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Big Tech Earnings This Week Will Tell Us How Much Gas Is In the Tank

Posted by Pete Stolcers on January 25

Posted 9:30 AM ET – The market continues to push higher ahead of mega cap tech earnings and a likely $1.9 trillion stimulus bill. Facebook, Apple and Microsoft will report this week and many tech companies have benefited from the virus. People are staying home and they are using social media, cell phones and computers to communicate. Tech employees have been able to work from home during the crisis. Buyers typically stay engaged until the tech giants have reported. The printing presses are running and the Democrats control Congress and the White House making a stimulus bill very likely.

The Coronavirus continues to spread, but the positivity rates seem to have crested. There is a new mutation that is extremely contagious and the vaccines may not be as effective. Vaccinations are well underway, but the progress is slower than expected. Most analysts agree that the vaccinations won’t have a material impact on the spread of the Coronavirus until May.

Earnings season is ramping up and 20% of the S&P 500 companies will report this week. At a P/E of 40 perfection is priced in and investors are expecting a big economic rebound in Q1. Big banks have reported and in the majority of instances the reaction has been negative. Intel and IBM have had struggles unique to their respective companies, but they both traded lower and they both are in the tech sector. All boats rise with the tide and I believe that many other companies could have negative earnings reactions. I’m expecting good numbers from Apple, Microsoft and Facebook this week. Google and Amazon will report next week.

The market is addicted to easy money and a $1.9 trillion stimulus bill will add an incredible amount of liquidity to the system. I believe that this could spark a blow-off rally in the next two weeks. This sugar high could lead to a fast round of profit-taking.

Bullish sentiment is at record levels along with margin lending on a dollar basis. Option implied volatilities are at extremely low levels indicating complacency. This is typically when market corrections happen and risk is elevated.

Swing traders should be very cautious. We have three bullish put spreads that will expire this week and two bullish put spreads that expire a week from Friday. I don’t have any plans to sell additional spreads. After the tech giants report earnings, I want to see if the market is still able to tread water. The reactions to big tech earnings will reveal how much gas is left in the tank. We will also see how anxious politicians are to pass another $2 trillion stimulus plan on top of the $1 trillion stimulus plan was approved in December. Fundamental and technical metrics indicate that the market is extremely overbought and I won’t chase. We will patiently wait for a better opportunity to enter trades.

Day traders should expect volatile conditions. I am seeing nice shorting opportunities and it’s been a while since I could say that. I still favor the long side and clean energy, biotech and crypto stocks have been hot. The market will open flat today and we need to wait for direction. I will be looking for stocks with heavy volume and relative strength on technical breakouts. Heavy Buying, Bull Run and Relative Strength 30 will be my Option Stalker go to searches this morning.

Support is at $381and $382. Resistance is at $384 and $385.
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