Up Go Earnings, Down Go Prices
My primary general market indicators
are the major indexes, volume on the New York and Nasdaq markets, and the
behavior of stocks with 90+ scores for 12-month relative strength. But I also
have secondary indicators.
A key one is how stocks, collectively,
respond to positive earnings news. Right now, the signs are not encouraging. The
sullen mood of the market showed through Tuesday in selling on and ahead of
positive news. And the news selling hit the two sectors most critical in
contributing to a sustainable intermediate-term rally: financial and tech.
The selling in financials was
understandable — to a degree. Several regional bank holding companies,
including Bank One
(
ONE |
Quote |
Chart |
News |
PowerRating) and AmSouthBancorp
(
ASO |
Quote |
Chart |
News |
PowerRating), posted lower profits.
That helped send the Regional Bank HOLDR
(
RKH |
Quote |
Chart |
News |
PowerRating) to a 3.6% loss.
But
shareholders also turned on Citigroup
(
C |
Quote |
Chart |
News |
PowerRating), which beat estimates with a 27%
rise in Q3 profits; FleetBoston Financial
(
FBF |
Quote |
Chart |
News |
PowerRating) and Wells Fargo
(
WFC |
Quote |
Chart |
News |
PowerRating),
both of which reported higher profits and matched estimates; and Merrill Lynch
(
MER |
Quote |
Chart |
News |
PowerRating),
which weighed in with a 53% gain in Q3 earnings and exceeded estimates.
Wells
Fargo’s chart looks particularly distributional. Note the heavy volume Tuesday
combined with a close near the bottom of the day’s range, and the lowest close
since Aug. 2 (see Point A in following
chart).
Merrill
Lynch retreated but bounced off support at 55.Â
After Tuesday’s close, Mercury
Interactive
(
MERQ |
Quote |
Chart |
News |
PowerRating) reported earning 18 cents a share in the third quarter
vs. 9 cents a year ago and beating analyst estimates averaging 16 cents,
according to First Call/Thompson Financial. Revenue increased 67% to $79.5
million. Shares in the Internet software marker pulled back Tuesday. Let’s see
how the stock acts tomorrow.
Another stock to watch on Wednesday will be Sybase
(
SYBS |
Quote |
Chart |
News |
PowerRating). After the close, the database software provider reported
third-quarter pro forma net income of 30 cents a share. That compares to 23
cents a year ago and Wall Street estimates averaging 25 cents. Revenue rose 11%
to $239.1 million. The stock slumped 1 9/16 to 19 1/8 ahead of the news.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.