For now much of the world’s attention is on the Olympic Winter Games. But traders’ attention will be commanded by the remainder of the earnings season over the next week and half. There have been some doozies over the last week or so. Meta Platforms (FB) the owner of Facebook and Instagram got rocked by Tik Tok, as eyes drifted and engagement waned for the social behemoth, taking a record $200 billion of market cap out of the stock in a single day. PayPal (PYPL) got whacked when its earnings, revenues and outlook disappointed leaving certain aggressive plans for a transformative change to the company in limbo. In addition, household products company Clorox (CLX) got its clocked cleaned by costs, margins and inflationary pressures.
There have been some bright spots in energy services and basic materials but it’s unlikely that these sectors lead the averages to new highs in the short and medium term, as they’re a small component of the indexes.
On the short side, highly indebted firms with decelerating earnings in a higher interest rate environment will struggle and so will their stock price. We screen for those companies and look for busted charts, where blowoffs or failed breakouts have occurred. In those charts we look for rallies back to important areas of upside resistance that fail and then set the short, while keeping stop loss orders above the resistance area in case we’re wrong. There is nothing abhorrent being wrong on a trade; it comes with the territory. What is wrong is staying wrong and watching a minor loss develop into a major loss. That is not only a portfolio killer, it’s an emotional drain that takes the trader/investor off their game.
In last week’s blog we spoke of our roadmap based on our master cycle and our expectation for a tradeable market high midmonth (S&P 500). Looking at various cycles that are showing harmony with the master cycle, we anticipate that markets should make a tradeable high on or about Wednesday the 16th of February (+/- 1 trading day), then turn down. Sometimes cycles have inversions and anticipated highs can come in as lows and vice versa. But we continue to anticipate a high in that time period.
Going further out in time, this is our thought at the moment. If the market holds up into the 16th, the master cycle points to a tradeable low at the end of the month which should come on or about Friday the 25th or Monday the 28th. According to our cycle work, this should be a tradeable low, but not THE low for the year. This potential low lines up with the last few years’ performance for the time period. One can see this pattern documented in the indispensable Stock Trader’s Almanac for 2022.
As stated before in recent blogs, we believe that 2022 will be a down year but, as always, there will be opportunity on both the long and short sides of the market.
Let’s see what happens. Trade well and stay safe.
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