Stock Market Earnings Season Underway


Simpler Trading Team

Jul 19th 2022  .  6 min read

In this article:

  • Caution for overbought leading stocks
  • Bullish movement may not kill bear market
  • Track earnings season with proper tools

Stocks rushed out of the gate Tuesday and never looked back as all three major indexes closed higher heading into the heart of earnings season.

The blockbuster day was capped with Netflix (NFLX) reporting after hours with better than expected results.

The stock market has become a tightly-wound bundle of nervous energy as earnings season accelerates.

All it takes is a single headline to set off a turn in the market that quickly disrupts the current momentum.

Before the media prints the next big headline, traders can get a glimpse of what may lie ahead by reviewing the last earnings season.

Stock market earnings season heats up

Last earnings season the market was overbought with stock chart squeezes showing no definite direction.

Key stocks – retail, consumer discretionary, technology – then rallied into their 100 simple moving average before hitting strong resistance and heading steadily to the downside.

The second quarter earnings season has shown many key stocks and sectors exhibiting the same scenarios of overbought with no squeeze firing, until today.

Are the key stocks and sectors simply rallying into resistance once again?

The caution is that this rally may hit resistance sooner than later as the bear market trend hasn’t completely gone into hibernation.

The market seemed to take a sigh of relief on Tuesday, but is this just another short-lived relief rally where the next bad earnings headline will feed the bear market trend?

Simpler’s traders are watching technology earnings just around the corner.

Technology leading companies such as Apple and Meta (formerly Facebook) have signaled a slowdown in some hiring and spending. Apple is the largest public company in the U.S. and is arguably a canary in the coal mine that can affect the overall market.

Simpler’s traders are not confident second quarter earnings in the broader context will be strong because a variety of pressures, including a strong dollar, high transportation costs, supply chain shortages, rising pandemic concerns, and an ongoing European war could negatively impact earnings season leaders.

This may be in contrast to market performance on Wednesday, but Simpler’s traders are looking ahead based on what happened last quarter.

In the market today, the Dow closed at 31,827.05 points to spike 2.43% (adding 754.44 points on the day). The Nasdaq soared to 11,713.15 points for a 3.11% burst higher while the S&P 500 jumped 2.76% to 3,936.69 points.

While these rally numbers may have relieved some concerns among investors and traders, the next few days will determine whether this relief rally turns into a worry wall if stocks hit resistance.

The market is just a headline away from another burst of volatility.

Earnings at heart of volatile market phase

Traders are hoping the shadow of the first quarter earnings bust will not darken the skies ahead in the next few weeks.

During past bull market earnings seasons, traders could focus on bullish, upside moves into earnings reports that beat expectations, followed by positive price moves post-earnings.

These bullish expectations have been replaced with concern and caution as investors take into consideration weak guidance from companies moving forward.

While Netflix jumped higher following its second quarter earnings report after the market closed Wednesday, it had previously signaled a significant loss in subscribers was in play. The initial company guidance of possibly 2 million subscribers lost for the quarter dropped to 970,00. Netflix closed at 201.63 and pushed higher after hours to above 218.

As stated, this rally has been strong for the market which still has to take into account the ongoing macroeconomic conditions that include high inflation and relentless gas prices.

Second quarter earnings reports are at the heart of activity in this volatile phase of the market.

Target earnings for fast-action trades

Earnings reports for the second quarter are heating up with significant companies reporting this week and next.

The earnings reports range from big names in technology to retail to housing to lesser-known technology tickers.

Earnings plays are generally planned leading into the reports, but there can be opportunities for trading after earnings reports are released. It is important to target specific companies in the trading watchlist and take action when stock chart indicators show potential trades setting up for plays.

Traders can start to tighten their watchlist by first looking for outperforming market sectors and then individual stocks.

Follow earnings season phases

There are three phases traders should understand when trading earnings season.

Here are the key phases:

  • Before earnings
  • Earnings report
  • After earnings

Each phase has advantages and disadvantages for traders working toward the highest potential for a winning setup. While earnings season is still in play, traders can learn to follow all three phases and develop a profit-focused strategy.

Learn more about trading earnings season during this active time period.

Advantages of using stock chart indicators

Trading is simpler to talk about compared to taking action. There is always risk involved – and much of the experience traders need to develop requires trial and error.

Stock charting tools support developing this experience, but just because you have the latest indicator doesn’t guarantee success in trading. Tools must be used in the way they were designed to be effective, and often require a dose of experience mentioned above.

The goal of tools is to create an edge that other traders might miss, i.e. identifying a potential shift in the market ahead before others see it.

Consider the trading environment of today. When a news segment hits the airwaves or internet and the market reacts, traders are left to unscramble this reaction not knowing where the market will go. Or, “big news” has little effect and the market chops along and traders must work through this chop like any sudden shift in direction.

Indicators can be used to combine all the data following a news event, earnings report, etc., and let the trader follow price action on a chart. This leads to experiencing market action as traders gain an understanding of the data that reveals market movement.

Don’t trade alone against market forces

Trading requires learning skills and diligent research, and at Simpler Trading we understand the time commitment to trade well.

We started the Simpler Options online trading chat room years ago to help traders find out more about who we are in the world of trading.

Try this online training and trading community today and get access to pro-level traders with decades of real-time market experience.

Manage market risk day-by-day

Sudden moves in the short-term nature of this market can make it difficult to predict news, events, and market movement.

Traders are encouraged to work through this market day-by-day and manage risk at every turn.

The market is jittery so expect continued volatility ahead and manage trades according to a pre-established risk level.

Small Account Mastery John Carter