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Pastimes : NEW Market Ideas - Weird Opinion Trades
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To: Don Pueblo who wrote (582)6/6/2001 8:37:21 AM
From: Don Pueblo  Read Replies (2) of 1016
 
HOW TO BUILD AN EARNINGS CHART

(c) TLC 2000 may not be reproduced without permission

The only valid way I’ve ever discovered to get clues about future stock price movement from looking at earnings is a chart pattern I saw described in a magazine about 10 years ago. I don’t recall who wrote the article, but I later discovered that you can find this particular chart if you look for it on some pay-for-information services. If you know who invented this, let me know so I can credit him or her.

Here is how to create the chart:

You’ll have to build the data for the chart “backwards”, that is, start from the most recent data and go back in time as far as you can. Take the most recent quarter’s earnings and add that number to the earnings for the prior three quarters. Mark that total on a graph. Then go back one quarter, take that number and add it to the prior three quarters and chart that number as the next number to the left on the graph. Then continue the process. What you’ll end up with is a quarterly chart of earnings that has been “smoothed out” because you are using 12 months of data for each point on the chart.

This “smoothed” earnings graph can sometimes turn up from a bottom or turn down from a top 3-6 months before the price chart makes the same move. You can experiment with it and see if you like it. Try using this chart in conjunction with some long-term price chart patterns, and see what comes up.

You may also wish to explore revenue growth, or some other fundamental factor, in the same way I've described earnings growth. It could prove valuable.
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