Chart of The Day: "With second-quarter earnings largely in the books (over 99% of S&P 500 companies have reported for Q2 2009), today's chart provides some long-term perspective to the c! urrent earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% since peaking in Q3 2007, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings have moved off their lows – slightly." chartoftheday.com
- The major averages closed lower one day after negatively reversing on Wednesday. Each of the major averages is now on track for a negative reversal on a weekly basis. If this occurs, then this will be the first negative reversal on a weekly basis since the rally began 29 weeks ago. Volume was higher than the prior session on the NYSE which marked a distribution day for the NYSE averages and suggests a pullback to support of some sort may continue to unfold. Nasdaq volume was reported slightly lower, howe! ver decliners led advancers by over a 3-to-1 ratio on both the NYSE and Nasdaq exchange.
- The S&P 500 Index (SPY below) closed lower for a second consecutive day. Remember that the major averages have rallied over +50% since the March lows and during that entire time have not pulled back more than -6%. That is a very impressive feat, but unfortunately not forever sustainable. Instead of being surprised when a pullback occurs, outsmart your peers by being prepared! .
- The selling was intense and most severe in commodity markets where trend reversals were the order of the day. Existing Home Sales data was the culprit today heaped upon yesterday's "take the money and run" post Fed announcement.
- If you're an investor, that means you're looking to create inflation-beating wealth over time. To do that, history shows you'll want stocks in your portfolio (bonds do outpace inflation, but not by nearly as much)—and owning stocks means you're exposed to risk. The best way that you as an individual can mitigate that risk is through asset allocation (your portfolio's target mix of large-cap, small-cap and international stocks, along with bonds and cash investments) and diversification (spreading your investment dollars across multiple countries, sectors, industries and companies).
- We are in a six month bear market rally that has carried the Dow from 6600 to 8500, where I believed it would end, and on to about 9707! . This constitutes a 52% move in the Dow from mid-March and a 8.1% move for the year, while the economy experiences the worst economic and financial debacle since the "Great Depression." This rally is quite similar to the rallies of 1930 and 1932 - so do not get fooled as investors did. This is the time to be selling if you are still in the market or have cash value life policies or annuities.
- Since March we have watched a stock market rally borne by low volume and short covering. As I ! said in #4 above, the gains are reminiscent of the rallies of ! 1930 and 1932. What you are witnessing is a rally engineered by our government. If you watch the tape and you can read it you can see exactly what they are doing, and how they are doing it. Yes, it is legal under an Executive Order singed by President Ronald Reagan in the aftermath of the October 19th, 1987 collapse of the stock market. It was named the "Working Group on Financial Markets" and was to be used for such emergencies. Unfortunately, like many things in government, the mission of the "Plunge Protection Team" has been distorted. For over the last more than ten years it has been used to manipulate markets 24/7. Thus, what you are witnessing is a sucker rally, which is very overbought.
The fall in the dollar has stoked concerns about a US dollar crisis. While the dollar is trending down longer term, an eminent crisis isn't likely. It remains the world's monetary standard for the foreseeable future, as other currency markets lack its liquidity.
As mentioned above, the decline is a reflection of a global recovery, as risk-taking increases and risk-aversion abates.
Additionally, the dollar is increasingly being u! sed instead of the yen to finance the "carry trade," where tra! ders bor row the dollar at low rates, sell the proceeds and buy other currencies to fund speculative trades, as the borrowing costs in the United States are now below that of the yen.
The chart below shows the percent of stock! s that experience a negative or positive earnings surprise. It does not show the companies whose earnings equal analyst expectations. As you can see in the chart, it would be profitable knowing which stocks are going to report the largest earnings surprises. If it were possible in advance to buy the 20% of stocks with the most positive subsequent quarterly surprise, our tests indicate the portfolio would have outperformed the average stock return from an S&P 1,500 stock universe by close to 4.7% each quarter.
In contrast, a portfolio of the 20% of stocks with the most negative quarterly earnings surprise would have underperformed the average stock return by close to 4% on a quarterly basis.
Unfortunately, in the real world, you don't know which stocks are going to have the highest earnings surprise. But if you did, imagine the! profits you could earn.
Percent of stocks with an earnings surprise:
From 24/7 Wall St.! :
- Media Digest 9/25/2009 Reuters, WSJ, NYTimes, FT, Barron's
- Top Pre-Market Analyst Calls
- Asia & Europe Markets
From Trading Markets:
- 7 Stocks You Need to Know for Friday
- Market Remains in Shape
- How to Avoid Getting Whipsawed Near the 200-Day
From MarketWatch:
Wall Street Breakfast - What you need to know in early trading today.
The public will believe anything, so long as it is not founded on truth. – ! Dame Edith Sitwell (1887 – 1964)
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