Earnings Deluge Starts This Week

This week starts the big deluge of earnings releases, time for companies to step to the confessional, tell us about results and prospects for the remainder of the year. We’re all on pins/needles trying to figure out how the trend will unfold, but maybe the stock market has given us the best clue.

With the Dow Industrials, SPX 500 and the Russel 2K all up at new all time highs, the Nasdaq at/near multi-year highs, the hurdles are in place – but are high. Are earnings enough to propel the markets further? It’s going to be a challenge, especially with sentiment at high levels, the VIX under 14%, put/call ratios and market oscillators with bloated numbers. But, let’s remember we are in earnings season and while the markets will gyrate and even correct we are also in a low correlation environment. What does that mean? Simply put we’re in a ‘market of stocks’, rather than a stock market.

If you follow the JCJ, this is an index that compares correlation to stock movements to the index. Stocks will go up or down with the markets regardless of the situation or news. Simply put, the higher the level the more likely stock movements follow indices. A low JCJ says stocks will move on their own regardless of indices. So far we have a market of stocks that are doing extremely well, fair and poorly.

We have often seen the end of June kick of a summer rally. The historical reference is quite bullish at this seasonal point, highly likely after a bit of a drop that comes in May/June. We had some quick drops in those months but nothing too severe. Earnings during this time period has historically had a bullish bias through the end of August, where sellers tend to take over in early Fall. We’ll see if the calendar even matters.

The playing field is wide open for the next several weeks. The charts/technicals will be my guide for finding the best setups and high probability trades. The market deserves the respect and the benefit of the doubt regardless of the events – of which the Fed and Chairman Bernanke are front and center.

Disclosure: Bob Lang manages options newsletter www.explosiveoptions.net. For more information, click here.