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MSFT’s eerie earnings sign

The stock market has basically been at a standstill the entire week. Volume’s been extremely low, and price has traded right around the 3,000 price point in the SPX.

The news has been full of impeachment talk, Turkey, Syria, upcoming earnings, and the 2020 election cycle. Plus, after the bell, MSFT reported earnings (and a good earnings report at that). Yet it initially traded lower.

Here’s what’s up with that, and what it could mean for this rest of earnings season…

The indexes and tech stocks have traded slightly higher going into their reports, displaying a bit of anticipation. However, this run into earnings has really been nothing like what I’m used to trading. I much prefer the nice, trend following momentum in strong momentum areas of the market.

This quarter, that’s just not the case.

Why?

Well, for one, the momentum stocks and big tech have lost their sparkle the past few months, with consumer staples and utilities shining brighter. Normally, it’s the euphoria surrounding high momentum stocks that causes the run into earnings to work to begin with. This time, that excitement was muted. We got a little taste out of Akamai, but nothing really too exciting.

And now, that we’re entering the heart of earnings season, investors are very cautious, and they haven’t displayed their conviction.

All of this means what?

That we’re entering earnings season on very soft ground.

Imagine trying to walk in quicksand, and catching your footing a few times — just before you misstep once, and you get sucked in. That’s what the market looks like to me, right now.

The response to MSFT’s earnings after the bell is even more telling.

Microsoft beat on EPS and revenue estimates, and noted a whole barrage of positive factors — with one, tiny negative. Azure growth was expected around 64% (yet they notched 59%). A very small difference. And yet, MSFT isn’t rallying after hours.

It’s completely flat, and it even initially traded $3 lower on the ‘disappointment.’ 

In a world where a stock, even initially, trades lower within the expected move for beating every line item except this one tiny piece? Well, get ready for other stocks to get completely hammered on their misses. 

Why?

MSFT is one of the strongest companies out there, both fundamentally and technically. They’re innovative, forward facing, lacking legal battles like FB and potentially GOOGL, and have demonstrated strong YoY growth. Plus, they’ve had a solid trend since around 2009. Yes, there have been a few blips, but this beast remains strong.

And yet, it’s flat on great earnings.

Investor confidence is getting sucked out of this market, and it’s like a giant eerie sign just flashing at me, yelling, “BE CAUTIOUS.” 

Want to see what has happened the past few quarters, after earnings? Once the momentum and euphoria from the initial run dies down? Check out this chart…

So, stay tuned — and get ready. I think this earnings season is going to be a wild ride. 

But this isn’t to say it’s going to be all ‘doom and gloom.’ Just be mindful of your trades, and you should always remember ‘cash is a position.’

2 thoughts on “MSFT’s eerie earnings sign”

  1. I think that one of the problems is that the PCALL is very low, indicating a lot of bullish sentiment. There are not enough people on the sell side of the market. Also the VIX put call activity is showing a lot more call buying activity, which I think indicates a belief (not a prophecy) that the market will go down. Hence, the reactions here are muted, even with good earnings reports coming out. There is also a lot of focus on guidance. AMZN had a good earnings report but a poor forecast into the holidays and is trading very low after hours. Playing earnings is an interesting animal.

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