7 – 20% CORRECTION IF EARNINGS DO NOT MEET LOFTY EXPECTATIONS

Earnings

Please click here for a chart of  Tesla ().

Note the following:

  • The Morning Capsule is about the big picture and not about an individual stock. The purpose of the Tesla chart is not to talk about  but to illustrate the big picture.
  • Tesla reported earnings better than the consensus and better than the whisper numbers.
  • Tesla had its strongest order booking in the company’s history during the first quarter.  This is remarkable because the first quarter is usually weak.
  • TSLA made more money from bitcoin and selling regulatory credits than selling cars.   TSLA had a pre-tax income of $533 million.  The income includes $101 million gain from selling bitcoin and $518 million regulatory credit.  If these two items were taken TSLA would have had a $86 million loss.
  • The chart shows when the earnings were reported.
  • The chart shows that after the earnings report the stock fell modestly.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator has been mixed since the earnings report.
  • If TSLA had reported the same earnings any time in the past, based on historical data, the stock would have rocketed and the VUD indicator would have been solid green.  This indicates that as the market has risen to lofty levels, the momo crowd is exercising less control over the market.  This is of concern because the momo crowd has been running up the market.
  • So far, four out of five companies have reported better than expected earnings.  Yet the market is not rocketing up.
  • As the earnings season progresses, if earnings are less than expectations, the setup right now is such that it can easily lead to a 7 – 20% correction.
  • Investors should remember that earnings are only one of the factors. The liquidity generated by money and excessive borrowing is still here to drive stocks higher irrespective of the earnings.
  • Until more earnings are released and technically the market breaks out, investors should be careful especially with any new buying. Please pay attention to the ‘ Protection Bands and What To Do Now?’ below.

Fed Meeting

The Fed meeting starts today.

Copper

We have previously written about Dr. Copper as a barometer of economic activity especially in China and other emerging markets. Copper is showing significant strength.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial)  stocks in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up and bonds are ticking down.

The dollar is  stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1764, silver futures are at $26.34, and oil futures are $62.60.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are down 28 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, on dips, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades and short to medium-term hedges of 🔒 and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

This post was just published on ZYX Buy Change Alert.

 

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