Q3 Earnings Season Begins

Now that Q2 books are… um… in the books, investors and traders will get a look at whether or not the rumors matched reality. Many have speculated that earnings will be strong – especially when compared with comps from a year ago.

Of course, the other key component to pay attention to is guidance. Investors are looking for keys about how well businesses are operating and whether or not there are any external factors (such as supply chain issues) that could affect revenues.

One of the key questions is whether or not news matches expectations. Has the market already priced in news? In which case, a change in the story could lead to a change in the price. So, what’s the story?

Largely, the story is about economic recovery and inflation. Is inflation transitory or not? Will the Fed raise interest rates? Will the worker shortage impact business? Will Washington change policy and blow something up?

When looking at the technicals, the market seems to be asking the question about what data to watch looking forward. Is the Fed going to shift policy? If so, that could really change things.

Also, how are earnings? No, really. How are they? Are they above expectation? Because the beginning of the year had a lot of opinions being thrown around about just how healthy (or unhealthy) the market recovery was. The S&P 500 had projected earnings – and a price multiple. In fact, forward-looking multiple was over 30 for the SPX. Is this still the case? And if so, where does the market go from here?

With the last few weeks of positive returns the SPX has crept into over-bought territory. A technical correction back towards 4260 would not be out-of-line. However, these types of strong upward trends tend to continue until some event sends traders headed in a different direction.

Given the positive nature of the trend, it appears the SPX is playing it by the big numbers until it gets more data. That means resistance at 4400 and support at 4300. When was the last time we got to say something like that?

Sure, there are some more technical support/resistance areas. But, goofy as it sounds, the 4300/4400 range (plus or minus a few points) is real.

For the week, futures show a weak opening with slight downward pressure. If the trend continues, look for weakness early, then buyers to come in the afternoon and push things higher.

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