Loved going short and then long.. Remember you have to understand just like the posts we made late last night, there will be corrections after upswings but Profits are going to be even stronger in Q3. I didn't get into the OEX calls this morning but I might just do that later, but I had enough already from today. I did a lot of research last night and This article struck me: SWINGING and tech firms fueled strong second quarter earnings to the S& P 500.
Second quarter earnings growth among American's largest companies looks to be the best in 10 quarters. But the real peak in profits should come next period.
During the hot summer even those we are avid followers of stocks with strong earning and high technical rank, we can also enjoy the market trends when they are down.
The third quarter profits should shine even brighter thanks to renewed demand from Asia and Latin America, a rebound in oil prices and an easy comparison in quarterly earnings for brokerages following last summer's bear market.
As of late Wednesday, 405 or 81% of S&P 500 companies have reported their second quarter earnings and the numbers have blown away analysts' expectations. On July 12, the start of the earnings season, analysts polled by First Call saw S%P earnings growing 11.0% from a year ago. But now they are likely to finish up 15%. That would be ther strongest since 15.1% growth in the first quarter of 1997.
It would also be a big jump from a 10.5% in the first quarter eariings and 6% gowth in the fourth qarter last year.
The number of companies beating estimates is also higher than usual this quarter. A total of 266 reporting S&P 500 first or 66% have exceeded forecasts, well above the five year average of 56% and close to the 68% figure seen in the first quarter. Ninety one firms or 22%, have met forcasts and 48 or 12% failed to match consensus estimates.
THE ACCELERATION IN YEAR OVER YEAR EARNINGS IS LIKELY TO CONTINUE. Wall Street's estimate for third quarter profit growth is now at 21.5%. This is the part I like the best because it's what I mentioned yesterday and its what kept me from going into more than a few very circumspect and 'handpicked puts' this week and last.
Tech firms have led the way in second quarter earnings and are likely to post around 42% growth, matching the first quarter's results. One reason for the high number is the depressed profit levels in the second quarter last year. An inventory buildup forced personal computer makers to lash prices offer sales promotions and even shut down plants during the first half of 1998.
Even the penetrations of internet usage in the U.S and the proliferation of IPO's will only add to the 'choices' assuming your not fool enough to short them to death but just take little daily nibbles at the 5-6 point intraday gains. Where will the real growth come.. In the ones that survive. The internet is growing into its next phase, when investors will be more demanding: then companies begin to show profits, then we'll have other wonderful gainers like HLIT, HAUP, BVSN, QLGC, LGTO NTAP, EFII etc... .. Some of these ones will fall to the wayside but who would really waste that much time on them anyhow. The number of new IPO's are only and indication of the demand and exceptional size of the future market.
So yes we short, but from my previous experience in puts and now in shorts the best money comes from those very strong stocks with the good earnings (or in our case the good revenue growth). I still prefer puts and I wouldn't hold for more than a week if that. Of course we can't occasionally resist the score of points from a CUST or a STMP or a PHCM, but that is not the norm but the once in a while trade.
The difference between the way we look at the this bull market and bears is is that we don't look for sluggish, weak and failing stocks that EVERYBODY says are doomed to destruction but never actually destruct but rather rally more and fall only sporadically and and unprofitably.
We are only looking to short the BIGGIES, the AAPL's, the DISH,the AOL's the CREE's ; the Sweethearts of the Market, the CPQ's, the LXK's, GNETs and ironically probably better off going long at times the stocks with the biggest question marks (like CUST, SWCM, STMP) as long as we don't foolishly wait around for months and miss out on the party while these failing stocks do nothing or give scant gains at best.
We track these stocks and watch for the fail signal, that is usually the fall in the relative strength, the breaking below resistance and even a bit lower as long as it is not more that 15-20% below the gain after the consolidation.
Then we ride the stock down for a quick profit. and when it looks to improve.. we get out andd buy our leader when it is one again ready to begin another leg of srong gains, I certainly don't want to tying up my capital in a stock that goes nowhere for months or worse still goes the wrong way.... as I've noticed others have been doing .. |
