Its All About Earnings
Technical
The S&P500 ended the 3rd quarter above its 50 day moving average (dma) bolting from a sound base of support at the 1215 level on Thursday. Friday's close at a minimum gave confirmation of the move as the index stayed above its intermediate trend line, albeit just. Market internals point to a slightly oversold condition probably a product of end of quarter window dressing by institutions. The nasdaq composite acted similar to the S&P500 although its close was just shy of its 50 dma. Like I mentioned in my previous post, if either index can stretch higher in the near term (close above 1245 on the S&P and 2219 on the nasdaq composite) they would complete a "W" pattern, which is considered very positive by many market technicians. As usual the devil is in the details and only time will tell.
Its All About Earnings
Barring a hurricane or other disaster earnings reports are likely to drive the stock market this month and most of next. Now it is analysts expectations and the footnotes that will test the mettle of investors. Two hurricanes, spiking energy prices and rising interest rates have served to slow consumer confidence and dent the books of many businesses. There will be plenty of blame to go around, however, the smart money will be ever vigilant in sorting the true disaster costs from companies that merely dropped the ball. Executives will have to provide tangible evidence for why their bottom lines were temporally affected. Opportunities will exist for investors who are able to read between the lines. Stay tuned as we sort through the rubble and find profitable gems. Visit our website at www.thesmartmoneyinvestor.com to see our positions and their targets. Bookmark it, or better yet add this blog to your reader to get updated when changes are made.
As is the case every year expect money managers, especially the ones who manage for government employees, to re-balance their portfolios by October 31st. Opportunities will exist as managers shift assets into issues they believe will lead next year. Energy, healthcare and tech are the favorites right now but there are no guarantees. On the surface we are looking at tech and insurance as possible turnarounds with energy and commodities continuing to draw our attention. In coming posts I will identify some of these ideas, in fact I have included one below.
Key Factor Update
3rd Quarter Earnings (positive +) - 17.6% -Thompson Financial recently upped its earnings target for the 3rd Quarter. Until now we have use 16% as our year over year growth target for 3rd Quarter earnings. Growth in the energy sector has bumped up analysts estimates again. However, if we remove the energy sector from the S&P500 analysts predict 12% growth, which is not bad as it remains in the double digit range. The up coming quarter will be challenging for money managers as the economy has been in flux and much has shifted. I expect that there will be a change in leadership as investors move away from slowing businesses and into up and comers.
We continue to be cautiously optimistic into the end of the year. We believe that it remains a stock pickers market with increased risk and volatility expected through earnings season. We are likely to add protective puts when prudent to protect our profits and shift into new positions as opportunities present themselves.
The S&P500 ended the 3rd quarter above its 50 day moving average (dma) bolting from a sound base of support at the 1215 level on Thursday. Friday's close at a minimum gave confirmation of the move as the index stayed above its intermediate trend line, albeit just. Market internals point to a slightly oversold condition probably a product of end of quarter window dressing by institutions. The nasdaq composite acted similar to the S&P500 although its close was just shy of its 50 dma. Like I mentioned in my previous post, if either index can stretch higher in the near term (close above 1245 on the S&P and 2219 on the nasdaq composite) they would complete a "W" pattern, which is considered very positive by many market technicians. As usual the devil is in the details and only time will tell.
Its All About Earnings
Barring a hurricane or other disaster earnings reports are likely to drive the stock market this month and most of next. Now it is analysts expectations and the footnotes that will test the mettle of investors. Two hurricanes, spiking energy prices and rising interest rates have served to slow consumer confidence and dent the books of many businesses. There will be plenty of blame to go around, however, the smart money will be ever vigilant in sorting the true disaster costs from companies that merely dropped the ball. Executives will have to provide tangible evidence for why their bottom lines were temporally affected. Opportunities will exist for investors who are able to read between the lines. Stay tuned as we sort through the rubble and find profitable gems. Visit our website at www.thesmartmoneyinvestor.com to see our positions and their targets. Bookmark it, or better yet add this blog to your reader to get updated when changes are made.
As is the case every year expect money managers, especially the ones who manage for government employees, to re-balance their portfolios by October 31st. Opportunities will exist as managers shift assets into issues they believe will lead next year. Energy, healthcare and tech are the favorites right now but there are no guarantees. On the surface we are looking at tech and insurance as possible turnarounds with energy and commodities continuing to draw our attention. In coming posts I will identify some of these ideas, in fact I have included one below.
Key Factor Update
3rd Quarter Earnings (positive +) - 17.6% -Thompson Financial recently upped its earnings target for the 3rd Quarter. Until now we have use 16% as our year over year growth target for 3rd Quarter earnings. Growth in the energy sector has bumped up analysts estimates again. However, if we remove the energy sector from the S&P500 analysts predict 12% growth, which is not bad as it remains in the double digit range. The up coming quarter will be challenging for money managers as the economy has been in flux and much has shifted. I expect that there will be a change in leadership as investors move away from slowing businesses and into up and comers.
We continue to be cautiously optimistic into the end of the year. We believe that it remains a stock pickers market with increased risk and volatility expected through earnings season. We are likely to add protective puts when prudent to protect our profits and shift into new positions as opportunities present themselves.
- ZHNE - We recently re-entered a position in Zhone Technologies for all the same reasons we bought it before (we were stop out of our previous entry position). From a market technical perspective the company looks to be bottoming out as the stock pushed above its 200 dma on higher volume. However, 3rd Quarter earnings look to be messy due to the acquisition of Paradyne and a re-balancing of its product mix and may spell further downside for the stock. Currently, we feel that the downside is limited. If investors can get beyond the current spat of corporate re-engineering we feel that the stock has a ways to go. First, Mory Ejabat its CEO is a prolific acquirer. His methods are not always pretty, or successful, but he always cuts his targets to the bone and gets a lot for a little. When he is right he is right and some of his previous buys have been monumentally successful. Second, on Friday the company announced the sale of its ARCA-DACS product line to Verilink. What is significant about the transaction is that in the past the line was the company's main source of revenue as newer more market grabbing lines were developed. We view this as a signal that the umbilical has been cut and management has shifted its focus more fully to the next generation and beyond. Third, many of the company's industry peers have had their market caps double or tripled in the last year. Since Zhone took on this relatively large acquisition during that period we feel that investors have taken a wait and see attitude with the stock. Obviously, we are speculating that the company will integrate successfully and skeptical investors will add ZHNE shares to their portfolios. Lastly and perhaps the most compelling reason to own ZHNE is that the market for Zhone's products is growing. In previous posts I discussed the resurgence of broadband; Zhone is smack in the middle of it.
posted by Burton Hess at 7:03 PM
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