The Fed Knows When To Hold 'Em

It’s shaping up to be a fantastic earnings season...and the Fed was good enough not ruin it today by doing something unexpected and unnecessary. Chair Yellen & Friends kept interest rates unchanged and said that it will soon begin reducing its balance sheet. So the market had an open field to continue its climb amid a new round of mostly solid earnings reports.

“The bottom line is that the preponderance of positive surprises this earnings season, particularly on the revenues front, is reflecting a genuine improvement in underlying economic fundamentals,” said Zacks Top 10 Editor Sheraz Mian in his latest Earnings Trends article.

The Dow was the only one of the Big 3 that didn’t hit a new high yesterday, but a strong report from Boeing (NYSE:BA) changed its fortunes on Wednesday. The index jumped 0.45% to a new record of 21711. The S&P threatened to slip into negative territory in the final hour of trading, but ended up with a slight improvement of 0.03% to 2477.8. The NASDAQ continued its impressive march higher by advancing 0.16% to 6422.8. Of course, these two indices are at new highs as well.

In the portfolios, Momentum Trader cashed in two double-digit winners on Wednesday, while Options Trader banked one. The latter service also added a new spread. The highlights section below has the specifics on these moves and some analysis from other commentaries.

Today's Portfolio Highlights:

Momentum Trader: Dave doesn’t like that Micron (MU) slipped below $30 recently, and he’s tired of waiting for this stalled stock to get back into gear. He sold the remaining half of his original position on Wednesday while he could still get a nice 11.6% return. The first half was sold back on July 10th for a nearly 14% profit. By the way, the editor also sold half of CAI International (CAI) ahead of its earnings report for an even more impressive 30.4% return in just a little over two months. Learn more in the full write-up.

Options Trader: Earnings season can be very unpredictable. Case in point, shares of ManPowerGroup (MAN) dropped sharply after the company BEAT on both the top and bottom lines. Kevin still likes the stock and wouldn’t be surprised to see it recover after this nonsensical plunge, but he just doesn’t have enough time in his bull call spread to just wait around for the rebound. Therefore, the editor removed the spread on Wednesday and banked a 34% profit.

Meanwhile, Landstar (LSTR) is preparing to report after the close today, and its Earnings ESP of 2.27% suggests a good performance for the truckload carrier. This Zacks Rank #2 (Buy) has a VGM Score of A and is part of a space in the top 15% of the Zacks Industry Rank. Kevin decided to add a bull call spread in LSTR by buying to open an Oct. 90 Call AND selling to open an Oct. 95.00 Call. He would also add to the position if LSTR beats and sees a positive price reaction. Read the full write-up for more.

Reitmeister Trading Alert: "The Fed announcement Wednesday afternoon made perfect sense. They see a strengthening economy with no real risk of recession in sight. Therefore, they will soon move ahead on the slow and steady sale of their enormous balance sheet of bonds...

“On the earnings front what we see is two strong themes.

“1) International economies are on the rise. This shows up in the earnings of many of the multinationals like Boeing, Caterpillar (NYSE:CAT) and McDonalds.

“2) Technology leaders continue to impress. So much of the growth is landing in the hands of the FANG stocks. Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL) have all impressed so far. There is little doubt that Amazon (NASDAQ:AMZN) will do the same when their turn comes tomorrow." -- Steve Reitmeister

Zacks Counterstrike: "It's starting to feel somewhat euphoric, which can be a sign of a top. I just don't think we are there yet. Money is pointing in one direction so why try to fight or over think it. Long and strong is still the name of the game and the bulls remain very much in control.

"The Fed held rates today with a 9-0 vote. One thing of note from the statement. The Fed said that balance sheet normalization will begin relatively soon, which was revised from “this year”. This means, in my opinion, that they could start at any time." -- Jeremy Mullin

Until Tomorrow,
Jim Giaquinto

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