Next Big Market Catalyst?

Hey 5-Star Trader,

We are nearing the end of March, and thus far this year, we have made it through multiple, major market catalysts:

  • Q4 earnings season
  • The Russian invasion and the ongoing war in Ukraine
  • Federal Reserve Interest Rate Hike Schedule
  • Inflation readings at the highest in 40+ years

The market hasn’t taken this news lightly, as the Nasdaq entered a bear market but has since rallied off the lows. The rally last week got traders and investors excited. You can see this in the media, as coverage went from gloom and doom to a focus on buying the dip, and questioning if the lows were in.

I personally don’t think we have seen the lows this year and let me tell you why. First, let’s look at this chart of the Nasdaq futures on a daily time frame, from March 21.  Check it out below:

Nasdaq Futures – Daily Chart

While the rally last week brought price from the 13,000 area of support to resistance at 14,500, the technical signals overall remain weak. Why?

Weak Signals for the Nasdaq

What is a catalyst? A catalyst is a reason or a cause of big market movement. Earnings is a major catalyst, especially in this market. Earnings is coming up, and I foresee it being a major market catalyst that will cause big market moves. I’ll be discussing this in more detail next week.

  1. The index shifted into a downtrend at the very beginning of the year, and has been unable to recover. The TrendStrength Turbo Candles remain red and price remains below resistance at the key moving averages, particularly the 50 simple moving average (SMA), 100 SMA, and 200 SMA. 
  2. The Squeeze Pro is still in consolidation, despite all of the volatility. This means that the market is getting set up for a big move. 
  3. The TurboVZO is demonstrating that volume has remained below zero, ever since volume topped out in November. This is a very bearish sign, as anytime volume reaches the dotted yellow line – which is the zero line – price reverses, again.
  4. The TrendOscillator Pro continues to show downward momentum.

But, it’s not just the technical signals. These moves are wrapped into the macro story. The Q4 earnings season that occurred throughout late January and February, and a bit in March, was a major catalyst that brought the market down. 

An example of a catalyst…

What we saw throughout the first three months of the year was that any company not meeting expectations got completely destroyed. Meta, the company formerly known as Facebook, is a prime example:

Meta Platforms (FB) – Daily Chart in the Earnings Hot Zone

Meta was clinging to “hopeium,” and “earnings destruction” hit – causing a 24% gap down in the stock that continued to roll for the next several weeks, before finally holding a low. This is a company I traded in my Stacked Profits Mastery to the short side, as a part of a post-earnings move.

While these moves are good for trades, when a stock like Meta is hit in this manner, it causes reverberating impacts throughout the rest of the market, as the catalyst takes hold. If you don’t know what to look for, you could be surprised when the Nasdaq is suddenly down 2% overnight after a big earnings announcement. 

“Earnings Destruction”

The best part about this fast gap down – earnings destruction – is that it’s a part of a larger pattern, one I have an eagle eye on for this upcoming earnings season. This pattern can be traded prior to earnings – over an earnings report itself – and post-earnings, providing a trader with ample opportunity throughout this season. 

Earnings season is coming up quickly – we are already entering the Hot Zone (the 21-bar time frame prior to an earnings report on a specific stock). In many key stocks, and by next week, there will be even more opportunities. 

Want to learn more? Join me next Tuesday at 7 p.m. Central to learn about how I’m betting on earnings impacting the market, which tickers are entering the Hot Zone, and some of my favorite potential “earnings destruction” candidates.

-Danielle =)

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