Earnings Season – What Everyone Should Be Watching This Week!
The Dynamic Wealth Report
April 20, 2009
Earnings Season – What Everyone Should Be Watching This Week!
by Brian T Mikes, Editor
Today is the start of one of the most important weeks for the market. I
know some people are shaking their heads. Why this week? What’s so
important about the next five days?
Well, there are a few reasons this week is so important. First, we’re six
weeks into a rally, and a seventh straight week will cause many to point
to recent lows as the bottom. Second, it’s because earnings season is in
full swing. And third, economic data might show the recession’s easing.
Let’s look at each of these individually... then I’ll give you an idea
on how to profit from the market action.
First, the economic data. Everyone has their eyes fixated on all of the
macroeconomic data flowing from the economy these days. It’s not just
Wall Street, the Fed, or economists… economic data is now the topic of
choice at cocktail parties these days.
As a matter of fact, I overheard two construction workers discussing
consumer confidence numbers at a Starbucks recently.
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What does it mean? People are taking cues on how they should react from the
macroeconomic data. It’s not hard to see. If unemployment is
up and consumer confidence is down… people will stop spending, even if their
job isn’t at risk.
As economic data improves, the opposite will happen.
Right now we stand at an inflection point with much of the economic
data. It’s hard for it to get much worse without us plunging into a
depression. Watch for some of this data to improve this week.
Another reason this week is so important… earnings season.
Hundreds of companies are set to report numbers this week. Now, let’s
think about what has been going on recently. Analysts have been revising
earnings and revenue estimates downward. The negative revisions are due
to of the weak economy.
But it gives us another advantage.
Analysts tend to cut estimates more than necessary. A lower hurdle makes
it easier for management teams to beat estimates. Upside surprises
are always a good thing! It’s a nice little game they play on Wall
Street,
don’t you think?
If companies can’t beat the lower estimates, we’re in trouble. If most of
the companies reporting start meeting or beating estimates, then we know
we’re a step closer to recovery.
The third and final thing to watch for this week.
This week, market action is going to be more important than ever.
I’m a firm believer the market will tell us clearly what direction we’re
heading. It’s like a nice bright road sign on the freeway. Watching how
the market reacts not only to the economic data, but also to earnings
will help point the way.
So what are we looking for?
First, watch the overall trend. If economic data is good and earnings are
better than expected, the market should trend higher… or flat. It might
even trend down slightly as investors take profits from the run-up over
the last six weeks. This kind of market action would tell me we’re
starting to pull out of the recession. That means we should start moving
higher in the next few quarters.
Now, if we break down (in a big way), and fall through recent support
levels… watch out. That action would tell me market expectations are out
of whack with fundamentals. We could see the market fall further, or
possibly retest the lows.
So now that we know what to look for, let me give you an investment
idea.
Here’s what I’m looking at.
I’m going to focus on the areas of strength in the markets. In other
words, figure out which industry is leading the market higher. When one
industry in particular starts to outperform others, it tends to lead the
whole market higher for a while.
We can profit in a big way by following the market leader. This is
purely a market driven momentum play… but I think the time is right to
profit from a move like this.
So keep your eye on the market this week. Watch earnings and economic
data closely. But most importantly, take to heart what the market tells
you.
• Tires Industry (Up 60%)
As I mentioned last week, the auto manufacturers and auto parts
suppliers are all improving. One area with a big jump is the tire
industry. I guess people might not need a new car, but tires are pretty
important. Goodyear Tire (GT) is leading the entire industry higher.
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