This is going to be a tough earnings season.
Stocks have rallied on expectations of a reviving economy in 2021. Hopes are high that companies will forecast good times ahead. And, investors have priced in a strong recovery.
But, if Friday’s action in shares of Micron (MU) is a guide, then investors are likely to be disappointed.
MU is the first major company to announce earnings this season. It reported on Thursday afternoon, and the numbers were solid. MU beat expectations for earnings and revenue. And, the company raised its forecast for the rest of the year.
By all accounts, it was an excellent report. But, as we wrote on Friday, it’s not the report that matters. It’s the stock’s response to the report.
Micron started off Friday’s session with a rally. The stock traded above $84 per share – a new all-time high – and an overnight gain of more than 6%.
But, that gain was short-lived. Like the groundhog that comes out of his hole and gets spooked by his shadow, Micron retreated. The stock gave back all of its gains and closed down more than 2% on the day.
Micron is the Punxsutawney Phil of the stock market for this earnings season. And, the groundhog is bearish.
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As we mentioned on Friday, Micron looked vulnerable going into its earnings report. The stock was overbought, overextended, and the chart showed negative divergence on key technical indicators. It’s hard for any stock to sustain a rally from those conditions – even with a blowout earnings report.
And, while it may seem like a bit of a reach to turn bearish on the entire stock market based solely on the action in this one stock, it’s worth pointing out that the charts of many stocks look similar to that of Micron.
Investors have chased stocks higher in anticipation of strong earnings reports this season. And, it looks to me like the market is going to have a tough time living up to those expectations.
Best regards and good trading,
Jeff Clark
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