This month has not been like the previous one. During the month of September, for several weeks, we waited for the Federal Reserve meeting knowing that we would have a larger rate increase than anticipated due to some not very encouraging economic reports. October, by contrast, is a corporate reporting month. Y investors are reading each report as a window into the state of the economy in general.
Interestingly, the market interpreted the reports from the banking sector with great optimism. Of course, we cannot say that this optimism was due to particularly positive earnings. In fact, the numbers for last quarter were not very good. Here “good” or “bad” should be understood comparatively. In this case, the comparison is made with last year’s income. Indeed, the income of the big banks, in relation to last year, has fallen quite a bit. However, they did not fall as much. What happens is that analysts expected worse results. So, better than expected results translates as optimism in a bearish cycle tired of bad news. And something like that has the ability to create a rally.
Now, not all companies publish their reports at the same time. However, each sector tends to choose the same week to publish. So, we have a kind of ark. First, the banks arrive. Then come the other sectors. technology etc. And retail (retail) is the sector that closes the season. I mean, reporting season unfolds throughout the month.
As far as the banks are concerned, Bank of America was at the forefront of this could-be-worse wave of bullishness. But Goldman Sachs was the ugly duckling of the bunch. Incomes have fallen for everyone. But, in this contest, Goldman Sachs won the prize. And that has an explanation. Investment banking has been the most affected in this losing streak. And Goldman’s business revolves primarily around investment banking. Its rivals, on the other hand, have more diversified businesses. Marcus, Goldman Sachs’ commercial bank, is still not profitable enough to cover investment banking declines.
Now, the banks have already released their reports. And now it is the turn of technology. In this case, the market has reacted in a much more mixed way to the falls in these revenues. Which jeopardizes things for risky assets. The bullish rally may meet its end due to technological pessimism. Of course, several technologies are still missing. This is not over yet. And, of course, we’re all waiting for reports from Wal-Mart and Target.
Here it is very important to highlight something. In reality, those corporate reports are an X-ray of the past. They are telling us what happened during the summer months. And that’s fine. But for investors, the future is much more relevant than the past. Or, put another way, the reports are important, but expectations around monetary policy and the state of the economy are weighing more heavily on investors’ minds right now. Reporting season is used to better understand the present. But it is the expectations that dominate the swings of the market.
This latest bullish wave has moved into cryptoland with quite a bit of power. Bitcoin has been oscillating inside a consolidation channel ($20.6K-$18.4K) for “eternity”. We closed last week touching the bottom of this channel and, in a matter of a couple of days, we jumped to the top. In fact, today Wednesday the price is trying to break the resistance ($20.6K). A technical break has already occurred. But I’m afraid breaking up isn’t enough. We need a confirmation of (at least) two daily candles (with a lot of volume). That means closing above resistance. And stay above resistance for several days. The ideal would be to achieve a powerful breakout to mark a greater distance. In this way, consolidate a firm support above the channel.
In percentage points, these last two days have been extraordinary. That’s true. However, in technical terms, we continue with the same resistance as before. Technically, we are already above the channel ($20.6K-$18.4K). But we are still very close. Which suggests that this new support, suddenly, does not have the strength that is required. The volume is showing us that buyers are already getting tired. So barring a miracle, I wouldn’t be surprised by the return of the bass players.
Why do we go up so much? There is nothing fundamentally to justify such an increase. What we actually have is a change in sentiment due to a change in expectation in the macro field. Investors (again) are speculating on the upcoming Federal Reserve meetings. It is being assumed that the increases after the next meeting will start to decrease. Then we will have a pause and then a wait. And, finally, after all that, we will have (supposedly) the long-awaited twist. That expectation is not entirely unreasonable. In fact, it is quite likely. What is foolish is to think that it is a certainty.
Personally, I am convinced that people are still underestimating the complicity of our situation. What happens is that many things can go wrong. And what usually happens when a lot of things can go wrong is that I go wrong. In 2020, an unknown virus became a pandemic. In 2022, Russia started a war in Europe. These two events have been our biggest headaches. However, both events took us by surprise. They remind us that our expectations are full of blind spots. In other words, it is a mistake to count the chicks before hatching. The most prudent thing is to consider in our plans the possibility that things will not turn out as expected.
Forecasts are necessary. They are definitely a reference. However, forecasts are not certainties. They are based on probabilities. Y the odds are not very exact in such exceptional times. Here the phrase applies: Expect the best. prepare for the worst. That is, it is valid to make financial decisions relying on our forecasts. Nevertheless, it is very important to design a strategy with good risk management. You can go up, you can go down too. So, you have to have a plan A, plan B, plan C, … Are you ready for a leave? Are you preparing for a hike?
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