What Will The Stock Market Do Around Earnings Season

The U.S. stock market has done well throughout the first half of January 2019. With earnings season just ahead and the stock market under its 200 day moving average, the high probability of a pullback/retest remains.

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Let’s determine the stock market’s most probable medium term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day.

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*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are blindly “guessing” the future.

January earnings season

Earnings season has started, and the S&P 500 is under its 200 day moving average.

  1. When the stock market crashes just before earnings season, it almost always rallies during earnings season, even if the earnings reports are bad. This was true even in the darkest hours of 2008. (Earnings report = trigger).
  2. When the stock market doesn’t crash just before earnings season (i.e. right now), the stock market can go up, down, or sideways on their earnings report (i.e. random outcome).

Here’s what happened next to the S&P 500 during the last 3 weeks of January (earnings season), while it is below its 200 dma.

*Data from 1950 – present

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As you can see, the stock market has a bearish tendency over the next 1 month. Perhaps stocks will fall after earnings season is over? We don’t focus on the short term.

Macro Context

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V-shaped recovery

The stock market’s recent rally has been rather incessant, with all the intraday dips being bought.

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11 of the past 13 days have seen the S&P close higher than the daily OPEN.

Here are similar cases, from 1962 – present

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