Whether you're in stocks, trading, or both, this is a market environment with a lot of "loose ends," to put it mildly.
Most of these loose ends relate to the headlines - or, to put a point on it, tweets - that are roiling the market every day, sometimes several times a day
Just as trade war fears had ebbed thanks to China seeming to take a "let's be friends" approach to the recent tariff saber-rattling, a new fear entered the fray: potential military action in Syria, with the even scarier potential of dragging Russia in.
But that, too, has calmed somewhat, as the administration walked back some of its more aggressive messaging.
And as a result, the big three indexes moved into mixed trading today, though as of this afternoon, they were still up for the week.
Elsewhere, Mark Zuckerberg's duels with the Congress and Senate are over (for now), but we still don't know the severity of the government's regulations on Facebook Inc. (Nasdaq: FB). And Amazon.com Inc. (Nasdaq: AMZN) has bounced back around 7% off its recent low - which tweets also caused. But it's still facing an uncertain future.
After all, the stock that put the "F" in "FANG stocks" is seemingly just another presidential tweet away from declining again.
The market is starving for a resolution of all this "headline risk," and as a result, even though we've seen some relative calming in the news cycle, we're still mired in uncertainty - the kind of uncertainty that makes for big swings.
And then there's earnings season, the reason I'm writing today...
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The Market Needs to See Big Earnings Beats All Around
Thanks to tax cuts, expectations are high. Analysts expect profit growth to top 18%, which would be the biggest jump in seven years.
Of course... to whom much is given, much is required. These strong expectations are a heavy burden. Failing to hit the mark, even by millimeters, could unleash some serious selling in this skittish market.
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And the VIX - the CBOE Volatility Index - isn't helping much even though it's still higher than last year's average. The pullback of a couple weeks ago could only get the VIX to hit 25 before settling back to the 20 level. This tepid action reflects neither fear nor complacency, which is characteristic of a market uncertain about its direction.
The bulls have support at the 200-day moving average on the S&P 500. The 200-day average marked the bottom during the February and March pullbacks.
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But a bearish trend is still looming, because the 50-day moving average is overhead and has rolled into a clear decline for the first time in 18 months. Furthermore, the difference between the two moving averages is shrinking rapidly. The 95-point difference is just a meager 3.5% move.
That's about where the S&P 500 is now, so clearly this level is in play. Traders will likely see a failure to close above this mark over the next week as a clear sell signal that will throw the market back toward its recent low.
With all of these forces in play, I'm taking a "wait and see" approach for my Seismic Profits Alert trade recommendations, and I think it's a smart idea for everyone to do likewise.
I'd rather keep some powder dry and let the battle play out so those recent juicy gains don't become a casualty.
Either way the market goes, I don't think anyone will have to wait long to pounce on profitable opportunities.
After all, earnings season - my very favorite time of year - is about to heat up.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.