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Stock Ideas Investors Daily Edge Can Earnings Season Save the Market?
Stock Ideas Investors Daily Edge Can Earnings Season Save the Market? 
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| Can Earnings Season Save the Market? |
| Monday, 14 January 2008 | ||||||||
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Dear Reader, Earnings season officially kicked off last week with Alcoa’s (AA) earnings announcement on Wednesday. This week we will see earnings shift into second gear, as 73 companies step into the earnings confessional. Next week, earnings reports shift into fifth gear with more than 330 companies reporting. My colleague Chris Johnson has been writing about earnings for the past few weeks and I don’t know anyone that is as thorough as Chris when it comes to analyzing earnings. His track record on IDE Earnings Alert proves Chris’ success for predicting what will happen after earnings. The work Chris does with individual earnings reports is phenomenal, but what I want to focus on is the overall earnings season. The last time the market entered an earnings season in a downtrend and faced the prospect of breaking support was in July 2006. When I say support, I am referring to the 100-week moving average on the S&P 500. The blue arrow on the chart points out this time period. As you can see in the chart, earnings season came to the rescue and the S&P rebounded and rallied more than 26 percent for the next 12 months. What concerns me about this go round are the sentiment readings. The most recent Investors Intelligence report shows that the bullish percentage is at 48 percent. I have talked about the importance of the bullish percentage being below 50 percent in past articles. While I am happy to see that it is indeed below the 50 mark, I am surprised it isn’t lower than 48 percent. As much as the market has dropped in the last few weeks, I would like to see the bullish percentage down around the 40 level like it was in August when the market bounced. The second sentiment indicator that concerns me is the CBOE equity put/call ratio. The 21-day moving average for this ratio is at 0.68. This isn’t even close to being as high as we have seen at past bottoms. The 0.75 mark has been a good sign that there was enough pessimism for the markets to stage a rally. We’ll find out soon enough, but I would advise you to approach the market with caution right now. We are on the verge of breaking below major support via the 100-week moving average, and the sentiment readings haven’t reached overly pessimistic levels. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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