Thursday, October 22, 2009
The Earnings Effect
So the market seems to be buoyed by the US dollar weakness and a handful of stocks reporting good earnings. However despite most companies (about 78% last I heard on CNBC) beating expectations most of them are trading at levels below where they were when they reported their "blow out". So stocks are being fattened up into earnings and right after earnings, and then they're being dumped. This is a sign of a severely weakened uptrend. It's probably the institutions and big shot Wall Streeters pushing up these stocks and then dumping them on the smaller guys and retail folks. This is very bearish of course. Afterall, if a stock can't sustain a rally more than a couple days after blasting away earnings then what's left for them to do to make their stock go up from here?
Observe the 4 stocks above that reported earnings in the timeframes I circled in red. Notice that all these stocks are currently trading beneath where they were when they reported their "blow out" earnings. Again, this short term pop then drop action for earnings seems to be market-wide. When you combine this with a weaker dollar every day, you get a puffed up stock market based on smoke and mirrors. This is not a healthy bull run, this is bear market rally-type action.
So that's a little insight as I see the market internally, as to what's really fueling the rally. It will turn lower; but the part that's proven very difficult the past few weeks is determining when. But there's no doubt in my mind that this major rally is in its last throws, and the more it rallies without a break, the harder and faster it's going to fall when it finally turns down.