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This week, it's all about "TBTF" banks - as in, "too big to fizzle."
There's a lot riding on the financials, but I'm looking at pharma and healthcare, too, and I'll tell you why in a minute.
Fact is, this is one of the most important earnings seasons in recent memory, and investors are flat-out worried that it'll be one of the worst earnings seasons in recent memory.
JPMorgan Chase & Co. (NYSE: JPM) officially kicked off Q1 earnings season on Friday with a welcome revenue beat that nudged stocks gently upward for the day.
On the other hand, Bank of America Corp. (NYSE: BAC) reported a bumper crop of profits on Monday, but the shares slumped anyway because CFO Paul Donofrio voiced concerns about the slowing pace of interest rates - a big driver of bank profits.
Same deal with Goldman Sachs Group Inc. (NYSE: GS): It had a convincing earnings beat and a tasty dividend hike, but a drop in trading revenue sent the shares lower.
That shares didn't necessarily take off is a pretty good indicator of the worry out there in the streets. Freaked-out investors are punishing stocks for "sins" they might've forgiven two or three quarters back.
Me? I'm not sure it'll be the worst earnings season in years, but it's certainly going to be the one of most eventful.
Because, remember, it doesn't matter if a stock goes up or down on good or bad earnings. It just has to move...
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Positive Earnings Might Not Cut It This Week
Where the banks are concerned, there's a little more to it than hard numbers. Investors will be looking and listening for remarks from the banks' principals about the state of the wider economy.
Any - any - comments in the earnings releases and calls that address the financials' expectations for credit losses could be a market mover.
BOOM! Thirty-three stocks could explode on April 23, potentially creating monumental new wealth. Announcements can cause price explosions of 439%, 1,530%, and even 2,150% bigger than a normal "up" day in the markets. Learn how to get my earnings playbook here...
JPMorgan's comments on Friday, for instance, eased worries that we're on the brink of a recession. Comments from Bank of America's chief financial officer, Paul Donofrio, about slowing growth in interest rates, while not great news for the bank's profits, should give the markets confidence that monetary conditions will be easy for the foreseeable future.
But the trend here is downward, and since the trend is our friend, we should be on the lookout for short-side opportunities for the time being.
As I write this, UnitedHealth Group Inc. (NYSE: UNH) released an earnings beat and a raised forecast and still got clobbered to the tune of 3.6% as of midday after trading lower since late last week. I'm still not convinced we've got a compelling short here, though.
Pharmaceuticals make a much better short case, and I'll tell you why.
The sector is up 10%, which "feels" healthy, but the S&P 500 is looking at returns of 17% over the same period, which puts pharma's performance in a not-so-rosy light.
Among the sector's heavyweights, we've got haves... and have-nots.
One of the have-nots is Mylan NV (NASDAQ: MYL). The generic and specialty pharmaceutical company is registered in the the Netherlands and operates globally.
My screen is showing me a decidedly bearish signal as shares break down beneath their critical support at $27. My same proprietary system predicted an MYL plunge from $32 to $27, by the way, so I'm liking the odds for short profits.
I'm issuing a unique trade recommendation to my subscribers on Mylan (click here to learn how to get it), but anyone can short this stock - or the entire pharmaceutical sector as tracked by the SPDR S&P Pharmaceuticals ETF (NYSEArca: XPH). As for Mylan, I've got a target of $22, which would hand you a double-digit profit - or possibly much more if you leveraged it with a put option.
Quick - Get My Q1 Earnings Playbook BEFORE April 23
Hundreds of companies are set to report earnings in the coming weeks, but only one sector may be worth your time (and money). I've pinpointed exactly which stocks in that sector are the strongest - and the most likely to produce market-crushing returns - in the Q1 earnings playbook. Follow along, and you could be raking in $30,000 in the next 10 weeks. Learn how to claim your copy here.
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.