How to Trade a Fractured Market

The stock market is cracking up.

Choppy trading continues to cloud our market outlook as earnings season mucks up some of the most recognizable stocks on Wall Street. It’s frustrating—and there looks to be no end in sight as the major averages remain locked in a tight range as we barrel toward the end of the month…

It’s time to prepare for one last push. Inevitably, the final months of 2016 will saddle some traders with big losses. No, we’re not predicting a horrific plunge. Instead, what we’re seeing is shrinking list of outperforming stocks. Fewer names are toeing the line. While the major averages remain trapped in a choppy range, only a handful of sectors are playing nice. The rest are threatening to take a bite out of your brokerage account.

That’s why it’s critical for you to focus on the stocks that are outperforming the averages right now. If you fail to find these standout names and add them to your portfolio, you run the risk of missing any shot at an end-of-year stock market melt-up.

Earlier this month, we told you how the big money was beginning to gravitate toward some of the biggest, most recognizable names on the market.

The big, popular growth stocks that held the major averages together over the past 24 choppy months are taking back the wheel. Of course, these stocks are the bread and butter investments of some of the biggest funds in the world.

Many of these hedge fund hotels are breaking out this earnings season. That’s a sign that the big, institutional buyers are swooping back in.

Don’t believe me?

Let’s go to the market for proof…

Just look at Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOGL). All three of these behemoths are trading just a breath from their respective all-time highs this week. Meanwhile, the earnings reaper is chopping weaker stocks off at the knees.

Sports apparel upstart Under Armour (NASDAQ:UA) posted its slowest sales growth in six years, Reuters reports. After lowering guidance during yesterday’s earnings call, the stock tumbled more than 13%.

Whirlpool Corp. (NYSE:WHR) also suffered a double-digit earnings smackdown. The world’s largest appliance manufacturer fell more than 11% on Tuesday after missing analyst expectations.


Don’t get me wrong—I think earnings season is a complete waste of time. The financial media can’t help but get all worked up over earnings misses and beats. Even though it’s a perfectly ordinary occurrence, they fawn over every earnings report that beats by a couple of pennies—then freak out when a stock that misses estimates gaps down double-digits.

The worst part of earnings season is the problems it causes with trading. You could have a nice little uptrend on your hands that hits a brick wall because investors decide they don’t like something about the company’s revenue growth or how the CEO answered a question on the conference call.

It’s downright maddening. But these wild earnings reactions are totally out of our control. All we can do is react to what the market feeds us. Right now, that means betting on the strongest stocks that are propping up this choppy market—and ditching the earnings lepers before they can do any damage to your portfolio.



Greg Guenthner
for The Daily Reckoning

P.S. Make money in ANY market — sign up for my Rude Awakening e-letter, for FREE,right here. Never miss another buy signal. Click here now to sign up for FREE.

You May Also Be Interested In:

Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

View More By Greg Guenthner