Earnings revision point to trouble ahead

Zacks earnings trends are in recent weeks giving hints of weekness. To profit from this kind of analysis you need to get in to specific sector likely to top out or breakdown. I have around 30 stocks which I am watching for poosible low risk short entries. So even if the market tumbles I want to be ready for the move. Ultimately piccking the right stocks can give you better return on short side also.

The total number of 2006 earnings revisions over the past month stands at 1,042, which is markedly down from the 2,702 reported four weeks ago. Over the last four weeks, there were 460 upward revisions and 582 downward. This makes for a total revisions ratio of 0.79, a clear red flag. Three weeks ago the ratio was 1.35 and has since declined every week until finally dropping below one during the last two weeks. If this ratio persists as the third quarter earnings season gets underway, and total revisions start to pick up, it will be very serious indeed. The strong forecasted earnings growth is perhaps the single most important piece of evidence pointing to a strong economy in 2007. The low revisions ratio is the canary in the coal mine indicating that this pillar is perhaps not as strong as previously thought.

However, the overall earnings picture still remains quite strong, regardless of how you measure it, double digit growth is still expected for both this year and next.

No comments: