There were no index changes in the S&P500 this month.
All reports in this article and Part 2 are based on un-weighted operating earnings (with the exception of a few companies that no longer report operating earnings and historical numbers have been adjusted for those that do not) unless otherwise noted. These numbers are also based on the numbers I gathered during a 09/03/2010 (beginning of the quarter estimates) and the update I completed on 10/07/2010, along with any later rechecks/changes after screening the data for possible errors. Estimates and earnings for Washington Post (WPO), Viacom (VIA.B), Invesco Ltd (IVZ), Leucadia National Corp. (LUK), and Berkshire Hathaway (BRK.B) as explained in “data” found at bottom of the page.
Relatively few have reported earnings to this point, but of the 27 I found earnings updates on, here’s how they fared against beginning of the quarter estimates:
There were 3 (11.11%) that missed those projections, 1 (3.70%) was in-line and 23 (85.19%) beat the beginning of the quarter earnings projections I had gathered on 09/03/2010.
Of the 3 that missed the 09/03/2010 earnings estimates, one Monsanto Company (MON), missed by $0.10, or 1000%, ConAgra Foods (CAG) missed by $0.05, or 12.8% and Brown-Forman Corp. (BF.B) missed by $0.08, or 9.52%.
Of the 23 that beat the 09/03/2010 earnings estimates, 4 (14.81%) were by $0.01, 7 (25.93%) were by $0.03 or less, and 6 (22.22%) were by $0.10 or more. One (3.70%) beat the estimates by 1% or less, 15 (55.56%) beat by 10% or more, 4 (14.81%) by 20% or more, 2 (7.41%) by 40% or more, with the largest beat being AZO at 77.43%.
In comparison estimates given closer to the report are reflected in the last report from Thompson’s that stated that13% missed earnings estimates, 7% were in-line, and 80% beat estimates with 30 of the constituents reporting.
Overall the earnings of the 27 that I have reports on beat the beginning of the quarter estimates by 21.99%. Adding these outcomes to the current quarterly estimates, the total increased by 0.33% over a month ago. This number was adversely affected by a large decrease in earnings projections for those in the energy sector, and decreases seen in metal producers or miners.
The chase for the un-weighted yearly operating earnings record for the current constituents shapes up as follows:
I did not fully check/update the previous quarters for earnings changes at this point in time as to the best of my knowledge; there were no reported changes in this data. There also were no changes to the constituents, so this the lead built through the first and second quarters of 2010 over the corresponding quarters of 2007 should remain the same at $3.30. The current estimates for 3Q 2010 are expected to beat the 3Q 2007 earnings by $5.14, with the current estimates for 4Q 2010 slipping 0.92% over the previous month to $78.72 higher than those in 4Q 2007.
Quick market takes:
The current 90 trading day indicator I spoke of in previous articles is performing as follows:
+8.95%/-4.76%/+8.95% (Format: Highest close % / lowest close % / current close %).
I believe it is still very likely the market will eclipse the 10% that this indicator produces about 75% of the time by the time it expires, however, the pullback we experienced in August dimmed hopes that the market would experience the 15% increase I thought was likely at the time I first published this indicator.
As explained in a previous article, the expiration of this indicator often signals a change in market direction within +/- 10 trading day window of the expiration date. Not every expiration of a 90 day indicator signals a direction change, however many do including the last two. The first expired on 4/9, the market topped on 4/15 in that trend and the other expired on 7/2, the day of the market low in the last pullback.
The expiration of the current 90 trading day indicator is 11/01/2010, thus the corresponding window would be 10/18/2010 to 11/15/2010. Additionally a ten trading day indicator I am currently developing that began on 10/04/2010 also expires on 10/18/2010. Lastly the 2% run we had on 10/05/2010 was the third without an offsetting 2% drop. This is significant in that it often indicates there will be a 2% drop within 30 calendar days. All three of these indicators point to a possible market direction change within the same time frame. Although it is not a certainty there will be one, there is reason to be cautious heading into this time frame.
As a result I am taking a more cautious stance in my investments. I am still buying some stocks I feel will do well as I sell stocks, but I am increasing cash levels by not buying as many stocks as I am selling. I plan on increasing my cash levels from the current 3 to 7% I have been keeping to around a 10 to 15% or so range. Based on my research, if this pullback occurs I believe it will likely be minor, probably dropping 3 to 5% to or just below the 50 EMA on the S&P500 and it will rebound quickly and continue to run into the New Year.
If this pullback occurs, I will likely reinvest to the 3 to 7% level rather quickly as it reaches or breaks through the 50 EMA. If it does not occur, I will likely reinvest to about the same level fairly quickly after 11/15/2010.
Note: Although I feel it is most likely the market will fall to my projected levels if it occurs, I have missed on the projected drop levels on market pullbacks I predicted in the past. If this pullback occurs, there is no certainty in that they will fall to the levels I believe they will as it could fall more or less than I believe it will. I might also find indications later that these levels are not appropriate, and change the way I plan to invest at that time.
The market is showing many very bullish indications at this point, including a continuation on a triple top breakout with what appears to be a bullish slope change and has remained very close to what appears to be a new upper channel in this slope change. If this condition continues, the market could move significantly higher before entering the possible direction change window. The constituent charts look like they could provide significant upside from the levels they are at now. The market often runs into the New Year once a rally like this has started. Earnings are at levels that could support a run in this slope for many months, possibly over a year. So I believe there are reasons to remain bullish on stocks, just as there are reasons to be cautious.
Have a great day trading,
ronz
Disclosure: I have open positions in CAG, I currently have no investments in WPO, VIA.B, LUK, BRK.B, MON, BF.B or AZO. As I normally do, I sold some stocks into the recent run and I am also still buying some stocks that I feel are low and will do well. However, as explained above, I have begun reducing my investment levels and may bring them below my plan levels before adding much again. I am currently about 88% long in stocks.
Disclaimer: This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.
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