When earnings season begins, we typically take smaller positions, as traders tend to shy away from being fully invested in companies on “EPS day.” We also consider what fund managers are buying.
Earnings Season
It has been our experience that conviction is lower, so we wait for banks to report to get a handle on sentiment. Given we are at all-time highs to “kick-start” this quarter earnings, we have even more reason to be cautious.
JP Morgan Reported this morning, Q2 earnings $1.76 vs $1.65 Est., on sales of $26.2B vs $25.2B estimated, while Citigroup reported Q3 earnings $1.42 vs $1.32 estimate, on sales of $18.2B vs $17.9B est.
Once again, some banks were and are priced to perfection, so holding into earnings makes no sense to us. Wait till the dust settles. If we get a chance to buy JPM on a pullback, that would be our preference.
Top Fund Manager Purchases
According to the latest list of new buys by top-performing mutual funds, the leading money managers appear to be focusing on building sector and related stocks like homebuilders, as well as construction equipment maker and wood products producers like Louisiana-Pacific. – Source IBD
- NVR (NVR),
- Toll Bros. (TOL)
- KB Homes (KBH),
- Graco (GGG)
- Louisiana-Pacific (LPX)
- Allegheny Technologies (ATI).
Additional stocks that fund managers are buying.
KB Homes – Fund Managers Buying
We are waiting patiently for an entry. A flag or consolidation is warranted, though “ToD” – “Trade of the Day” setups might work. RSI, MACD, and STO all say wait, as volume begins to taper off. Judging the volume on breakout day, we’d venture to guess funds were positioned closer to the 21-23 level, buying into the weakness leading into the end of September.
RSI, MACD, and STO all say wait, as volume begins to taper off. Judging by the volume on breakout day, we’d venture to guess funds were positioned closer to the 21-23 level, buying into the weakness leading into the end of September.
What has us excited is the potential in the monthly chart. Long-term investors would likely see this chart with intoxicating interest. Note: most of the builder’s monthly charts look very similar, with a KIRBY overhead. KBH long-term target = 70.00 (+/-).
We’ll be talking about earnings all day today and tomorrow, so if you have a chance tune into the LIVE show.
Happy Trading,
Vinny