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Monday, July 9, 2018

Stock Market's Next Move: Breakout?

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The stock market's had some volatility this year. But we might be just about through the rough part.

The chart to the left is the S&P 500 ETF SPY (NYSEARCA:SPY) and shows that since the low February 9th we've made higher lows. That's a bullish sign.

We're also only 1% away now from refilling the entire gap before the drop on February 2nd. In trader terms that's called the market's done a lot of work.

The market looks like it wants to go higher.

The Next Move

As we shrink those swings making higher lows approaching the flat line we drew in the chart the dips could get smaller and smaller. You see from the trend we have a good shot at going topside of that horizontal resistance line at about 280. That's a small move away for this market.

A close above it and investors would quickly swivel looking to more all-time highs once again.

The Stock Market's Done A Lot Of Work

Besides building back recovering all those losses made in early February the stock market has looked through more rate hikes and plenty of trade concerns.  That's a lot of negative news to rebound from.

Looking through all that negativity shows you how bullish this market really can be.

What's Driving This Strength

In a word, earnings are driving the stock market's underlying strength. Earnings were strong in Q1. S&P 500 Companies in Q1 had the fastest earnings growth since 2010 at 25% and the most upside surprises since at least 2008. The tech sector led those upside surprises.

For Q2 the earnings growth rate expectation, according to FactSet has crept up to 20% for the S&P 500.

Tech Stocks Leaders In Earnings Growth

Expectations for tech stocks are moving up for Q2 from 21% growth to now 25% growth. When analysts numbers move up it's usually a bullish sign.

We've said we're very bullish for tech stock earnings for Q2.

We want to listen to see if trade concerns might affect guidance for Q3 at all. Initially we think that the revenue acceleration from 2017 to Q1 to Q2 could offset any weakness making Q3 still show strong.

Conclusion

The market has shown incredible resilience and has the potential to break out. Earnings season just may be that catalyst.

Hitting Tech Stock Earnings Home Runs

Above we talked about our top down view. If you'd like to know about our bottoms-up work we have a free trial. We spoke to the top 60-70 tech companies over the last few months to identify what tech stocks have home run earnings stories. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

We're about to hit our prime time, earnings season.


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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

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