as described above. They got back safe despite what was technically a mission failure.