Tom’s Weekly Newsletter February 15, 2023

Originally published via our newsletter previously. Subscribe for early access!

Mid-Point of Earnings Season and What Have we Seen?

One place I like to do some research regarding the overall big picture of how well companies are doing for an earnings season, (each quarter), is Fact Set, (www.factset.com).

As I research how things are going thus far in 2023 in regard to earnings I see a mostly flat or ho-hum earnings period going on right now.

We are basically half way through the number of companies of the S&P 500 having reported and this is what I read has happened.

Thus far 50% of the companies in the S&P 500 have reported actual results for Q4 2022.

 70% of these companies have reported actual EPS above estimates.

The report shows this is equal to the percentage of 70% from last week, but the number is below the 5-year average of 77% and below the 10-year average of 73%.

Disney is an example of what else one can expect from time to time when companies report earnings.  Forward looking expectations on earnings and revenue come out, but we also see companies initiating job cuts to try and help with future expectations and investor confidence and DIS is planning on cutting 7,000 jobs which should help their bottom line going forward.

Corners of the Market

SPY – SPDR S&P 500

We love this technical pattern and see it happen quite often: Old Resistance becomes New Support.

Where is that potential new support taking place?  It looks like 410.

Some keen observers may see the last two trading days forming a Bearish Harami (Japanese Candle) pattern.

We’ll give you the formation is there but realize where the formation happens is just as important as the formation itself.

Bearish Japanese Candle patterns are significant at resistance points not at support points.

That being said this formation may not impact nor foretell that price action is going to be bearish.

TLT – iShares 20+ Year Treasury Bond ETF

Last week a bullish perspective was offered on TLT by the fact we showed a potential long-term cup and handle pattern.

This week the need to temper that expectation feels necessary as the price action for TLT is not breaking out above that longer-term neckline.

Instead TLT is trading lower from that neckline.

Looking at that ascending support line from the recent Darknet B to S signal there doesn’t appear to be a recognizable pivot point that we can use as a potential support price level.

Does that mean if the security, in this case TLT, is going to retrace all the way down to the recent Darknet B pivot price?

We can’t say for sure, but it wouldn’t be a surprise.

UUP – Invesco DB US Dollar Index Bullish Fund

Here is another what we showed last week perspective and show the opposite view this week.

Last week we showed the chart from the first trade day of 2022 to present (at the time last week) and looks at possible further down in price support areas.

This week, seeing that UUP has trade up and broken above the descending resistance line, we will highlight possible price areas to the upside one can consider possible price targets / possible resistance price points.

Those are emphasized with the horizontal, orange-ish lines on the chart image above.

USO – United States Oil Fund, LP

I will have my annual special report coming out next week, if not sooner, which is education about the bullish seasonal pattern in Energy and Oil.  It will educate you all not already in the know about the time period of the pattern, fyi it is a 6-month pattern.

I always like to see a dip in pricing of the ETF’s and oil stocks themselves going in to this pattern.  I like to believe I am taking option positions on stocks that are a bit better or more of a bargain price than if they were already taking off.

USO is the ETF that I used in my research to make the point about the bullish pattern and I like that this hasn’t been in a raging uptrend.

And with the new Darknet B, Bullish signal showing up, I like the prospects of the pattern working out this year.

GLD – SPDR Gold Shares

From the Desk of a CMT – TGT Close-Out

It’s always a challenge to complete searches on Tuesday’s close that can’t be replicated until Thursday morning. TGT experienced a pop on Thursday that you may not have been able to execute.

It reached the profitable exit on Thursday before the close and is provided here. TGT still has a little room to move before it closes a gap from last May (209.13) or runs into resistance at the next Fibonacci level (187.85).

We looked at TGT based on short-term bullish behavior in a peer, COST. The following Fibonacci chart with simple moving averages (SMAs) and MACD (figure 1) had us ask if TGT could make a third move up to $180. Low implied volatility for short-term options led us to plain vanilla calls.

The risk chart below was scaled up to five contracts.

Here’s the case study from last week.

Entry: Buy to Open, 5 Feb 24 180 Call at $1.60/contract or $800

Exit:

• Sell for a gain: close case study with a move to $180 for Target
• Sell for loss: close case study with a close below $160
• By Monday, Feb 20th
• At max risk of $500 or if the call reached $0.60/contract

TGT opened on Thursday at $177.65 and closed at $181.02 (figure 3). The stock strengthened throughout the day and a closing  Selling with a move to $180 resulted in an exit Thursday for a gain of $1,600. An entry Thursday morning near the open would still have yielded a slight profit (approximately $400) if you are eligible for same day entry and exit.

Note despite MACD’s strength in figure 1, this unbounded momentum tool can continue to strengthen.

When a stock you’re viewing on a chart doesn’t look quite ready for a set-up that suits your style, do look at peer companies.

Where else may strength or weakness lie? Figure 4 displays a scan for the MACD bullish Cross Above Signal Line for the S&P 100 Optionable Stocks (Stocks à Stock Rankers à MACD). With just three names, consider running a bearish scan where you can find some peers that may be moving similarly.

Thank you,
Clare