Daily Commentary: April 24, 2024

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Earnings Season In Full Bloom

Posted by Pete Stolcers on April 24

Earnings season is kicking into high gear and we will start hearing from mega cap tech companies.

PRE-OPEN MARKET COMMENTS WEDNESDAY – I’ve been telling you to watch for a market bounce this week and to take gains on any shorts. We are getting it right now and short sellers will be passive ahead of major earnings releases. META will post after the close today. GOOG and MSFT will report after the close tomorrow.

TSLA reported earnings yesterday, but bad news was expected (that’s why the stock has been dropping). Unlike other car manufacturers, TSLA is a tech company. They are working on AI, automated driving, robots (Optimus) and an automated taxi service that will compete with Uber and Lyft. In 10 years, cars might not even be a primary revenue source for them. It could be a taxi service, robots, battery technology or something else. Their technology will keep a bid under the stock.

AI is the buzzword these days. Companies are investing heavily in it. We don’t know what the applications might be or how companies will monetize it. It’s a pretty safe bet that META, GOOG, MSFT, AMZN, AAPL and NVDA will lead the effort. Even if the earnings come in light, the prospects of AI will keep investors engaged. They do not want to miss “the next big thing”. No one has a pricing model for “the next big thing” because they don’t know what it will be. They only know it will be big. I’ve seen this a hundred times in my career. It took AMZN decades to become profitable and no one cared about the P/E.

First of all, I hope you took my advice to exit shorts on Monday. At very least, we are going to see a short squeeze and a rally to the 50-day MA. I still feel it’s possible that we make a new high for the year in the next month. I am not trading as if we will, but I am open to the idea. I will only know those odds after I see more of this bounce.

We took starter swing positions. I am expecting a fairly dull day today. We had a nice move higher yesterday and the market does not tend to make big back-to-back moves. If we do get a nice green candle today, I would consider it quite bullish. A more likely scenario is a dull day ahead of major news. If the market can close higher today, I would add to bullish swing trades. META earnings and the first look at Q1 GDP will spark an move overnight. I believe the reaction to META will be flat to higher. AI will keep a bid under the stock even if earnings only meet expectations. I don’t see this stock having more than a temporary dip… if that. I believe that the reaction to GDP will be flat to higher as well. If GDP declines, the notion will be that the Fed is going to cut rates sooner. If GDP comes in “hot”, it will signal solid economic growth and I don’t see the market declining on that news either. The biggest potential speedbump this week will come from the PCE deflator Friday. I believe it could be “hot”. However, earnings from GOOG and MSFT should soften that blow.

For these reasons, I like being long overnight. Here’s the bottom line. I don’t know how tall this bounce will be or how long it will last. I only know that it is worthy of starter long positions. The massive rally from November through March tells me that buyers have been aggressive. I view the selling in the last two weeks as a normal pullback in a bull market.

Here’s what I need to see during the bounce. I need to see the SPY attack the 50-day MA. No mixed overlapping candles with tiny bodies and light volume, we need to attack it with long green candles on heavy volume and we need to obliterate it this week. If we get that, I will be adding to long positions. That type of price action will tell me that we are going to challenge the all-time high. If we get a wimpy little bounce in the next week and the SPY struggles to get through the 50-day MA, I will NOT be adding to long positions and I will be looking to take gains on what I have. That type of price action would also get me more bearish. I would start looking for a lower high double top D1 and possible shorting opportunities in May.

Support is at $502.50 and resistance is at the 50-day MA.

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