The first month of each quarter brings the coveted earnings
season in stocks. It's the time investors get all the need to
know and updated information from CEOs and companies explaining
what happened the last three months and why it will be better in
the future.
But, how many times has a company announced great earnings,
better future earnings, and then the stock still sells off?
Positive earnings selloffs seem to occur as often as positive
earnings rallies. Given the evidence, how do positive
earnings then equate to good buying opportunities? Forgive me
if I am not as gung-ho about earnings seasons, CEO rhetoric, or
linear extrapolation as most traditional analysts. Like you,
I was around in 2007 and 2008 as CEOs time and again stated
ever-positive outlooks for the future as their share prices
continued to fall.
News and company press releases typically try to frame the
earnings into positive headlines as shown below:
- "Abbott (
ABT
) Reports Strong Second Quarter Results" -
Abbott Investor's Relations Press Release
, July 18, 2012 (Even though earnings were a self-proclaimed
"strong", the price stalled out that day at $65.93 with a popular
candlestick pattern and as of today (7/23) was down 2.5% to
$64.27, evidently "strong" earnings weren't enough to drive price
higher.)
- "Groupon Earnings Top Forecast; Shares Jump" - CNBC, May 2012
(After popping above $14.00 on the earnings announcement after
hours, Groupon (NasdaqGS: GRPN) finished the next day selling
from the get go ending the day at $12.25, slightly ahead of its
pre-earnings share price of $11.75. It finished the month,
2 weeks later, at $10.60 and down significantly from its
pre-earnings price. It currently sits in the $7 price
range as we approach its earnings season yet again.)
Much of the information given during earnings season is from the
past a nd doesn't help anyways. Learning about 2Q profits in
July is best summed up by one of Shakespeare's quotes, "Better
three hours too soon than a minute too late". There's really
nothing anyone can do about the second quarter now.
Some look to earnings season to get guidance about upcoming
quarters and years, but do CEOs really know much more than you
about the future of stock prices? They may know more about
how their individual company will perform fundamentally, but they
do not know how people or stock prices will respond to that
performance. They also do not control their multiples or
other necessary valuation inputs. Once again I refer to the
2007 and 2008 time frame as an example. Unfortunately for
company share prices, it seems the macro environment matters a
whole lot more than many company insiders will admit.
Price is what makes you money and, along with dividends, is what
really matters to investors and traders. Combining the current
price with its recent history allows trends to be recognized
through time. It also helps show us if earnings will be
a catalyst for stock prices well before a CEO will tell us, or will
even really know.
In a recent ETF Profit Strategy Update, shown in the chart
below, key price levels are identified as important support and
resistances that will help traders know if earnings are going to be
a catalyst or a drag on stock prices. Currently there is a
key technical formation taking place that sets up a trading
opportunity in the S&P 500 for bears and another opportunity in
another asset class for longpositions.
This month the ETF Profit Strategy Newsletter identified key
support and resistance levels on the S&P 500 (SNP: ^GSPC -
News) - (NYSEArca: SPY), the Volatility Index (ChicagoOptions:
^VIX), the CurrencyShares Euro Trust (NYSEArca: FXE), the SPDR Gold
Shares (NYSEArca: GLD), and the iShares Silver Trust (NYSEArca:
SLV). We also focus on popular ETPs such as the iShares 20+
Year Treasury Bond (NYSEArca: TLT), the iShares Russell 2000
(NYSEArca: IWM) and the SPDR Dow Jones Industrial Average
(NYSEArca: DIA).
Price, not earnings, is all that matters when it comes to
profitable trades. The
ETF
Profit Strategy Newsletter
identifies those key price levels through comprehensive technical
analysis along with practical and actionable commentary to help
investors stay on the right side of the market during the volatile
earning seasons.