Do earnings matter?
I get asked this question quite often. The answer is that earnings do matter over the longer term. However, over the near term, it's almost like tossing a coin.
reports earnings 2 cents shy of expectations but tempers that news with bullish comments about the second half. The result? The stock rallies a couple of bucks but certainly does not run away on you.
reports earnings 3 cents better than expectations but has several words of caution with regard to
. The result? The stock backs off a couple, only to come on again, which leaves it right where it began the week.
It's not just tech either. After its earnings report and bullish comments,
is also back where it began the week.
has barely budged.
is up 2 on its report but still down about 10% from a month ago.
Now I know it's not every stock that reacts this way, but many do. Yesterday, I recommended
as a stock which has been building a base and seemed to be ignoring the industry's bad news. Then
drops a bomb, telling us that it's got some earnings trouble in the quarter. The company takes AMR (and the rest of the airlines) down, but where did AMR really go? It just gave up the gain it had the previous day. The result? No damage done to the chart. It's still a good chart.
In fact, the
Dow Jones Transportation Average's
chart is one of the most interesting charts at the moment. It is sitting just above two rather important uptrend lines. One of those lines dates back to the October 1998 low, and the other follows the uptrend which has been in place since just after the initial burst upward. The former is a rather steep line while the latter is much flatter. It is important that we find them both hovering in the same area at this juncture.
It is my opinion that this average is quite oversold here, and despite yesterday's bad news, it has not broken either of these lines, although it was certainly given the opportunity to do so. I believe the transports should rally from this oversold condition, which also happens to be a decent support level.
Should the transports find they are unable to hold support and break these levels instead, it would not be a good sign for the market as a whole. The Dow Theory states that the if the industrials are making new highs, so should the transports. Since there is no stated time frame for this confirmation to take place, we need not worry about the nonconfirmation immediately. However, if the transports break a previous low (in this case 3,313), it would be very unlikely they would then reverse and rally to new highs. That would be considered an important negative divergence.
However, for now, we will wait for them to rally.
Elsewhere, some stocks have spent this past week correcting and are now looking poised to move higher.
has one of those charts. So does
On the negative side,
is still looking quite shaky to me. In tech land,
is still a stock I'd take a profit in up here.
On a topic away from equities, I feel a comment on the dollar is important here. I monitor dollar/yen on a daily basis and, on occasion, have made comments about the cross-rate in this column.
For almost a year now, dollar/yen's 200-day moving average has been trending down. Back in May, this cross-rate crossed back to the upside of the long-term moving average, but as long as the moving average was still heading down, I thought the move insignificant. However, over the next few trading days, there is a very high probability the 200-day moving average line will halt its slide, flatten out and turn higher. That change in trend is typically associated with a significant price move in the underlying security. (I discussed this fully in a
While a turn in the underlying security does not usually happen immediately, it does signify a change in trend. This means that if the dollar did begin to strengthen, it would now have some momentum behind it. With the 200-day moving average line trending down this past year, rallies were easily halted by resistance. With future rallies facing less resistance, it now appears likely we will get a move in dollar/yen back to the 130 area in the near future.
New Highs and New Lows
Cumulative Advance/Decline Line
Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at