Earnings Season – What Everyone Should Be Watching This Week!
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.
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.
Category: Stocks
