Mark Calendars As Third Quarter Earnings Get Dicey

Estimate-beating third quarter earnings reports delivered a welcome boost to the stock market at the start of Tuesday trading.

Wall Street opened to a raft of positive earnings reports, including Goldman Sachs Group, Inc. (GS), Bank of America (BAC), Johnson & Johnson (JNJ), and United Airlines (UAL).

Traders jumped on the surge as buying buoyed the three major indexes and continued the Monday rally higher.

And then the market faltered.

Mark trading calendars for dicey third quarter earnings

After spiking across the board, the stock market lost more than half its early gains by midday.

Positive response to earnings reports and a boost in U.S. manufacturing output were weakened by additional reports of lowered guidance in retail company Conn’s, Inc. (CONN) and Microsoft, Inc. (MSFT) planning a 1% workforce reduction.

The stock market regained some strength heading into the afternoon with all three indexes showing gains of near 1% or better.

Traders should expect more fast-swinging days like this with the opening hour – bad or good – where momentum may not hold through the session close.

Experienced traders warn that just one bad earnings report could lead to a significant drop in the market. They recommend that traders pay close attention to how the market reacts to earnings reports, including Netflix, Inc. (NFLX), which is scheduled to report after the close.

Traders should mark the hot third-quarter earnings reports on their calendars, including ASML Holding NV (ASML), Tesla, Inc. (TSLA), and Lam Research Corp. (LRCX) on Wednesday, and Snap, Inc. (SNAP) on Friday after the bell. With over 150 companies expected to report this kickoff week in earnings season, traders should be open-minded and cautious as the market experiences large rallies and reversals.

Here at Simpler Trading, were focused on internal market signals and staying on top of ever-changing stock chart analysis of the S&P 500. He is eyeing targets in the zone below structure at $3,639 and the overall structure from recent highs around the daily 21-day exponential moving average at $3,722.

Moves in this direction can get dicey for traders.

Two key levels to the downside, according to Simpler Trading, are the previous low of the year at $3,571 and the new low of the year at $3,502 (set last week after the U.S. Consumer Price Index report). If the E-mini S&P 500 (ES) breaks $3,502, Simpler Trading’s major downside target is the pre-pandemic high at $3,397.