Earnings Overshadowing Virus Story

Coronavirus remains the lead, but bulls around the world decided two consecutive days of fear was enough.  Likewise, the US major indices gapped higher and found a little follow-through on Tuesday.  The SPY closed up 1.05%, the DIA up 0.68%, and the QQQ up 1.54%.  None of these were new all-time highs, but the relief was palpable.  All 10 major sectors were up on the day and the VXX fell to 14.83.

Despite the market action on the day, the coronavirus remained the lead story overall. During the day there were many reports of new government travel advisories, airline flight cancellations and companies closing Chinese operations and/or evacuating staff.  In addition, there have now been confirmed human-to-human transmissions outside of China.  Meanwhile, the US has “fast tracked” a vaccine, but it will be at least three months before the early-stage clinical trials can even begin.

In other news, the defense completed their presentation in the Impeachment trial of President Trump and the Senate Majority Leader said he did not have the votes to block witnesses at this point. However, he has two more days to wrangle enough votes while Senators ask their questions. We should find out Friday whether the trial will continue.

On the earnings front, the most noteworthy was the AAPL report after the close.  It posted large beats on both top and bottom lines.  However, it did not skyrocket in after-hours reaction. Meanwhile, SBUX (which also beat expectations), became the first company to warn that the coronavirus may materially impact their fiscal 2020 results. So far this morning, BA reported a loss on the 737 Max debacle while MCD and GE posted beats.

Overnight, Asian markets are mixed, but mostly red.  In Europe, markets are green across the board at this point in the day.  As of 7:45 am, U.S. futures to a half percent gap higher on earnings news.

Wednesday’s major economic news is limited to the Dec. Pending Home Sales (10 am), Crude Oil Inventories (10:30 am), the FOMC Rate Decision (2 pm), and the FOMC Press Conference (2:30 pm).  There are too many major earnings, both before the open and after the close, to list here.  Needless to say, it will be a heavy earnings day.

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As mentioned yesterday, it’s going to be a long time before the coronavirus story is over.  However, in the grander scheme, and as SBUX proved last night, it’s really just an excuse for markets.  We have been rallying for months without breaking trend or even closing below the T-line until last Friday.  In short, the bears were long past due a little time in the sun.

Tuesday may just have been Mr. Market reminding the bears not to get too cocky about their new momentum.  It could also be that the bulls had just needed rest and earnings has now given them the new energy to take back control.  Since we don’t know which it was, use some caution before getting too far into either camp.

Look for opportunities, but hedge your risks, keep taking profits and move your stops to protect yourself. As always, above all, wait for the trade to come to you...plan your trade and trade your plan. Remember, it's the consistent base hits, not the occasional home run, that wins the pennant.

Ed

Swing Trade Ideas for your consideration and watchlist today: SHOP, PLAN, GE, CIEN, YNDX, CDAY, PLNT, VG, UTHR, NWL. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. The stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.

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