Patterns Setting Up for a Big Earnings Season

Patterns Setting Up for a Big Earnings Season

Patterns Setting Up for a Big Earnings Season

$SPY

Earnings season unofficially begins Friday at a Key time for stocks and traders remembering happened last time out.

Traders are thinking about April, when a 24% rise in corporate profits did little to lift a market that had just seen a 2nd selloff in as many months.

Today the S&P 500 is standing at a point where 3 previous rallies failed.

The Big Q: What happens if the July reporting season is another ho-hum?

The Big A: Enough has changed that a replay is unlikely.

Bulls should take heart, says Goldman Sachs’ David Kostin, the firm’s chief US  equity strategist, because whatever euphoria infected markets in the 1st part of the year has dissipated. Hedge fund clients who were aggressively positioned heading into April are more conservative now, with exposures sitting near the bottom of their 12-month range.

Going into Q-1 earnings season, it was peak optimism. Now we have exactly the opposite situation where that optimism has been converted to pessimism. As long as companies can hit those estimates, I think the market will reward not punishing them.

Fundamentally, Q-2 will look a lot like Q-1 as far as results go.

S&P 500 companies are forecast to report 20% growth up from a year ago and sales are likely to rise 8%, mirroring the prior frame, which was the best since Y 2011.

Technically, the S&P 500 has yet to prove it is able to overcome the Psych barrier where advances were rejected in February, March and June.

The 2,800 mark, which the S&P 500 surpassed in January for the 1st time ever, is again within reach just before banks unofficially kick off the earnings season Friday.

The benchmark index rose for a 4th day running Tuesday, climbing as high as 2,795.58, as traders brushed aside a trade war between the Us and China and pulled back a bit Wednesday to finish off 0.07% at 0.7% to 2774 well above Key support at 2751.20.

Valuations have become less of an issue since January, thanks to profit expansions and lower share prices. At current levels, the S&P 500 trades at 17.5X forecast earnings, matching the average over the past 5 years.

Analysts predict double-digit income growth in Y;s 2019 and 2020 too, with estimates holding steady since the last reporting season. If those long-term forecasts are true, the market looks cheaper going forwards.

Using next year’s projections of 176/share, the S&P 500’s price-earnings ratio falls to 15.9X or cheap.

I believe that earnings will be good enough to blow through 2800, how far past is unclear. But come 16 August we will mark the longest Bull Market in history at started on 9 March 2009

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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