foxex: Earnings Ahead

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, April 08, 2020

1. Energy sector surges as stocks push higher

2. Financial companies set to kick off earnings season

3. Johnson and Johnson rebounding strongly

Market Moves

Oil prices recovered strongly from yesterday's pullback, and energy sector stocks surged strongly higher. State Street's Energy Sector index ETF (XLE) closed higher by over six percent, outpacing the S&P 500 index (SPX) which also closed strongly higher. The index closed at its highest level in three weeks, and the CBOE Volatility index (VIX), following its inverse correlation, notched lower today as expected. This is a good thing for those hoping for higher prices because it means option sellers are not adding additional premium to their pricing.

Meanwhile, something interesting can be found in this chart showing a simple breakdown of stocks in the energy sector (see below). Refining companies such as Marathon Oil (MRO), and equipment companies such as Schlumberger (SLB) seem to be having a tougher time rebounding than the large integrated oil and gas companies such as Chevron (CVX). However, the iShares Global Clean Energy ETF (ICLN) shows signs that investors have not abandoned their ESG mandates. Such companies as those held by that fund might fare best if the energy sector rebound continues.

Financial Companies Set to Kick Off Earnings Season

Good Friday, April 10th, is a banking holiday in several countries and most stock markets will be closed. That means tomorrow is the last day of trading before earnings seasons begins in earnest. The first of the major companies to report will be J.P. Morgan Chase (JPM), on Monday, followed by Wells Fargo (WFC), Bank of America (BAC) and Johnson and Johnson (JNJ) on Tuesday, among others. The first two of these show an interesting double-bottom type of pattern on their charts (see below).

Analysts have their work cut out for them trying to guess how the balance sheets of these companies will be affected by the most recent quarter. What we know is that a lot of layoffs have happened, a lot of people are contemplating whether to figure out how to skip or delay a credit card or mortgage payment, and the U.S. government is sending out a bunch of checks. But don't forget that the reported results won't cover much of what happened in the last two weeks. Investors will instead be listening closely to the company officers' guidance, and there will likely be a significant gap up or down on the day following earnings reports.

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Johnson and Johnson Rebounding Strongly

On Tuesday, before the market opens Johnson and Johnson will report their most recent quarterly results. The stock is rebounding strongly on anticipation of a good quarter from various sales of home supplies. But its easy to over shoot expectations, and if the company offers cautious guidance, then the price could make a short pullback before heading higher. If so, an inverse head-and-shoulders pattern may appear on the chart (see below). This would hypothetically forecast the stock heading to a new high.

The Bottom Line

Stocks and oil prices continued their strong rallies, with energy sector stocks catching the best gains for the day. With earnings season just around the corner it is important for investors to look closely at any stocks in their portfolio where earnings are approaching. The first week of earnings is usually heavy with financial companies, but Johnson and Johnson will report early also adding to the market moving headlines.