Earnings Guidance will be Watched Closely
Joe Perry October 14, 2019 4:35 PM
Earnings guidance tells us what companies think their future financial “numbers” will look like
With Columbus Day today in the US and the US bond markets closed, many market participants have taken the day as a holiday. In addition, Canada is closed for Thanksgiving, Therefore, barring any dramatic tweets or headlines, this afternoon is likely to be a slow one for the US. However, it is the beginning of earnings season this week, and the most important number to watch for the markets will be earnings guidance. (For a preview of earnings season see HERE.) Earnings guidance is important for the markets because it tells us what companies, not outside analysts, think their future financial “numbers” will look like, including sales, spending, and economic outlook.
Banks are most likely to lower guidance due to unexpected lower interest rates (unexpected in a sense that at the last Fed meeting, members were discussing when to halt the “mid-cycle adjustment”). However, with most of the world in a global slowdown, earnings guidance from companies such as Boeing, Caterpillar, ExxonMobil, and Microsoft, will be heavily scrutinized. If earnings guidance is revised lower for many companies, it may pull stock indices lower.
The S&P 500 is trading less than 100 handles from its all-time highs. Despite putting in three higher days in a row, the index is currently trading an inside day and a doji candle, a sign of indecision. Technically, there is strong resistance above at the highs between 3020 and 3027. Below, there is a rising trendline near 2900, as well as, the rising 200 Day Moving Average just below. Price has been putting in higher highs and higher lows since August 6th (hence the rising trendline). The price pattern appears to be an ascending triangle, and theoretically, should break out to the upside.
Source: Tradingview, FOREX.com
However, IF earnings are guided lower, this may act as a catalyst to pull markets lower. And IF price breaks through the upward sloping trendline and the 200 Day Moving Average, the ascending triangle will be negated. On a weekly chart, we can see some of the downside targets that may be achieved:
Source: Tradingview, FOREX.com
There is horizontal support near 2720. Below that, we must look at Fibonacci retracement levels from the low on December 24th to the highs on July 29th for support. The 50% retracement of the move is 2680 and the 61.% retracement is bear 2600. Next level of support is the lows of December 24th at 2335.
Along with the obvious current themes of US-China trade wars and Brexit, earnings guidance must be watched as a catalyst for a move in stock indices. Just another thing to add to the radar, as traders need to be prepared for anything!!
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.