The market got its first piece of good news from the banking missteps over the last two weeks, as North Carolina's First Citizens went garage-sale shopping in Silicon Valley this weekend.
This is the news the market is going to LOVE throughout the next couple of weeks - other banks coming in and buying assets, signaling that things are not as bad as they might have seemed...
What you need to look for is what they are buying, because when these banks are doing their business, they get to rifle through the books of companies like Silicon Valley Bank (SVB) as part of their discovery prior to purchase.
This is the market seeing the process continue to work itself out - and it's what will start to make investors start to feel warm and fuzzy again...
But this entire financial crisis is kind of like being at the beach when there's a shark in the water - you don't want to get in until there's a signal that everything's safe again.
This is the first of those moves suggesting that we can start to dip our toes in the water again.
The real test is going to be earnings season, which kicks off in about three weeks.
My suggestion to you right now is, don't take any large positions out in anything from the financial sector unless you are only trading it for a day or two.
We are heading into a period right now that I refer to as "pre-announcement season."
We talk about this every quarter, but it's almost, if not more, important than their actual earnings.
This is because it's an opportunity for companies to come out and adjust your expectations for what's coming down the line.
But, let's be honest, no company is going to come out and say, "I think we might fail," or, "It's likely we are going to miss our earnings expectations."
Why would they? They are using this opportunity to cushion the blow to their stock price when they do miss...
They are going to say things like, "We're running into some challenging environments right now," and, "We might not be able to keep on pace with the profitability we have seen in previous quarters."
You know, it'll be like parents taking their kid for ice cream to tell them they are not getting a puppy. Soften the blow with niceties.
This soft delivery - a recalibration, if you will - is to warn of an earnings number that could upset the market, something you don't want to do when there's a lot of hope out there that we could make it through this unscathed.
Poor earnings will almost certainly cause a huge pullback in the sector.
Remember in the 2008 financial crisis, we saw three separate drops in the financial sector - it wasn't just one and-done...
These bottoms take a long time to build before there is a true fundamental bottom. At that point, only the true white knights of the market are left standing - just like what we saw in Bitcoin from my article yesterday.
If you want to trade against my recommendation in this sector, the only place I'd consider are some of the regional banks, that is if you can handle that volatility.
If you can't - and, again, I wouldn't recommend even trying - I'm going to be covering this with my Night Traders over the next couple of days.
I'm going to show all of them how to break apart the financial sector, trade over the headlines without the risk, and make some money while they do it.
So if you want to see exactly how I'm trading it with my Night Traders, come join me at 3:30 p.m. ET the next couple of afternoons. You can secure your access by clicking right here.
The post Banks Buying Assets Signals Hope for Market Recovery, but Earnings Season is the Real Test appeared first on Penny Hawk.
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.