Today is the first day of the second half of the most chaotic year in stock market history. If you can believe it, we still have six months to go.
And it could be just as wild.
I told investors at the beginning of June to expect the S&P 500 to surge to 3,200 by mid-July.
I was right on the level but wrong on the timing.
The index peaked at 3,232 on June 8 before falling nearly 6% on June 11, the worst single-day drop since the huge shakeout from late February into March.
The stock market has struggled to come back since then, and I think it will have an even tougher time going forward.
The reason I told investors to look out for mid-July is because that’s when the vast majority of second-quarter earnings reports will come to light. One of my colleagues, Banyan Hill Chartered Market Technician Chad Shoop, describes it as “by far one of the most important earnings seasons in the past decade.”
The reason this earnings season will be so important is because many corporations were able to fudge some of their nasty line items in March when it came time to report earnings in April.
They won’t be so lucky this time.
We’re going to see exactly how bad the post-pandemic stock market could get.
Expectations Will Be Low, but Will They Be Low Enough?
On one hand, everyone knows what I’m saying is true: results could be bad.
On the other hand, if everyone knows it, those expectations could already be priced in.
Wall Street tends to be forward looking, but this year has been especially news-driven. If the news is bad, it could create a negative feedback loop that sends the market into another correction.
My advice: expect nothing.
Don’t assume the market will keep marching higher just because it has been. Humans tends to be optimistic by nature, and we can’t let that bias influence our investments.
There is a strong possibility the July earnings results could send the market into another tailspin. But we can’t bet on it, either.
Several economists were betting on a market downturn every year of the last decade and they never got it right. The decade came and went and there was no downturn.
If you keep betting on stocks to fall, chances are others are expecting the same. I try to avoid crowds by principal because they’re rarely right.
I continue to hold a bearish bias. We’re in a recession, when stocks tend to do badly. But in an era of unprecedented government interference, all bets are off.
Fortunately, there are strategies that help you make money without senseless speculation.
The Best Earnings Strategy You’ve Never Heard Of
I’ve loved trading the post-pandemic stock market. I bought dirt cheap call options on Carnival Corp. (NYSE: CCL) and Delta Air Lines Inc. (NYSE: DAL) in late April and sold for gains of 746% and 948% in early June.
But I learned most of my trading tactics from the gentleman whose article I referenced above, Chad Shoop. And his earnings strategy is my favorite.
You see, most people think the right way to trade earnings is to speculate on whether you think the earnings will be good or bad.
That’s foolish. It’s like gambling. You have no way of knowing for sure without insider knowledge.
The right way to trade earnings is to actually wait until after the big announcement.
It sounds contrary to conventional wisdom. It is, and that’s why it works.
When certain stocks jump post-earnings, it can create a chain reaction where the momentum sends the stock even higher in the weeks to come.
My colleague has found a list of a few dozen stocks that do it consistently, each time they post earnings. He used this strategy to help folks uncover a 438% gain on Tesla Inc. (Nasdaq: TSLA) in four days back in February. With this strategy, he’s able to average at least one triple-digit winner (profits of 100% or more) every month, more or less, and he’s been doing it for nearly four years running.
If you want to see the best way to play earnings this month, check out this video I helped put together. It has all the market-beating details for you.
Regards,
Chris Cimorelli
Analyst, Money & Markets