Since we are coming off a long weekend and given the fact that earning season won’t really start for another week, it’s a good bet that the market will remain pretty quiet today. This does not mean that there won’t be any volatility in the marketplace this week. The stock market is becoming a bit overbought on a short-term basis, so it’s not out of the question that we could see a bit of a pull-back before the earnings season really gets going.
This earnings season is going to be particularly interesting. When we get Q2 earnings results, they usually come after earnings have been lowered. As we all know, earnings consensus earnings estimates usually begin the year too high around the Street. Thus, they need to be lowered as we go through the year. Therefore, by the time companies beat their 2nd quarter earnings estimates, the stock market tends to give them little credit for the “beat”…because the companies have merely beaten lowered estimates. This time around, however, the estimates have been raised as we’ve moved through the first half of the year. They’ve gone from the mid-to-high $160’s on the S&P 500 for 2021 (in January) into the low $190s today (with some estimates pushing $200).
Of course, this now gives us a double-edged sword. If companies beat their estimates, they should be given more credit this time around and thus they should rally more than they usually do. However, now that expectations have been lifted so much, companies that miss (and especially those who provide disappointing guidance) could/should take it on the chin a bit more than usual. Therefore, this earnings season could be a very lively one!
There is one stock we’ll be watching very closely this week. It’s Amazon (AMZN). The new CEO has just taken over for Jeff Bezos and the stock has responded nicely over the past few days. This now has the stock testing the upper bounds of the sideways range it has been in for almost a year now! Therefore, if (repeat, IF) it can break above the top end of that range (at about $3,550) in any meaningful way, it’s going to be VERY bullish for the stock. Given how well other mega-cap tech stocks have been acting recently, it should be bullish for other names as well.
Having said this, we HAVE to wait to see if it actually breaks above this key resistance level. It seemed like a lock that it would breakout back in late-April/early-May, but instead, it rolled over and fell more than 10% over the next few weeks. Whenever a multi-month sideways range is broken in a stock, it is almost always followed by substantial move in the direction of the “break.” In this case, it should be followed by a big (further) rally, BUT we cannot say this until the breakout actually takes place!
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.