The Peek A Boo Needs Follow Through

It’s a Bull Market and as I mentioned last week with my tactical model aligns with being opportunistic.

So, I gave the people what they want. I sent out a special report A Chart Bonanza highlighting 50+ setups on an individual stock level I believe are worth keeping an eye on.

But here comes the wrinkle….Earnings.

Earnings season has kicked off, and so far, we’ve seen positive reactions, with the S&P 500 climbing to all-time highs on Thursday.

However, there was no follow-through on Friday, as the market waits for earnings from the heavy hitters.

The Magnificent 7, the names driving this market, begin reporting Q4 earnings next week. With five of the seven set to report, representing a massive 22% of the S&P 500, it’s not something you can ignore.

I’m not here to speculate or predict the future on earnings or stock reactions.

Because, trust me, EVERYONE will have the perfect explanation AFTER the fact.

Stock goes up after earnings? “It was great earnings.”
Stock goes down? “It was bad earnings.”

Technicians are guilty of the same:
Stock goes up? “It was in an uptrend, of course it resolved higher.”
Stock goes down? “It was extended; earnings were a good time to take profits.”

You’ll hear it all next week, and I’ll take a gentleman’s bet that’s exactly how it plays out on cable television.

For me, the only value-add is knowing your risk management levels heading into these events so you’re ready to react:

• Know where you want to get out.

• Know where you want to add.

One of the great advantages of today’s market is the access we have to ETFs and other investment products. $MAGS is an ETF that holds all seven of these names equally, offering not only a unique way to gain exposure but also giving technicians an excellent tool to evaluate price action.

Looking at the chart, we see a strong long-term and intermediate-term uptrend, supported by price being above both a rising 50-day and 200-day moving average. The primary trend is up, so with scenario analysis in mind, remember: these stocks are innocent until proven guilty.

However, the shorter-term trend is not as pretty and has been underperforming the S&P 500 to start the year.

We’re seeing a down channel, marked by lower highs and lower lows, playing PEEK A BOO but this PEEK A BOO needs FOLLOW THROUGH before it turns into a game of WHACK A MOLE.

I’m a football fanatic and was fortunate enough to play with some of the best athletes in the world (I was not one of them). A big part of football is film study - breaking down a defense to understand tendencies and then getting on the field to practice those scenarios. When it’s game time, you’re polished, prepared, and able to recognize and execute the game plan.

It’s about preparation, recognition, and execution - NOT PREDICTION.

A technician’s job is no different. You draw up the scenarios ahead of time so that when it’s game time, you’re ready to recognize and execute.

Here are 3 scenarios in terms of how I’m analyzing the giants ahead of earnings and managing risk.

Scenario 1 - We resolve higher, GREAT! We would most likely make it to ATHs on this ETF and you could manage risk against that breakout level around $59. This is “breakout” style trading.

Scenario 2 - We resolve lower, manage risk against the most recent low around $53.

Scenario 3 - We pull back to the 50-day moving average, maybe even undercut it, before making a higher low. This scenario offers well-defined risk, with potential for a higher high to confirm the breakout.

I wrote about this exact ETF trade last year, when I thought we had a nice fat pitch. The current setup is less my style of pitch, but I wanted to outline how risk assessment and scenario analysis can take place ahead of earnings.

It’s no secret that the S&P 500 plays favorites, and its pride and joy are stepping into the batter’s box this week. How they performed in their Q4 will likely dictate the next leg of this bull market.

At the end of the day, no one truly knows what’s going to happen, not me, not you, and certainly not the talking heads on TV.

The market will do what it does, and the narratives will follow.

The best thing we can do is prepare for multiple scenarios and be ready to react decisively when the time comes.

This game isn’t about predicting the future; it’s about staying disciplined, managing risk, and executing the plan you’ve prepared.

Cheers,

Larry Thompson CMT, CPA

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