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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Monday, April 13, 2020

1. Gold prices surge ahead of earnings in financial sector

2. Mobile phone companies in focus

3. Earnings setup: more upside potential

Market Moves

Gold prices closed 1.7% higher today, marking the highest price for the commodity in seven years. This move likely forecasts price increases in other asset classes and a decrease in the value of the dollar. That's good news for people who invest in stocks, and bad news for people who hide their cash in a proverbial mattress.

State Street's Gold Trust ETF (GLD) broke to new highs as gold mining stocks, for the most part, showed similar moves higher. The chart below compares this ETF with the four most prominently traded gold mining stocks including Barrick Gold Corporation (GOLD), Newmont Mining (NEM), Wheaton Precious Metals (WPM), and Royal Gold (RGLD).

U.S. stocks showed a mixed close with the S&P 500 index (SPX) closed one percent lower, though the Nasdaq 100 index (NDX) closed one percent higher. This demonstrates the conflicted convictions among investors and analysts about the upcoming earnings reports of several companies this week.

Mobile Phone Companies in Focus

Telecommunication companies aren't part of the early earnings cycle schedule, however the indications for rapid economic recovery will have a heavy impact on whether these companies will continue their recent upward trends or not. The anticipation of 5G technology and services will likely drive sales in these companies, if consumers aren't still physically, mentally, and financially sequestered.

The chart below compares the three major mobile phone companies since the big drop (from around February 20th). One of them has emerged with better performance than the other two. Comparing T-Mobile (TMUS), AT&T (T), and Verizon (VZ), shares, the last of these has nearly regained all that it lost since that time. Apparently investors like Verizon's chances to benefit from the coming summer's preparations to get ready for 5G technology. The company's reliable dividend doesn't hurt the shares' attractiveness right now either.

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Earnings Setup: More Upside Potential

When the market's open on Tuesday, JP Morgan Chase (JPM) will have announced to the world just how well, or poorly its business has fared in the past quarter. The information will have a big impact on investors expectations for the coming quarter. JPM shares typically make a two percent jump higher or lower after an earnings announcements. Options market makers are pricing in the possibility of a nearly ten-percent move this time around.

The chart below diagrams the trading volume on JPM since the beginning of the year, using a market profile indicator, which places the volume traded at each one-dollar price range in a horizontal bar on the left of the chart. The usefulness of this display is that traders can see where the highest trading volume has occurred over a given period of time. As of the beginning of the year, the volume has collected into two regions, one below $96 and the other above $138.

What this means to chart watchers is that if the news from JPM earnings is bad, then the share price will have to sell through a lot of people's positions in order to drop 10 percent lower. While this is by no means impossible, the volume-at-price indications suggests that it may be less likely to occur than a 10 percent jump if the earnings news is positive. Another way to size up the situation is to say that the path of least resistance is up.

The Bottom Line

Gold prices surged higher suggesting that investors fear the effects of nearly 10 trillion dollars in stimulus efforts being pushed at the markets. If the Fed and Congress are willing to generate that kind of spending, investors may fear that the U.S. dollar's purchasing power will be diluted. The move in gold prices suggests that at least some investors think buying gold is a way to hedge against that. The good news is that if their suspicion is realized, it also implies stocks will rally soon as well. An early indication of such an effect will likely be seen in the price action for JPM tomorrow.