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The Critical Upcoming Earnings Impact

The Summertime Lull

Typically, June trade can be a little quiet and slow. We wrap up a seasonally weak May, along with earnings season, and then enter into summertime season where traders take vacations, kids are out of school and volatility can slow down. This year, it has played out a bit differently as we are in the throes of a bear market and while the indexes consolidated the first week of June, that consolidation eventually broke to new lows on the year. So much for that short-lived summertime lull, right?!

At this juncture, we are trading just off of the lows of the year, and the indexes have done a decent job of holding those lows. For the S&P, 3700 has been a critical zone to hold, and for the Nasdaq futures, 11,000 is the major line in the sand. The put/call remains incredibly elevated, and what was interesting about Wednesday trade, was that even though the indexes were trading higher, the put/call was also trading higher. This is pretty abnormal, as normally, traders get short at the lows, and that is where the put/call spikes. They also get long on spikes higher, and therefore the put/call starts falling. On Wednesday, I was hoping for a continued short squeeze in which I could get short again, but, the put/call going even higher has given me pause.

Sometimes, sitting on my hands is the best option, and that is what I’ve done this week thus far.

However, as this summer hasn’t been a typical summertime lull thus far, I would still say it’s been relatively quiet, given conditions. But, I don’t think that the quiet conditions are going to last long.

Check out the daily chart of the Nasdaq futures from June 22nd, 2022 at market close below:

NQ
The Nasdaq futures are clinging to yearly lows, but based on the way they traded the past two quarters during the meat of earnings season, I’m betting on the index to continue following its downtrend.

 

Upcoming Earnings

This is because there is a long list of major catalysts on the docket, which are all primarily earnings and news-based.

Given the ongoing macroeconomic conditions, including record-high inflation, debilitating gas prices, supply chain shortages, and more, earnings reports are going to be more critical than ever.

In the bull market, it was a typical situation that we were accustomed to regular earnings beats, bullish moves into earnings season, trading tickers to the upside upon earnings reports, and betting on positive moves post-earnings.

That entire scenario is completely dead in the water, at this point. As we approach July, we’ve been through two critical earnings seasons already, and with most tickers, that has resulted in apathy pre-earnings, disappointment on earnings, and a regular winding down of position post-earnings as investors take into consideration weak guidance moving forward.  For these reasons, even though stocks may appear ‘cheap’ right now, that doesn’t mean that it’s time for them to go higher. I’m anticipating that the indexes continue to go lower into July and August, due to earnings season that is upcoming, and the results and particularly weak guidance we are likely to see.

On Wednesday, I stopped by The Exchange on CNBC to discuss this in more detail, along with several critical upcoming earnings reports in Darden Restaurants, KB Homes, and Accenture. Check out more on the action, the story, and the trade below!

Right now, it’s critical for investors to pay attention to the data as it relates to key companies that are reporting earnings because they are going to foreshadow what ends up happening as we get deeper into the core of earnings season. While I’m bearish on this market and I continue to look for more opportunities to get short, I’d be happy to be wrong on this, but I think Q2 earnings are just going to be another nail in the coffin of the Nasdaq. I don’t think the downside is done yet, and I think earnings are going to be the key place to focus our attention.

As for Darden, Accenture, and KB Homes, I’ll be highly anticipating their results as they’ll help me make further decisions as we get deeper into the season!

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