Let The Slaughter Begin

Q2 earnings season is upon us and I’ve made no bones about the fact that I expect things to get pretty ugly over the next few weeks. That said, with contradicting headlines on a daily basis we are facing a fairly volatile situation, and as such things will take a bit more finesse. Blindly shorting everything in sight is bound to get you wiped out quickly. Let’s review where we are and then talk about how we should approach this thing from an opportunistic trading perspective. We are evil speculators after all!

Given the Fed’s premise of trillions of dollars more in quantitative easing financials enjoyed a strong boost last week but are now dropping off as large players are rotating into tech stocks. What you are looking at above is a composite I call the ‘monsters of tech’ which is comprised of FB, MSFT, GOOGL, AAPL, and AMZN.

As you can see tech stocks have been gapping higher over the past week and continue to receive a strong bid. However that does not apply to the entire sector judging by the NDX breadth ratio I’ve posted above.

We’re pretty extended on that front pushing into 1.25 – however again – that said – note how significant corrections usually were preceded by at least some period of divergence.

Which in turn means we’ll have to be patient when it comes to shorting tech stocks. Instead let’s take a look at a much lower hanging fruit and of course I’m talking about the finance sector.

Canaries In The Coal Mine

And as it so happens Q2 earnings season is kicking off with some of its biggest players.

Here’s Bank Of America which is one of several finance symbols I consider the proverbial ‘canary in the coal mine’. It’s reporting today ahead of the open along with a few others listed below.

As you can see BAC was bid up strongly in the past two weeks producing a series of large gaps, however appetite seems to have faded quickly. Gee I wonder why.

The great vampire squid is looking pretty much identical and it’s also reporting this morning ahead of the open.

Schwab has not kept up with the rest of the sector but this is actually one I think may be a long candidate if it whether today’s storm. Reason being is that it also commands a large retail trading business and with millions out of work it’s expected to attract many new idealistic participants hoping to make a living ‘playing the market’. And nobody loves a bear market more than retail traders.

Citigroup is also distinctly lagging behind its sector and I expect the worst during this morning’s earnings announcement.

Ditto with PNC Financial – plus it’s still trading near the 100 mark. Plenty more meat on that bone.

USB has slept through many innovations over the past two decades – I should know as it’s one of my banks. Although it’s lagging right now I’m not sure it’ll be hit the hardest over the coming weeks and months as it mainly caters to a more wealthy audience. Definitely worth watching.

Las Vegas Sands is the odd casino out of course and this one is going to be extremely interesting. I’m split on this one to be honest – on one hand people are going to have a lot less money to throw around on spurious pleasures like gambling going forward, but on the other hand desperate people are known to do very stupid things.

Now here are a few candidates that report tomorrow:

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Shorting The Market Does Not Equal Pessimism

You may have come to the conclusion that I only expect doom and gloom moving forward and nothing could be further from the truth. In fact I believe that the U.S. will be end up as the big winner at the end of the COVID-19 epidemic with China as the biggest loser on a long term basis. It’s not going to be easy and there will be much suffering and economic hardship on the way.

But all that also spells plenty of opportunities for savvy individuals who have the necessary capital and the wherwithall to take advantage of the wild gyrations that lay ahead. If you think that describes you and would like to rise above the noise and all the confusion then waste no time and become a full member here at Evil Speculator.