Bear Market Rally Ends As Earnings Season Comes to A Close
The Dow Jones Industrial Average and S&P 500 fell back into bear market territory last week after what some would call a bear market rally. If it was in fact a bear market rally, it ended on August 11th, when the S&P 500 and Dow touched their highest level since their July lows. The rally was about a 7.5% gain from trough to peak.
If we are in a bear market and the average bear market lasts 18.5 months and results in a decline of 36%, then investors may have until next May to go and could see downside of at least another 19%.
A few companies are left to report earnings until the next earnings season ramps up on October 7th. On Monday, Finisar Corp.
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PowerRating) reports fiscal first-quarter results after the close of trading. Shares of the maker of fiber optic network products fell 6% last week after rival CIENA Corp.
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PowerRating) reported disappointing second-quarter results and a weaker than expected third-quarter revenue outlook, as customers delay some equipment orders.
Finisar is expected to report earnings of $0.03 per share on a 16% revenue increase of $122.9 million. The stock has seen wider next-day percentage closing levels in 13 of its last 17 after-hours earnings events. The near-term pattern also favors a widening pattern, with three of the last four quarters following this trend. On June 12, shares fell 9.1% during evening trading after beating on revenue and meeting on earnings. Shares trimmed their losses slightly, ending down 8.6% in the following day’s regular session.
On Wednesday, Xyratex Ltd.
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PowerRating) is due with third-quarter results after the closing bell. The average forecast in a survey of analysts by Thomson Financial is for earnings of $0.42 per share on $288.2 million in revenue. The computer storage products company is trading near a four-year low after the company guided for third-quarter results below Wall Street’s forecasts, so the downside may already be priced in.
Over the past few quarters, the stock has shown a strong tendency to reverse or narrow its next-day price move following an evening earnings release. It’s done so in eight of the last ten events we’ve tracked. However, after the warning on June 25, shares fell 5.1% in after-hours trading despite posting second-quarter earnings and revenue that beat the Street. The stock furthered its decline the following regular session, falling 13.8%.
Cassie Slane is a Senior Editor at www.MidnightTrader.com.