Wait For An Opportunity To Buy the Dip. Nervous Trading Ahead As Major Earnings Hit.
This is the calm before the storm. Major banks will start releasing earnings tomorrow and we will kick into high gear next week. Asset Managers are nervous and the expectations are low.
Wells Fargo exceeded estimates on the top and bottom line last week. The stock pulled back slightly on the news and that could be typical for the entire financial sector. There will be many write-downs to sift through. When the dust settles, buyers will step in.
Q4 earnings are expected to be 3% lower than Q3 earnings. This is typically reversed and it represents a 6% swing. Flat revenues and meager earnings growth won’t excite anyone. Stocks will pull back slightly on the news and the bid will gradually return. Strong balance sheets and solid cash flow will attract buyers.
Bond yields are at historic lows and stocks are attractively valued on a relative basis. Asset Managers are eager to shift out of fixed income and into equities.
I am expecting a little weakness through Thursday. That evening, China will post major economic releases (industrial production, retail sales and GDP). The most significant number is GDP and analysts are expecting 7.8% growth.
China is in the spotlight again and I believe it will come through. The new leadership will keep its foot on the gas pedal. The market will like the numbers and the market will find support Friday.
Monday is a legal holiday and the stock exchanges are closed. When trading resumes the action will be fast and furious. Results will be mixed, but better than feared. By the end of week, the bid should return.
Until then, I will be day trading based on the one hour range. If the market is above the highs the first hour I will go long. If the market is below the lows of the first hour, I will sell short. I am trading stocks with relative strength/weakness. This strategy has been very effective.
If we get the dip, I will wait for support. It will present a buying opportunity and I will start taking overnight positions (the first in weeks).
The debt ceiling rhetoric will get ugly, but the market won’t pay too much attention to it. Asset Managers will assume that the debt ceiling will eventually be extended.
Look for choppy price action with a negative bias over the next week. Start lining up candidates. Focus on companies that have posted good results and gave positive guidance. If the market reacted poorly to the release, look for an opportunity to scoop the shares.
Day trade for the next week and hope for a nice decline so that you can get in at a good level.