How many times have you heard or read about how this quarter’s earnings are going to be remarkably strong and that will “prop up the market” or “help change the narrative” or “get stocks back on track”?
A couple thoughts here.
- Whenever you go into earnings season, it’s not just whether or not earnings are going to be “strong” but whether they’re going to be “stronger than expected.” Well, the more you hear about how strong earnings growth will be when companies start reporting next week and for the next six weeks, the more you know that earnings expectations are very high, which means it’s getting harder for companies to report stronger than those increasingly elevated expectations.
- Some earnings seasons, even when earnings are “stronger than expected,” you’ll still see the markets go down after companies report those stronger than expected earnings. Who knows why, but the theme of some earnings seasons that I’ve traded, lived and invested through over the decades is simply that most every stock gets hit no matter how strong their report.
So, I’m still not liking the near-term set-up here for the bulls. I still think that we should be mostly selling rallies and not buying dips. In fact, I’d considered buying some more puts on the major indexes to replace some of the puts we’ve recently sold to get my hedges increased here. But we still have more than half of the index puts I’d started buying right before the markets crashed and the more the markets fall, the more these things kick in.
Let’s remain cautious and a bit more defensive than we’ve been for the last seven years. Let’s not panic. Let’s not get greedy. Let’s be opportunistic if the action really gets ugly again here.