Potholes abound.

Without question, this has been an odd earnings season full of potholes making for a very rough ride.  It began with the big banks beating estimates on both the top and bottom line but found sellers for the effort.  Unfortunately, that seems to have become a trend of this season as strong earnings reports continue to bring out the bears.  After the bell yesterday, we received a large number of strong reports, and once again the futures are pointing to a bullish open.  The question is will the positive open once again attract sellers?  A challenging environment to be certain.

The DIA, SPY and the QQQ are farther from the last swing highs of 4/17 and 4/18 then they are from the April lows.  The bounce yesterday was a nice relief, but with we remain under the 50-day averages the bears have the advantage, and any weak rally is therefore suspect.  Be very careful because the road ahead could be full of deep potholes.

On the Calendar

The Thursday Economic Calendar kicks off at 8:30 AM Eastern with the Durable Goods report.  Consensus expects an increase of 1.7% in March with ex-transportation up 0.5% and core goods rising 0.6%.  International Trade in Goods also out at 8:30 AM expects the deficit to narrow in March to $74.0 billion.  The one last 8:30 AM report today is the weekly Jobless Claims which consensus expects to come in at 230K as strong labor demand remains solid.  There are several other reports today as well at three bond events, but they are not expected to be market-moving.

A very busy day on the Earnings Calendar with 387 companies stepping up to report quarterly results.  Reports by in large continue to come in strong, but the trend this season appears to attract more sellers than the buyers after strong results.  Stay on your toes.

Action Plan

After Tuesday’s strong selloff the indexes managed to find a little buyers support, but bulls seemed to lack conviction.  At the end of the day, downtrends are still intact, and the DIA, SPY and QQQ’s remain under significant resistance levels.  Stocks that report strong earnings gap up at the open only to find sellers driving the price back down.  An odd and very challenging earnings season to trade.

As always the best defense is to say focused on price action and remain flexible.  Dow Futures are pointing to a slight gap up open this morning on the back of strong earnings reports.  The question is will that once again bring ou the sellers?  Tough call.  Currently, the Dow is over 950 points away from the swing high on 4/17 and about 700 points from the April low.  Stuck in the middle of the range I think anything is possible and traders have some very tough decisions to make.  Plan your risk carefully if you decide to trade and prepare for the possible intraday whipsaw that could reverse the market direction.

Trade Wisely,

Doug