Countdown to Earnings After a Strong First Quarter
Editor's Note: TradeSmith offices, including Customer Service will be closed this Friday, Mar. 29, for Good Friday. Regular hours will resume on Monday, Apr. 1. Enjoy your long weekend!
The market will be closed tomorrow for the Good Friday holiday, so today is essentially the end of the month and first quarter. The S&P 500 has been on quite a run, extending December's gains by another 10%.
However, over the last few days unusual spikes higher (or lower) have hit the market just before the close. Is that an issue?
When stocks are up big at the end of the quarter, it's common for institutional investors to rebalance their portfolios, which can be disruptive to the market at the end of the trading session. Quarterly options traded by these same big investors are also expiring this week which contributes to the weird price movement.
So, although we usually lean towards the conservative side when trading is a little choppy - this week's price action is a normal reaction to a good quarter. The more important question is whether the bullish market will continue.
Historically, a strong first quarter has been correlated with additional gains through the end of the year, and the underlying fundamentals suggest this year is likely to be similar. Earnings data can help provide some backup to a bullish outlook even though the quarter hasn't ended officially.
Some companies report early, so we have already seen the most recent profit numbers from 29 stocks in the S&P 500. On average, those stocks are up 3% this month, which is great, but there have been a few issues.
For example, although Costco Wholesale Corp. (COST) reported growth year-over-year, the company still missed expectations when it reported on Mar. 7, and the stock dropped over 8% in two days (see the following chart).
The reaction to COST's earnings (and a few others this month) indicates that expectations are still pretty high, so earnings-related volatility is probably going to be an issue in April. We recommend maintaining a bullish bias but being ready to take profits off the table when they are available to avoid having volatility work against us.
In the video below, we walk you through what is happening on Wall Street and how each of the new trades we will have in the Predictive Alpha Prime portfolio will likely perform. (13:17 min. watch)
Each week, we will update you on our open trades, organized by their initial "target price" date.
To be clear, these trades are straight stock buys; we will not pursue any options trades in this service.
Predictive Alpha's unique A.I. system allows it to predict, with astonishing accuracy, where a security will move over the next month (or, to be more specific, the next 21 trading days).
Because this A.I. is so sensitive and updates its predictions every single day, a predicted target price may change from one day to the next.
We watch those changes carefully and will alert you when we think an exit is optimal.
We just added the recommendation on AMD to the list this week. Although NVDA has been dragging on the sector, we think the AMD target from Predictive Alpha is still likely because investors are going to want to rush back into anything with exposure to A.I. on any price dips.
John Jagerson & Wade Hansen Analysts, Predictive Alpha
P.S. For any questions or concerns, check out your brand-new Frequently Asked Questions page, which you can access here. Otherwise, reach out to or contact your Customer Concierge Team at 866-385-2076, support@tradesmith.com for general questions, or JohnandWade@tradesmith.com for service-specific questions Monday through Friday, 9:00 a.m. to 5:00 p.m. ET. Our dedicated team will be glad to assist you.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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