The Fed + FAANG Earnings

‘Disinflationary’

It’s finally happened, traders.

Jerome Powell and the Federal Reserve have used the word ‘disinflationary,’ the Fed has slowed the pace of rate hikes two meetings in a row, and the market has reacted incredibly well to earnings thus far.

I anticipated a bullish move in Tesla (TSLA) and Microsoft (MSFT). These are two of my favorite long-term stock holdings. They consistently beat EPS estimates, demonstrate regular pre and post-earnings rallies, have shown promise holding critical lows, and are top publicly traded innovative corporations in the stock market overall.

But it’s not just companies with fundamental backing and logical sense rallying. Peloton (PTON) and Carvana (CVNA) are squeezing out short sellers and reversing off their lows.

The thing is, each earnings season has a flavor. This quarter, that flavor is total acceptance of less-than-stellar results, with a particular emphasis on companies that do perform better than expected.

Meta Platforms & Earnings

As I write this, META is experiencing almost twice the expected move after-hours. It had approximately a $13-14 expected move. Trading at $184 is more than twice the expected move. Which generally leads the way to a continued momentum rally the next day.

META?! Really?! This stock, IMHO, is the trashiest of the major FAANG stocks – Facebook, Apple, Amazon, Netflix, and Google. Yet, with this earnings report, it’s already broken significant overhead resistance and made real progress in reversing its destructive downtrend.

Of course, I had to tweet about it…

https://twitter.com/traderDanielle/status/1620906368411791361

They couldn’t even find a picture of Zuckerburg that wasn’t outside of a courthouse!

So, what does Meta’s move mean for Thursday’s earnings after the close?

Apple, Amazon, and Alphabet’s Earnings Reports

Imagine this. If the relative weakness loser of the bunch can rally ~19% after-hours despite three quarters in a row of declining revenue, how may investors react to less-than-explosive reports from AAPL, AMZN, or GOOGL, all of which are starting in stronger positions?

Between the Fed-induced rally plus very positive reactions to tech earnings thus far, these companies are in a great position to pour gasoline on the January rally. Check out Apple in the Hot Zone.

While Apple has a bearish head and shoulders pattern on the weekly chart, the daily chart + earnings statistics show a different story. Apple has rallied swiftly into earnings, which is a bullish sign. It’s broken multiple levels of resistance doing so, though I will note it’s still stuck below the 200 simple on the daily chart. A key metric. But, it beat EPS estimates for the last 10/11 quarters. In the last two quarters, it even traded higher post-earnings, which is especially impressive in this environment. With a $5 market marker expected move, if this occurred to the upside, this would break resistance at $145 and bring the stock price up to $150. With twice the expected move (what META has achieved), Apple would end up trading above October highs and on its way to quite the recovery.

Indeed, bearish patterns are set up all over the place. But, everyone has been waiting for the other shoe to drop forever. When everyone gets caught on one side of the market, that is when the market can become the equal opportunity dream killer that it is. If these companies can give the indexes the final kick they need to break overhead resistance, we will look at a FOMO-induced buying rally as traders scramble to get long, fearing they missed the bottom.

So, after the market closes, grab some popcorn and get ready for the show. I know I will!

-Danielle

P.S. Want to join me in the Simpler Trading Options Gold Room? I’m back from maternity leave, and you can find me there on Tuesdays & Wednesdays from 1-2 pm CT!

 

 

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