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What Will Earnings, Oil's Next Turn Reveal About State of the World?

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April 7, 2015

Early stock action is choppy as participants have to dig deep to follow up a respectable Monday advance absent a ton of fresh data due today and with the next earnings reporting round queued up beginning with Alcoa’s (AA) Wednesday release. Stocks also largely took their cues from a 6% crude price rally on Monday, a potentially fleeting factor distracting stock investors who are trying to sum up the wider-lens earnings and interest-rate picture.

And of course, Monday marked the full market’s first chance to react to a soggy March jobs report. It was another case of “bad news” is “good news” for those stock bulls who believe the next leg up for Wall Street hinges largely on a benevolent Federal Reserve. It’s not yet clear if the job-report miss shoved back an eventual interest-rate hike to later this year, but at least one Fed voice led the stock market to believe just that.  New York Fed President William Dudley reiterated on Monday that any decision to hike rates will be data dependent. Does that mean that every piece of undercooked data makes a strong dovish case? Tuesday does offer the once little known and now quite popular job openings report that’s a favorite of the Fed’s Janet Yellen.  For now, all this fundamental fuzziness has the S&P 500 (SPX) spinning in a familiar range between major support at 2051 and a psychologically significant 2100 (figure 1).

FIGURE 1: SIGNIFICANT RANGE. The S&P 500 (SPX), so far held between 2051 and 2100 over recent volatile sessions, rallied even after a weaker-than-expected March employment report. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Goldman View on Oil. Goldman Sachs analysts accompanied a seven-week high for crude prices Monday with a sobering report suggesting we still have months of low oil prices ahead of us. The analysts did note that a decline in U.S. rig count has been faster than expected but that reduction is still not enough to change the course of the oil market.  “It remains insufficient in our view to balance the U.S. market in 2016,” they said. “Prices need to stay low for longer to achieve a sufficient and sustainable slowdown in U.S. production growth.” Goldman Sachs has forecast that crude oil will trade around $40 a barrel over the next three months but says there is some upside risk to that target.

“A” Grade for Alcoa? Alcoa (AA) could mean more than just a quarter’s worth of data for the stock market; it could continue to offer intelligence on the global economy and its hunger for aluminum. AA reports after the bell Wednesday, launching what some industry analysts expect to be the weakest overall earnings-reporting season for S&P 500 companies in at least 2 ½ years. A stronger dollar and weak growth abroad have been fingered as the primary culprits. Investors will be watching to see if Alcoa remains as upbeat on the outlook for global aluminum demand as it was three months ago, even as prices have continued to fall.

Weeklys® Workout. Earnings season (as just mentioned, Alcoa “officially” unofficially kicks off the next round Wednesday) takes discipline from stock traders who dance between taking advantage of “news” while maintaining long-term risk management practices. Striking this balance is behind the rise in demand for Weeklys® or options that expire in roughly one week. They force, in a good way, action because of their short expiration. Some traders play for an event that just doesn’t go their way but they often then justify waiting out a potential turn in their favor until regular monthly options expiration. On a losing trade, this simply means a slow, painful death. Weeklys® has been worth a deeper look for traders who like options but have had trouble cutting bait when they need to.  Read our recent article on why Weeklys options trading is on the rise, including how to listen in this week to learn more.

Good trading,

JJ


@TDAJJKinahan

NC
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