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Last week, during her semi-annual address, U.S. Federal Reserve Chair Janet Yellen told Congress that they see a tapering off of interest rate hikes for the year. Right after the news broke, the Dow gapped up to its all-time intraday high.
The question becomes whether the markets have run too high too fast – and if they have the stamina to sustain these prices.
Now many of the financial media pundits are making their own predictions…
But ultimately, only one industry will decide the fate of the markets.
And it decides tomorrow.
It's All About the Banks Next Week – Especially These Two…
Earnings season is upon us once again, with many banks reporting next week. And whether or not this market rally continues really lies in their hands. In fact, bank earnings can be the most significant drivers of stock prices, which is why next week is so important. That's also why researching how well stocks have done before and after earnings is absolutely critical.
Now, I always use my proprietary tools to run an analysis of how well stocks perform before and after earnings over the past four quarters, either by the best price moves or best change in implied volatility (IV). This allows for an average view that you can use to determine how stocks will respond to the latest earnings report. But you can also find this information on financial websites that track earnings.
And based on my data, there are two stocks in particular that you'll really want to keep a close eye on: Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS). Both of these companies are leaders in the financial sector and are the ones that can really set the tone for the markets when their earnings reports come out before the market opens on Tuesday, July 18.
Below are the tables for the best price change in their stocks over the four days prior to earnings announcements over the last four quarters. You can see that for both stocks, the column "Best Close Median Percent Change" shows a 50/50 split between positive and negative earnings results:
We'll need to see what comes out on Tuesday, and whether they report positive or negative earnings, to determine whether the market rally will continue.
Investors have the luxury of time when it comes to holding stocks through earnings season. But not so much for options traders.
So here's what you can do…
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.