Bulls Brush Off Pullback Heading Into Earnings

2021-01-26

Market chop was heavy again during the Tuesday session as traders await a host of corporate earnings reports starting this week.

Early selling gave way to the market grinding higher before all three major indexes lost their footing and sold into the close to finish just in the negative

Indexes ended virtually flat with the Dow closing at 30,937.04 points to fall .07% (dropping 22.96 points on the day). The Nasdaq dropped to 13,626.06 points for a .07% slip while the S&P 500 stumbled .15% to 3,849.62 points.

The wild ride so far this week hasn’t broken the bull’s back, so we’re watching for more long opportunities. Expectations are the market holds this direction without a significant event to change market direction and momentum.

Short-lived selling and pullbacks are part of this market environment that has maintained a bullish trend for months.

Simpler’s traders continue working opportunities to execute moves to the long side. Traders would be prudent to maintain conservative positions in the trend. Our traders acknowledge they must “take some heat” with bullish setups and be prepared for any sudden opposition to this plan.

The market appears to be setting up for an interesting week with the prospect of Big Tech companies’ earnings, the Fed meeting Wednesday, and more earnings reports to follow across the board. Key tickers reporting after the close Tuesday were AMD, MSFT, and SBUX.

This unsteady market may not be the right cup of tea for some traders. Caution is warranted for anyone testing the short side or letting position size outpace risk tolerance to the long side.

Patience to sit out the immediate volatility may be prudent while watching the market work out expectations of continuing with the larger, bullish directional bias.

More pullbacks like the start of this week can be expected in a market which has shown it has room to retreat while still barreling ahead. Still, Simpler’s traders are also watching how the market is extended.

As long as the bullish pattern holds the plan is to play the trend to the buy side.

We Saw: Market antsy and dancing into array of earnings reports — 

  • Politicians putting exercising economic power plays
  • GameStop spike continues
  • After-hours earnings anticipations affecting expectations

We’re Watching: A field of earnings reports blooming —

  • Can Big Tech earnings spur on the market surge?
  • Validity of any position to the short side
  • Setups relative to the power of the FAANG stocks