This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Chart Advisor: On Deck


Visit: Investopedia

Friday, October 23, 2020 Headlines

1.Money managers gearing up for post-earnings moves
2. Utilities sector surge shows caution
3. How the most influential stocks are positioned

Market Moves

Stock market indexes held within a tight range to end a week of declining volatility. One of the reasons for this could be that the heaviest week for corporate earnings reports is just ahead. Investment professionals rely heavily on news from companies’ quarterly statements to help them make strategic decisions about where to put their money. Once they have enough information, they execute a strategy.

The chart below shows how this played out just three months ago with some rather dramatic examples. Earnings season began last quarter early in July, but by the end of the month the majority of the S&P 500 and the Nasdaq 100 had reported. Notice how State Street’s S&P 500 index fund (SPY) and Invesco’s Nasdaq 100 fund (QQQ) began to rise significantly at the beginning of August. State Street’s Gold Trust ETF (GLD) and iShares’ 20-Year Treasury Bond ETF (TLT) also began to drift lower at the exact same time. This is an excellent example of how money can move from one asset class to another once investors begin to execute their chosen strategies.

[NEW READER SURVEY: We are running another two-week survey of our U.S.-based readers to gauge your sentiment as the election approaches. We’ll share the results, as always, and we thank you for your time and participation.]

Utilities Sector Surge Shows Caution

The mood of market participants right now is a bit less adventuresome than it was three months ago. The chart below shows a comparison of all of State Street’s Sector ETFs. The ones that should capture chart watchers’ attention right now are the two at the top. The thick dark purple line tracks the Utilities (XLU) sector while the thin purple line traces the Consumer Discretionary sector (XLY).

Utilities stocks have low volatility and typically pay nice dividends. These are considered to be defensive investments, and they tend to outperform the market when investors are uncertain. It is no surprise that investors feel uncertain now before the current election. However, the earnings reports that will be released next week will have to have enough good news to counter the general sentiment of caution being shown in the markets right now.

How The Most Influential Stocks Are Positioned

As investors and analysts pore through the details of the quarterly reports, they will be faced with a decision about when to act. The tipping point for most investors watching earnings announcements is usually the week when the FAANG stocks report. That’s next week.

The chart below shows how each of the most influential stocks in the Nasdaq 100 are positioned going into next week. Three of the four, Microsoft (MSFT), Apple (AAPL), and Amazon (AMZN) have drifted lower during the last week. One stock, Alphabet (GOOGL), has been riding the wave of news reports surrounding the U.S. election. This flurry of activity seems to be driving investors to the stock. Some believe that the additional traffic searching for various political news will translate into financial gain. Once Alphabet has reported its earnings, most companies in the benchmark indexes will have published their quarterly results, and investors will begin their moves. These charts don’t reflect a lot of optimism just yet.

The Bottom Line

With a new earnings season comes a new crop of investor decisions. Once the biggest companies have reported, the price action tends to trend in one direction or the other. The tipping point occurs when the most influential companies have reported. That will occur by next Friday this time around.

Originally Published on October 23, 2020

Disclosure: Investopedia The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with permission from Investopedia. The views expressed in this material are solely those of the author and/or Investopedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

trading top