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Earnings Season: Sell the Rumor, Buy the News?


Most market participants want to see how troubled areas, such as biotech and growth stocks, react to earnings.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

In the weeks leading up to earnings season, the market showed a lot of technical damage in the areas of biotechs and growth / momentum stocks. Then, earnings season began, and the market had a little bounce this week. If this continues, the market action will appear to be a case of sell the rumor and buy the news. Most market participants want to see how these troubled areas react to earnings. If these areas bounce and go higher, great. If not, well, not so great. As is usually the case on Wall Street (and with the Fed), most traders remain data-dependent.
Perception Matters
During every earnings season in history, some stocks have beaten expectations and some haven't. Before today's open, I was quoted in MarketWatch in "Heart of Earnings Season and the Easter Bull":

Since the bull market kicked off five years ago, we've had about 20 earnings seasons -- and Sarhan Capital's Adam Sarhan says he's "hard-pressed to find one or even two that people were excited about." And as he points out, the S&P 500 (INDEXSP:.INX) soared over 180% and hit a new record high during that time. A bit of a disconnect there? Maybe, but it's also telling us a lot about the state of the market these days. Sarhan says one of the hallmarks of a bull market is to see stocks rally on both bullish and bearish news. "At this point, the market is digesting last year's very strong advance, and the S&P 500 is less than 3% below its record high. That is very healthy action," he says.
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Click to enlarge

The Market Has Earned the Bullish Benefit of the Doubt
As I have said several times before on the Buzz & Banter and to clients, "I need to see more technical damage emerge before this bull market ends." Additionally, most bull markets end in euphoria, not fear. From where I'm sitting, I see more fear than euphoria.

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