The Stars Are Aligning for Bulls as Earnings Season Starts and Trump Takes Office
Bullish optimism builds on a confluence of technical support and positive news flow.
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A mixed CPI report on Wednesday triggered the best market action in two months. Growing pessimism about inflationary pressures has weighed on bonds and kept pressure on equities. All it took was a small spark of positive news to reverse the oversold trend in many stocks.
The jump in the indexes helps to create some clear technical support at the lows that were hit on Monday. There is a gap area on the chart from Wednesday, but some consolidation and pullbacks at this point are healthy.
What is particularly positive is that this improvement in technical conditions occurs at the same time that Trump is taking office and earnings season starts. There is a good foundation for more upside if optimism builds about Trump’s economic policies and some good earnings reports.
So far, the early earnings results in the banking sector are quite good, and the financial sector ETF XLF is up almost 3% since the close on Tuesday. On Thursday morning, a good report from Taiwan Semiconductor TSM, the main supplier of chips to Apple AAPL, is pushing the Nasdaq 100 QQQ to another gap-up open.
In November, the market experienced a wave of economic optimism for a few weeks after Trump won the election. The question now is whether there will be another wave of optimism as Trump takes office and starts to implement the policies he has outlined. There is still a tremendous amount of uncertainty about what will happen, but the market tends to deal better with actual news that can be quantified rather than speculation that may reflect political bias.
As we move into earnings season, more individual stocks will move on their merits, which will reward astute stock picking. If the indexes hold support, then there should be very good conditions for active traders in the next couple of weeks.
At the time of publication, Rev Shark had no positions in any securities mentioned.
