Daily Commentary: July 24, 2024

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Earnings Weigh On the Market

Posted by Pete Stolcers on July 24
www.oneoption.com

The first round of mega cap tech earnings sparked selling.

PRE-OPEN MARKET COMMENTS WEDNESDAY – The last leg of the market rally has come on light volume and that is a sign that the level of conviction at this level is low. It is not necessarily bearish, it just means we need to tread cautiously during major news events. Mega cap tech stocks have accounted for most of the S&P 500 rally this year and these earnings announcements will determine if the market pushes higher or if it will roll over.

For the last month I have been urging you to keep your swing trades to a minimum and to focus on day trading. When we are in cash, we can objectively evaluate price action and we are ready to pounce on opportunities instead of managing losing swing positions. I know it’s been hard to keep your activity to a minimum, but your discipline is about to pay off. Trading is about playing the odds and our risk/reward profile has been poor. The next week will be a very important “window” for the market and this is a critical inflection point.

Two earnings reports are not indicative of how all earnings reports will be received, but they do provide us with insight. TSLA showed us that future prospects are not enough to offset current underperformance and Google showed us that all business segments need to perform. Stocks are priced for perfection.

The drop today is going to challenge the low from last week. There is a major trendline that connects the low from October to the low from April. I consider that to be a major technical support level and if it is breached, it will be significant. The SPY is below AVWAPQ this morning. The 50-day MA is below the trendline and the 100-day MA is below that.

The price action today will provide important information. We still have lots of mega cap tech earnings next week and we have the FOMC statement. These are major events so try to stay objective today.

Big gaps down like the one today tend to stick and the chances of a down gap and go are higher near an all-time high. I would favor the short side today. Keep an eye on VXX. If it keeps drifting higher it is a bearish sign.

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