Stock Uncertainty Fuels Volatility as Technicals Support Breakouts

A full week of earnings has been digested, while the major indices remain in an arguable range bound pattern.

A full week of earnings has been digested before the open of this week’s trading and though the major indices remain in an arguable range bound pattern we always look at the bigger picture with technicals continue to support upward trends and breakout cases as the small and mid-caps outperform with the IWM (Russell 2000) hitting all-time highs.

This earnings season will be sector specific as there as many more headwinds than normal going forwards. First we have to keep in mind that the Euro had its worst quarter…ever. We have already seen some trickle effects that started at the end of last earnings season as major multi-national giants such as IBM, MSFT and CAT still have a hangover from the powerful move in the Dollar so we now have to watch how other big companies were affected with big currency exposure in Europe and Asia as we know most will disappoint but it’ a case of how bad the news is taken.

Also keeping in mind how the poor weather throughout most of the US during the winter will affect retailers which in turn always reflects consumer spending. With the uncertainty to see how and if companies adjusted to wild currency changes, this naturally leads to more uncertainty. With that said many questions remain at these levels and for sure the Dollar, the Industrials and with crude oil being its highest of 2015, it is pertinent to see how companies not only react on that particular day (one day doesn’t reverse or make a trend) but the price action and confirmation in subsequent days. One last thought or reminder as most know and this is from a big sample for those believers….April has been the best month for the Dow going back 50 plus years with the second half of the month being particularly stronger. By no means am I suggesting to take a positon in the DIA at these levels.

Going back to last month and leading up to today, our traders had seen increased volatility as well and from an intra-day and swing trade perspective, out traders had their best month ever and that was because of the increased volatility and risk-management (no holding losers and NOT adding to losers). At the end of March and going back to the middle of February, the S&P hadn’t had back-to-back winning days in 28 trading sessions and most were triple digit moves during that span and no doubt that the end of the quarter rebalancing contributed.


Trading the markets is a situational game and the best traders not only have a long memory but know how to react, quicker and more concisely, when and if that same news needs to be disseminated. The Fed spooked the markets when they dropped some hints that they might raise rates sooner (July) than later and yes, that spooked the markets but that seems in the rear view mirror for now as, in hindsight, the dip in the markets seemed to be more institutions rotating money around and that was evident when the market leaders, bio’s and tech, getting hit the most.

We are we now?

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First of all, as I say almost every day the markets are “bigger” than us and these are times when we are doing things that have never been seen (i.e. indices at highs, historically low interest rates both domestic and abroad, a move in the $ that hasn’t been made in 30 years and the historic correction in crude oil) and I say this, even to myself, is that one must put the ego aside. European are indices trading at all time highs, the Shanghai is parabolic as retail investors there abandon gold for stocks and with the ever so sensitive geo-political arena, our traders are watching the overnight moves in the S&P futures and how they react and why.

First trading day of April, the Dow was down over 200 points, after being very weak day before, and the Futures were down over 25 handles after the close after a broad sell-off but the next day, the second day of the quarter, the Futures were unchanged by the open and haven’t looked back since. More than ever, and they should need no excuse, we are watching the close of European trading. But we are traders so I will remind everyone that one month, April, is not really a good indicator of anything only if you play the markets one month out of the year.

Personally I believe that interest rates and corporate earnings drive the markets and that was not learned from an economic/financial education. Everything went out the window there when I put on my first position 20 years ago ( 100 shares HAL short….winner. I was hooked on contra-trading from the beginning) so very simply put, I watch to see how stocks react to futures moves and during earnings season, how futures respond to stock news. Couple of examples recently to make my point. JPM beat results and shares have rallied but WFC announced a rare decline in profits…to paraphrase. JPM continued to go higher, on a gap up earnings day from $62-$65…good move for JPM. WFC, on that same day, could’ve been at the mercy of the shorts, was down $1 on day at some point but the “street” if you will, and decided that JPMs good earnings should be taken more positively than WFC miss as WFC is now higher than its earnings release.

INTC reported yesterday and most, myself included, strongly believed that was a stock in trouble and in some other markets, would be a short after reporting those numbers but the street to INTC up over 4.5% on the day and few would argue that was mostly short covering. Going forwards, we are looking at how stocks react. Are the moves in weaker stocks more dramatic on the upside as the markets rallies? Are stocks like NFLX and GS getting heavy as they hit all-time highs complimented with the indices making all-time highs.

The IPO market is starting to heat up again with two big ones coming to market today in ETSY and VIRT, which many think, like last year, that the rise in IPO’s is the top in the market. I beg to differ but I do trade them.

Stocks we are trading at TradeView Markets:
Refiners: TSO-VLO-MPC
Chinese Stocks:BIDU-CHL-BABA-YY

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