Will earnings continue to support current valuations?

Third quarter earnings that began as a small creek will become a rushing river of reports for the next few weeks.  Remember it’s not the actual report that matters its how traders and investors react to the report that matters.  The market has been very bullish, and now it’s up to companies to prove that their earnings can support the current valuations.  Make sure to check reporting dates on everything you hold or are thinking of buying and prepare with a well thought out plan.

On the Calendar

The last full trading week of July will begin with PMI Composite Flash and Existing Home Sales on the Economic Calendar.  The PMI number is at 9:45 AM Eastern and is expected to slow for the 53.9 reading in June to around 53.2 in today’s reading.  Although slightly slowing anything above a 50 reading demonstrates growth.  The service sector continues to as the strongest growth sector.  Existing Home Sales came out at 10:00 AM and expected to continue on it modest trajectory higher.  However, the consensus number of 5.620 annualized units would show a soft spring in home sales.

There are 76 companies expected to report earnings today and will ramp up to nearly 500 on Thursday.  It is vital for every trader to check reporting dates for companies held and those under consideration for purchase.  Failure to do so could prove to be a very expensive lesson.  Don’t rely on luck!

Action Plan

The Bulls held and defended a key support level in the DIA rallying off the level right into the close of the day.  The SPY and QQQ’s remained strong and above supports although closing slightly lower.  The IWM that finally broke out last week left behind a possible Evening Star Pattern but maintained just above the key breakout support.  Futures were mostly down all evening and as I write this continue to point to a slightly lower open today.

After the impressive rally over the last 2-weeks, it would not be out of the question to see the market rest or even slightly pull back.  However, it’s very important that the Bulls continue to defend support levels.  Resistance breakouts are great but always remember that support is not support, until it’s tested and buyers step up to the plate and defend the price level.  I will be looking for new trades today, but I will need to see some bullish energy in the overall market before doing so.  RWO members Banked some nice gains last week.  Now the trick is to hold on to those gains.  As always be very choosy about the trade you take.  Quality is far more important than quantity.

Trade Wisely,

Doug