Earnings Season Starts Stage 2

Earnings Season is getting early attention with the AA report coming in worse than expected. Usually traders get more active with earnings next Tuesday, Wednesday, and Thursday. But timing, a swing rally, and hand-wringing have them starting to fixate on Stage 2 a couple of days early. A few more companies will report earnings this week, and then it gets heavy next week.

Tomorrow we will also get Weekly Jobless Claims and Friday is the big Jobs Report. So earnings and employment will drive the next few days, and probably the next few weeks if more companies announce layoffs like AA.

I kept warning that a rally being led by Energy, Coal, and Commodities was a little suspect. It looks like the hidden news that finally came out in that area was the Russia - Ukraine gas crisis. I don't expect oil to rally any more off that news in the short term. The upswing we just had was good for some nice call trades, so it played its part, but it's probably over now.

Pre-market futures are down sharply, and the gap down at the open will be enough to confirm a rollover. The SPY is set to open around 92 or lower, which is well below the 92.50 pivot area. If the market wiggles up a little at the open, I still expect it to fade again. The probability is in the direction of a rollover today. Aren't you glad you sold into the hysteria at the open yesterday? It's possible that the Bulls can overcome the morning's selling, but not probable. However, if they do, it will be a powerful signal that the market is willing to buy in the face of all distractions. A move back above 93.50 would be an indication that the Bears are out of business.

Here is a chart of the SPY:
(click on image to enlarge)

The gap this morning could take the market right to the mid-point of the long candle from Friday (thanks for the correction Troy). That would be a natural spot for some wiggle. I speculate that the swing will consolidate down into the 90 area over the next 1-2 days and the next news pivot will be the Employment Report on Friday. We are starting to enter Stage 2 and this consensus will take the longest to develop out of the three stages I anticipated this month. The Stage 2 Consensus, unlike 1 and 3, will not just set a short term tone, but probably set the intermediate term tone for 1-2 months as well.

8:00 am MT: Intra-day Update: The market did hit the mid-point of Friday's long real body (pretty much exactly at the mid) and wiggled up. I picked up some paper puts on the wiggle back on the 5m charts. Now the market is rolling over on the 5's. The key from here is whether or not the market makes a lower low on the 5m charts, that would set the tone for a "selling" morning and increase the likelihood of a rollover on the daily chart upswing.