Kicking off Earnings Season: Here’s what I’m looking at…

This week, it’s all about earnings season…

And investor’s subsequent reactions as companies report earnings numbers, comment on guidance, and future projections.

Here’s what matters this earnings season…

As I’ve mentioned before, Apple, Samsung, Macy’s, and American Airlines have already come out and said last quarter’s numbers weren’t as high as previously projected, which further points to a slowing economy.

This week, particularly today, should be telling as several key banks and airliners are reporting this week.

Check out the earnings calendar for this week below:

What am I looking for?

Well, obviously I want to know if these companies are making their earnings per share (EPS) estimates or not.

But, more than that, I want to hear commentary from their executives about what’s impacting the bottom line. That information gives us much more information about the overall state of the economy. It’s not just about one or two reports — it’s about the overall sentiment to help gauge this earnings season.

I’m looking for any signs of a slow down, as well as the pointed reasons why.

After all, each season has a ‘vibe’ around it, especially with regards to expectations vs. reality, and then how investors react. After the next two weeks, we’ll have a much clearer picture to help gauge S&P movement this quarter.

Right now, the S&P has basically been stuck at 2587 for four days. It’s the battleground at the key psychological zone at 2600. The battleground being the point where nothing will change until either side of that zone becomes more confident.

Believe it or not, major whole numbers like this represent psychological areas of support and resistance. Why? Because lots of traders look at them and make decisions based on them (they in effect are self fulfilling prophecies).

So without a significant catalyst to cause buyers to come out of the woodworks, we won’t be able to break this area of resistance, and should see lower prices.

Better than expected earnings reports could be that catalyst (but they could just as easily cause a huge break).

Beyond that, what am I looking for, besides exercising caution?

Well, here’s my sector grid, organized by perceived strength. In the instance of a break higher above 2600, I’d look to trade the stronger sectors and stocks along with that — those within XLC, XLY, and XLI.

What about a break lower?

For those, I particularly like XLU and XLP. The sectors where I’m seeing money flow overall tell me that smart money is more confident that stocks will continue to rise, rather than fall.

Why?

Because you’re not seeing money flowing into defensive sectors, but rather, into consumer discretionary, communications, and industrial sectors. This is indicative of the fact that big money is testing out some confidence in the market in growth areas.

Check out my grid below —

So, what am I trading then?

Honestly, I’m going to stay a bit light for the next few days, while I trade futures intraday and see how the first week of earnings shakes out. I may start getting some short positions in XLP, particularly on weak stocks with squeezes.

Want a specific trading idea? Check out my video on Coca Cola here.

What about the broader market?

I’m looking for an overall battle at 2600, that if breached to the upside, could give us major upwards pressure. In that instance, I’ll look to companies reporting earnings in the next 3 weeks to trade the ‘run into earnings.

Which way will the overall breach be?

I’ll let you know when I see it, and I’ll be happy to trade it. One thing is for sure, this quiet market is going to start moving very soon.

P.S. Henry and I are going to talk about some of our favorites to trade for the ‘run into earnings’ today during our member webinar at 3:30pm Central. If you’re an Options Member, I hope to see you there! If not, you can grab a $7 trial HERE to join.