JP Morgan and Wells Fargo short positions are down, signaling possible bullish momentum, though forecasts for earnings moves are small. FAST shows stronger pre-earnings signals, indicating a potential upward move.

Four companies are reporting financials tomorrow: JP Morgan (JPM), Wells Fargo (WFC), Bank of New York (BK), and BlackRock (BLK).

For the two banks, there is a significant relationship between what happens the week before regarding short positions and the subsequent returns. This data is predictive. The second and third row in bold show the coefficients.

For JPM and WFC they are large but for BK and BLK they are small.

The issue is that the changes in stock returns and short positions THIS WEEK are all about 1%, and when this is multiplied by the beta, the forecast becomes small. The stock-based forecast for JPM is 1.2%, while for WFC it is 1.7%. Typically, JPM moves 2% on earnings, and the implied earnings move is 3.4%, so a 1.2% forecast is not definitively positive. WFC usually moves 2.5% and is implied to move 3.7%.

This is complicated by other predictions in the forecast. The short position in JPM has decreased slightly, while in WFC it has increased, but because these stocks have different historical patterns it turns out the model indicates a lower forecast for both stocks. These coefficients counter from the stock price model, leading to a forecast of a 1% increase—not zero, but not far from it. The TOTAL forecast is only for 1%.

Given an expected 3% move either way, the model indicates a 70% probability of an increase and a 30% probability of a decrease.

It may help to look at longer-term trends. All four stocks are up. The short positions in JPM and WFC are down, which appears bullish, while BK and BLK are flat. Investors appear to be positioning for upside in JPM and WFC. The XLF index reflects similar trends to the banks.

On a longer-term horizon BK is down a lot, which may be interesting.

These trends indicate bullish positioning recently; however, this is based on a long-term horizon and may not be directly related to earnings or predictive. Bullish positioning historically can lead to stocks going up or down depending on the pattern of the stock.

Another large stock reporting tomorrow with stronger signals is FAST. Historically, it shows strong momentum before and after earnings, and the stock is up slightly.

Furthermore, the short positions before earnings are typically incorrect regarding subsequent returns, and the short position is up, which is historically is followed by positive returns.

Thus, these two signals suggest an expected return (with risk) of 2.7%, with a historical move of 4.3% and an implied move of 5.6%. This results in a model expected upward move of 77%, though the model has uncertainties regarding the coefficients.

Short positions in JPM and WFC suggest possible upside, but forecasts remain modest. FAST signals positive returns based on momentum and short position trends before earnings.

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