We are 11 stocks into the 30 stock DJIA Components to report earnings this cycle. The exact KEY level is 17,413, but 174,000 is easier to remember.
Since the last earnings reporting cycle, which averaged 17,643, we had the "margin liquidation - stop out" decline to 15,370, which was a 12.89% drop or 2274 points from the KEY EARNINGS LEVEL.
What is the KEY EARNINGS LEVEL? It is the price were each stock in the DJIA releases earnings and creates a "MARKET MEMORY" level that portfolio managers and traders remember and creates a natural resistance area for the market to congregate or move away from. The market will tend to rise to it, then reject from it if there are still sellers at that level. On the other hand, the market will tend to rise if it falls down to where buyers remain from the last earnings reports.
What happened after the last earnings season and why did we see such a major drop in prices?
1. The Chinese equity market and the US Equity Market were deleveraging and stopping out "margin longs".
2. Presidential Candidates were talking and shaking up nerves (all talk about raising cap gains tax rates)
3. Earnings forecasts for the following quarter we being revised down.
4. Worries about the Federal Reserve raising rates
5. US Dollar strength was hurting earnings year over year comparisons as a stronger dollar translates to less earnings back here in the US. The earnings in the S&P500 are declining year over year and without buybacks, earnings would really be declining.
6. Softening economic indicators, still collapsing commodity prices.
7. Glencore bankruptcy worries - collapsing values of energy sector high yield bonds.
8. Bankruptcy concerns from US States, Puerto Rico, and the cost of insurance against Corporate Defaults was surging.
9. High Yield Corporate Bonds dropping sharply.
.....
This rebound is reaching a natural balance up here near the 17200-17400 level were it would be logical for the market to take a breather. The work that I do in VIX alerts me to a re-test of the 16,500 level in the coming weeks and months, so I view that as the downside potential from here. As the remaining earnings come in, I would view how the market reacts and most likely will set up another sell signal like the ones seen in June and July that worked so successfully.
I'll put this as a "short" recommendation since I have labeled the parameters for a short sale at 17,400 to sell short, 17,700 stop loss (300 points stop loss), target 16,650 initially (down 750 points), 16,500 ultimate target (down 900 points). I prefer to wait until the entry level is reached before publishing, but I wanted to put out the chart here so you could see how the earnings season is coming along with 11 companies reporting so far (19 remain).
Tim
5:32PM EST 10/20/2015
Since the last earnings reporting cycle, which averaged 17,643, we had the "margin liquidation - stop out" decline to 15,370, which was a 12.89% drop or 2274 points from the KEY EARNINGS LEVEL.
What is the KEY EARNINGS LEVEL? It is the price were each stock in the DJIA releases earnings and creates a "MARKET MEMORY" level that portfolio managers and traders remember and creates a natural resistance area for the market to congregate or move away from. The market will tend to rise to it, then reject from it if there are still sellers at that level. On the other hand, the market will tend to rise if it falls down to where buyers remain from the last earnings reports.
What happened after the last earnings season and why did we see such a major drop in prices?
1. The Chinese equity market and the US Equity Market were deleveraging and stopping out "margin longs".
2. Presidential Candidates were talking and shaking up nerves (all talk about raising cap gains tax rates)
3. Earnings forecasts for the following quarter we being revised down.
4. Worries about the Federal Reserve raising rates
5. US Dollar strength was hurting earnings year over year comparisons as a stronger dollar translates to less earnings back here in the US. The earnings in the S&P500 are declining year over year and without buybacks, earnings would really be declining.
6. Softening economic indicators, still collapsing commodity prices.
7. Glencore bankruptcy worries - collapsing values of energy sector high yield bonds.
8. Bankruptcy concerns from US States, Puerto Rico, and the cost of insurance against Corporate Defaults was surging.
9. High Yield Corporate Bonds dropping sharply.
.....
This rebound is reaching a natural balance up here near the 17200-17400 level were it would be logical for the market to take a breather. The work that I do in VIX alerts me to a re-test of the 16,500 level in the coming weeks and months, so I view that as the downside potential from here. As the remaining earnings come in, I would view how the market reacts and most likely will set up another sell signal like the ones seen in June and July that worked so successfully.
I'll put this as a "short" recommendation since I have labeled the parameters for a short sale at 17,400 to sell short, 17,700 stop loss (300 points stop loss), target 16,650 initially (down 750 points), 16,500 ultimate target (down 900 points). I prefer to wait until the entry level is reached before publishing, but I wanted to put out the chart here so you could see how the earnings season is coming along with 11 companies reporting so far (19 remain).
Tim
5:32PM EST 10/20/2015
Komen:
The KEY EARNINGS LEVEL has moved down to 17,303 as of this morning's additional earnings releases. With the DJIA here at 17,216, it is getting very close to an entry on the short side. 11:50AM 10/21/2015
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