Goldilocks is alive and well | stockbee

2/01/2007

Goldilocks is alive and well

As more data keeps coming what is apparent is that the economy did not live up to the perma bears expectations. Go back and see last six months worth of news and opinions , it was full of doom and gloom. Inverted curve, housing lead slowdown, economy already in recession and you name it, every scary scenario was convincingly bandied about.

Now that actual GDP numbers are out expect the perma bear cheer leaders to offer no mea culpa, it will be more of how the data is manipulated and how it is one vast controversy. The fact remains average traders and investors like to read more about scary scenarios than about making profits. The number one ranked blog by readership in the Value Wiki list (if you forget the blog aggregator Seeking Alpha)is the most bearish and consistently wrong for years.It is a fascinating glimpse in to investors and traders psychology. Negativity is more popular.

The more important thing to learn from the last six months is the importance of earnings and earnings expectancy. While the negative chatter was predominant the earnings were double digit plus forward guidance never indicated gloom and doom. In fact several times the Zacks commentator pointed out that there has never been a recession when earnings were double digit and projected to be double digit. Earnings drive stock prices. That is one of the reason the big speculators spend millions of dollars on earnings based research and analyst who has consistently good record of projecting earnings is respected in the market. Any macro or big picture analysis which does not take earnings trend in to account is strictly for birds.

At the current stage the market continues to be stuck in range and looks likely to stay there for some time. Leaders like AAPL, GS, GOOG, etc. are not rallying on earning news but going in to range. Much of the action has shifted to small caps and new sectors.

Yesterday I talked about "Significant Moves" in my obscure post about a stock which made 1500 % move in last 260 days. Can the significant moves concept be used to build a profitable system which can significantly outperform the market......

Coming later: How to find a stock which makes 1500% move in a year

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1 comment:

Matthew said...

I've been bearish in setniment for quite awhile, although I have been trading like a bull and will continue until the market turns. The real bearish argument is that the Fed isn't killing inflation because they fear housing, but the rest of the economy is growing at something like 6% when housing and auto are stripped out. That's why I've got a position in floating rate funds. A Fed hike may be the next move.