Morning Market Thoughts

Good morning. The futures are pointing to a slightly higher open this morning, with the Nasdaq once again attracting the most buying. This entire week should be pretty busy, with several high-profile companies reporting earnings.

Netflix ($NFLX) reports today after the open. The stock is about 3.5% below its all-time high and has been consolidating since a high-volume breakout in April, which led to some nice gains. Holding a stock over earnings is always risky. Obviously, if you are holding the stock for longer than 3 months, it’s unavoidable. If that’s the case with NFLX, or any stock, always check your position size and unrealized profit. Cutting back on your position is rarely a bad idea.

Bank of America ($BAC) and Goldman Sachs ($GS) report tomorrow. Citigroup ($C) and JPMorgan ($JPM) reported Q2 results on Friday. Both closed lower. But if you look at the intraday charts of C/JPM, you’ll see that the selling occurred at the opening bell. From then on, buyers were soaking up the supply righ tinto the close. So if Bank of America or Goldman Sachs report disappointing earnings, they may provide you with a buying opportunity. I’ll discuss this tonight. By and large, the banking stocks have been under performing the S&P, though the charts look really solid. Most have been forming higher bases for the last few months. I would definitely be considering some in this sector as long they hold above the 200-day moving averages. While they’ve been under performing, they haven’t broken down. If they were living things rather than a reflection of buying and selling aggression, I’d say that they were “resting.” As it is, I’ll just say that there has been equilibrium in the degree of aggressiveness of buyers and sellers. At some point this will change, and I suspect the bulls will take control. We’re seeing this type of dynamic in various tech stocks.

Morgan Stanley ($MS) reports on Wednesday. Apply my comments on BAC and GS to MS. Same sector; same price pattern; same analysis.

On Thursday, Microsoft ($MSFT) and Skyworks ($SWKS) report earnings. Microsoft is up about 7% since its rebound off $68 a couple of weeks ago. It’s been strong, and I’m looking for an upside surprise. Why? Because I think that “WannaCry” ransom virus has resulted in a lot of upgrades to Windows 10. This is the type of thing that analysts tend to underestimate because, frankly, they don’t seem to be particularly good at understanding human psychology. The obvious extreme examples of this deficit are seen in the last two bubbles. Few analysts (or economists) saw them coming.

You might want to check out Weibo ($WB), Applied Optoelectronics ($AAOI) and Nvidia ($NVDA) this morning. All are trading higher and have some momentum. Alibaba ($BABA) is also continuing higher.

In a broader sense, note the number of solid setups in this market. Many stocks in diverse sectors are in nice uptrends, such as Boeing ($BA) and McDonald’s ($MCD). This reflects a very healthy environment. Energy stocks, driven by ongoing weakness in oil, continue to fall. Perhaps oil is done going down after printing a higher low last Monday. But it’s still just below its 50-day moving average and about 10% below the 200-day moving average. If crude can regain these two key indicators, the energy stocks should start climbing, which just adds fuel to the fire burning under the rest of the market.

Don’t forget that there are two sides to risk: the risk of taking a loss, and the risk of missing out on profits. If you aren’t profiting in strong markets, your losses in weak ones will hurt you badly.

See you in the forum.

–Dan

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