In my article last week, I made the case that the market reward-to-risk has shifted to the upside and that 3740 on the S&P looked like it had strong support on any pullback. As you can see in the chart below, that level was indeed challenged on Thursday and held like a champ.
Of course, in this volatile market, things can change on a dime, and we could see stocks pull back right away. However, as you can see in the chart below, the VIX, which broadly measures fear, has fallen sharply. It could move even lower — especially if it pierces its 200 day moving average — if we see followthrough buying come Monday.
The strong end to the week came in spite of horrific inflation numbers that we haven’t seen for many decades and with non-stop talk about the Fed’s aggressive rate-raising campaign. And it comes right as earnings season kicks into high gear, with thousands of companies getting ready to report their numbers over the next several weeks.
There’s been a lot of talk lately that the market has not factored in higher interest rates, the possibility of a recession, anything you can think of that might be bearish. But then we got Citigroup’s numbers on Friday with the stock soaring 13%, possibly saving the banking sector and perhaps the market as well.
Is it possible that the S&P hit its bottom, as our Chief Market Strategist Tom Bowley declared (The “Bowley Bottom”) when it touched 3636 on June 17? It’s possible. And, if collective earnings turn out to be stronger than most are anticipating, we could be in for a decent rally.
In fact, Tom will be conducting a very timely webinar this Monday, June 18, “Q2 Earnings: Sneak Preview” where he will share his thoughts on what to expect, including some specific companies that are likely to beat or miss earnings expectations. It’s a FREE event and if you want to learn more and save a seat, just click here.
The one thing I can guarantee you is that this earnings season will NOT be dull! But if overall numbers do come out better than expected, especially on the forecast side, we could be in for a sustained, profitable rally.
At your service,
John Hopkins
EarningsBeats.com