Earnings Schmearnings

Watching earnings roll out this morning, I’m reminded of the great line from Shakespeare’s As You Like It:

“I must tell you friendly in your ear…sell when you can, you are not for all markets.”

Caterpillar earned $2.66 versus estimates of $2.88 (and we all know the 2.66 was adjusted out the wazoo.) Revenue also missed at $12.76 B versus $13.57 expected. One-off miss? Hardly. The company also slashed its outlook by about 12%.

As one would expect, the stock plunged sharply – shedding over 10 points, a loss of 8.2% from yesterday’s highs. An hour later, all was forgiven and the stock had regained all of its losses and then some.

Madness, right? Especially as these prices already represent serious resistance.

CAT could do no wrong from Jan 2016 through Jan 2018. Then both the market and CAT stumbled. After 9 months of steady decline (the channel shown in purple below) the stock broke out on announcement of a share repurchase plan…but broke down again on disappointing earnings. An expansion of the share repurchase plan briefly put things back on track, but by Aug 2019 it was testing its former lows again. It was time for a new channel.

Enter the more generous white channel which could accommodate all those pesky swings. This is the 8th time since Jan 2018 that CAT has tested the top of that channel. Are we to believe that the stock should break out based on these results? That’s where we are now: on the brink of madness.

I drive past several farm equipment dealers on occasional visits to my daughter in college. Each one has a lot overflowing with inventory that no one wants to buy because prices are in the toilet — much of it due to the trade war which, last time I checked, has not been called off.

When fundamentals no longer matter and stocks rally on dreadful financials which are much worse than anyone expected, what does that say about market integrity?

Meanwhile, all the algos care about is that USDSJPY is “breaking out” again……and that VIX is conveniently being crushed.To think, futures are almost back in the green and Trump hasn’t even commented yet on how well the trade negotiations are going nor why mortgage applications plunging 12% is a good thing.

continued for members…

ES has climbed back from an overnight loss of 10 points to almost even.

Remember that ES 2984 was the floor we’ve seen put under ES since the breakout on Oct 15. We’ve seen it tested over and over.

Look closely, and you’ll see a rising red channel from Oct 11. With this morning’s stick save, ES is meant to be seen in this bullish rising channel after having backtested its SMA10.USDJPY’s latest breakout is financial engineering at its best. Note it represents the breakout of a breakout — the small falling white channel shown below.

As we zoom out, we can see it’s setting up for a backtest. …after dropping through important channel support. Likewise, VIX has a trend line of support (actually an IH&S neckline) which has played an important role since then.If we zoom out, though, we can see VIX just bounced off very important support.

Since the market opened, VIX has completed its return to the neckline and SMA5 200. A dip below it will put SPX solidly in the green.And, CL and RB are pulling their usual spike higher from an overnight plunge.

According to our analog, today was supposed to see a significant drop. It certainly started out that way with a nice reversal yesterday, additional overnight losses, and dismal earnings among widely held bellweather stocks this morning. But, the algos…

If things had been allowed to reverse, this is what I had in mind — whether all in one day or two. At this point, things obviously aren’t looking good for the bears. For starters, we’d want to see SPX drop through the red TL from Oct 3. Then come a slew of channel lines and SMA2 between 2943 and 2977, a backtest of the white channel at 2935, the red .618 at 2916 and, finally, the SMA200 and red .886 at 2870.59. Even then, it’s not even close to the drop the analog initially suggested.Things to watch for: a reversal by CAT and BA, USDJPY to drop back into that channel and put in a serious decline below 108.24, CL and RB to drop like rocks when EIA inventory is released at 10:30, VIX to bounce off 14.30 and above 15.12.

More later.

UPDATE: 10:35 AM

EIA is reporting a small 1.7M draw, in contrast with the 4.5M build API reported yesterday.CL and RB are spiking higher……while VIX continues to bounce off its neckline……and stocks are mostly settling lower, almost back to negative on the day. Hmmm…