Amidst Elevated Optimism And Record Margin Debt, Investor Reaction To 4Q Results From Top 6 Companies This Week And Next Telling

But support levels continue to generate buying interest, including a rising trend line from that low (Chart 2). Early this month, bids showed up at that level, which approximated horizontal support at 12430s, which goes back to September 2.

Immediately ahead, there is short-term support at 13000. In the right circumstances, the index (13366.40) can push toward the upper range of the short-term channel it is in. For that to happen, investors’ reaction function this week and next is key.

Of the top six US companies, Microsoft (MSFT) reports on Tuesday, Apple (AAPL), Tesla (TSLA) and Facebook (FB) on Wednesday, and Amazon (AMZN) and Alphabet (GOOG) on Tuesday next week. These are the heavy hitters not only within tech but the entire stock market (Chart 3). Combined, they account for 23.6 percent of (SPY) S&P 500 ETF and 44.5 percent of (QQQ) Invesco QQQ Trust.

How they act, and how markets react to their earnings, can reverberate through major equity indices. Bulls obviously do not want a repeat of the kind of reaction handed out to INTC and IBM last Friday.

The thing is, the 4Q revision trend for all these six companies have been higher over the last sixty days. As a matter of fact, except for AMZN, consensus estimates have trended higher over at least the last 90 days (Table 1).

This is more or less in line with how the overall revision trend evolved for S&P 500 companies. Estimates for both this year and last bottomed last July at $160.89 and $108.86 respectively (Chart 1). The only thing is that there is now a flattish look to it, particularly this year’s, which is obviously where markets are focused on. If estimates come through, earnings would have jumped 37.1 percent this year.

The question is if this is in the price.

Once again, stocks have had a phenomenal run since last March. The temptation to lock in gains is natural. In whatever selling pressure that has transpired, sellers in due course have been outnumbered by buyers, who continue to defend support, both short- and long-term.

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