Don't Look Now, But Here Comes Earnings Season

I consider the start to earnings season to be the day that JP Morgan (JPM) and a few other large banks report their quarterly results.

That date this quarter will be this Friday, October 14th. I'm not expecting great quarterly results this quarter by the banks, nor most other industries, but the question in my mind is......has all the negative news already been priced in or do we have further to drop? While I was bearish until mid-June, I am now on the long side, so I think I've answered the question. As I look at the JPM chart, there are clearly mixed signals. Banks ($DJUSBK), in general, are moving lower and recently set another 52-week low. However, the group's relative strength vs. the benchmark S&P 500 is well off its early-August relative low. And JPM has been moving higher on a relative basis vs. its banking peers. So, in two days, we'll find out whether this relative strength combo was justified. Here's the chart:

Enter JP Morgan (JPM):

Check out JPM's AD line. It has been moving lower with price....until July. Also, we're threatening to print a reversing candle today (perhaps a bullish engulfing candle or a piercing candle) with a positive divergence on the PPO. The last two positive divergences saw roughly 13-15% moves higher. Most notable was the July positive divergence, which formed just prior to Q2 earnings in mid-July - similar to what we're seeing this week. Is this a guarantee that JPM is going to move higher by 13-15%? Of course not. I use technical analysis to manage risk. Therefore, if I was shorting JPM, I'd take the money and run. And if I was looking to build a long position, the ODDS favor a rally, though taking a position in ANY stock just prior to earnings presents plenty of risks that you have to be willing to accept. Watch the 112 price level on JPM. That's the first key price resistance level. A move through that could start a much larger advance and perhaps even mark a major bottom on the JPM chart.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.