Street Sense Daily

THIS Is Why the Market’s Ripping

The market is surging higher right now.

I’m using this trade strategy.

  • The ceasefire is barely holding.
  • The Strait of Hormuz isn’t open.
  • And inflation is inching up.

And yet, here’s the S&P 500 ETF Trust (NYSE: SPY), making new highs, as of April 15:

SPY chart multi-month, 1-day candles Source: StocksToTrade

The market is bullish right now because:

  • Sometimes it disconnects from reality. A poor economic environment doesn’t always translate to a down market.
  • Sometimes it reacts to future catalysts. The market will look ahead to rosier times after digesting the worst and most current news.
  • It’s earnings season right now, and big banks are still raking in cash.

To an outsider who doesn’t watch the market, the recent move from SPY looks like proof that everything’s broken.

Don’t worry, friends. There’s always an explanation for the market’s momentum.

And there’s always an angle to trade.

Earnings Winners

A lot of big banks are reporting record numbers:

  • Goldman Sachs Group Inc. (NYSE: GS) announced record trading revenue for the first quarter, helping it reach the second-highest quarterly revenue ever.
  • JPMorgan Chase & Co. (NYSE: JPM) beat Wall Street’s estimates for revenue and earnings per share.
  • Citigroup Inc. (NYSE: C) reported the highest quarterly revenue in a decade.
  • Bank of America Corporation (NYSE: BAC) announced its profits jumped 17% from a year ago.

No wonder the market is trading higher: its biggest beneficiaries are swimming in pools of money so big Scrooge McDuck would be envious.

A collaboration with ChatGPT

But it might surprise you to hear: I’m not looking to trade these bank moves.

Banks have dozens of catalysts that can move their share prices (aside from earnings). A single headline predicting pain could switch this bullish momentum.

I’m more interested in companies whose earnings play a larger role in their share price (and have less exposure to the macro story).

My Earnings Watch

I called a bounce on this stock as it walked out of the Warner Bros deal earlier this year…

The price spiked 31% as a result of the decision, from February into March. And today, April 16, after the market closes, the company will announce earnings.

NFLX chart multi-month, 1-day candles Source: StocksToTrade

This stock was already in the limelight this year, thanks to the bidding war with Paramount for Warner Bros.

The chart is still showing us a lot of good volatility.

Going into the earnings announcement this afternoon, it’s worth noting that NFLX has only missed its earnings expectations four times in the last five years. That’s an 80% beat rate.

But it’s far more important to understand:

  • An earnings beat could lead to a put trade.
  • An earnings miss could lead to a call trade.

That sounds contradictory.

But once again, traders who participate in the market will understand:

  • An earnings beat could cause the stock to gap up as algorithms react in after-hours trading. Then, in the next regular-trading session, the price retraces.
  • An earnings miss could cause an algorithm-driven selloff, leading to a rally in the next regular-trading session

You have to look at the earnings data AND identify a direction in the market. It’s not as easy as “buy the beat, sell the miss”.

NFLX is the stock to watch… Now we wait for the numbers.

Never Miss Another Options Trade

Stay Street Smart,
Jeff Zananiri

*Past performance does not indicate future results, Not typical.

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