Here Come Earnings

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It’s hard to deny sentiment is building for a strong earnings season.

Depending on who you ask, profits are projected to rise more than 20 percent. While the estimates vary, direction is positive because all the research shows consensus figures climbing in recent weeks.

Energy is expected to have the biggest increase, not much of a surprise with crude oil (@CL) up more than 60 percent in the last year.

Technology, the market’s second-best performer over the long term, is is second on the rankings. Market Insights has frequently cited the growth stories in this area, especially cloud computing, streaming video and social media.

But there are a lot more stories and a lot more catalysts. One has been the surprising rebound in old-fashioned consumer names like Nike (NKE) and PepsiCo (PEP). Not long ago, investors worried both were losing customers. But then earnings came along and the stocks flew higher. In fact, plenty of others in the retail space also ripped on signs of turnarounds last quarter.

PepsiCo (PEP), showing volume and price surge after Tuesday’s strong earnings report.

What about the trade war, the bears may ask. There are a few ways to answer that. First, higher tariffs theoretically hurt the economy by discouraging investment. But that hasn’t happened because manufacturing indexes indicate investment’s rising and labor reports show steady employment gains.

Second, the media has beaten the “trade war” story to death since late March. So, even if it’s true, lots of smart people have had lots of time to crunch numbers and identify which companies are at risks. That means plenty of bad news is “priced in.”

Third, the impact of a trade war is mostly in the future. At worst it’s unclear and at best it’s imaginary. Earnings, on the other hand, are very real. And, they’ll be hard to ignore in about two weeks when more than 10 members of the S&P 500 per day are issuing numbers.

The big banks like Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC) get the ball rolling on Friday. Bank of America (BAC) and Netflix (NFLX) follow on Monday in the pre-market and post-market, respectively. Be sure to check Market Insights for more information on the agenda.

Finally, traders may want to recall the technical backdrop as the S&P 500 shows some potentially bullish signals. Yesterday it closed at its highest level since February 1. The index has also formed an ascending triangle, often considered a sign that the longer-term uptrend will resume.

The range has now squeezed down to about 80 points on the S&P 500, versus more than 200 points in between February and April. How long can it hold once quarterly results start flowing?

S&P 500 chart, with narrowing range.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.