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------------------------------------ From The Trading Turret --------------------------------------------------
From: Robert A. Christy Editor, From the Trading Turret President/CEO, Christy Investment Group http://www.christyinvestments.com
Date: May 8, 2006
Current Field Position: Offense, but field position is getting worrisome
BP NYSE: Xs @ 68.55 BP OTC: Xs @ 57.07 BP Option: Xs @ 65.65 Sector Bell Curve: 63.56 Favored Sectors: COMP
This week’s comment …
Just a reminder that From the Trading Turret is changing from an every week publication to every other week or on a more frequent as needed basis when conditions warrant. We are currently in the midst of quarterly earnings season and so far it appears that Corporate America is well on its way to posting double-digit earnings growth for the 16th consecutive quarter. Coming into earnings season, just two weeks ago, the consensus on the Street was calling for first quarter earnings to grow by 10.4%. So far, with more than 270 of the S&P 500 companies having already reported, earnings have easily surpassed expectations with 16.2% growth. 71.9% of companies have surpassed estimates and only 10.7% have disappointed. The sectors with the strongest growth are energy, industrials, telecom services, and technology. In the last “Trading Turret”, I stated, "earnings growth is slowing and this reporting season is likely to be last the last for double-digit gains. Given, the slowing trend, it will be interesting to see guidance companies give for coming quarters and more importantly how the market responds." The market hasn't quite responded in kind to the strong earnings growth, even though the Dow Jones Industrial Average is flirting with 6-year highs. In fact, the market is getting more selective as it nudges higher. Also, as we mentioned in our last Market Update, since the market's interim high on January 11th, the major indices haven't advanced much. The secondary indices have held up much better, but over the past several weeks there has been a shift in relative performance with the Dow Jones Industrial Average outperforming. This flight to the blue chips, if it continues, is not necessarily a bullish long-term event as it signals that the smart money is turning more defensive. There are several reasons why: (1) Seasonal Trends. On a seasonal basis we are about to enter a weak period of the year. Remember the Wall Street axiom - sell in May and go away? (2) Rising Treasury Yields. The 10-year Treasury Note is currently yields about 5.1%. Many on Wall Street consider 5.0% the point where the risk of bonds and stock intersect. (3) The continued rise in commodity prices. The risks that I’ve talked about lately still persist. They are: a reluctant Federal Reserve; crude oil prices; a bull market that is long in the tooth, slowing earnings and economic growth for the remainder of the year, the four-year cycle is due to bottom this year, and growing technical divergences. On a final note, a tidbit from Ned Davis Research shows that the average peak for the mid-term election year occurred on April 21st. Since 2003, we have followed the election cycle pattern fairly closely. This peak has been followed by a sizable correction into the four-year cycle low. OK – in English that means – it could get a little dicey. Even though the talking heads want us to BUY everything in sight, it would be prudent to keep both eyes on the road. The average decline into the four-year cycle low from 1946-2002 has been 22.2%. The subsequent rally following the four-year low had been very strong, averaging a 51% gain on the S&P 500 from the low to a high the next year. There is a silver lining in the storm cloud that is approaching. Be patient and we’ll find a way through this maze. That’s about it. Have a great week!! Bob Robert Christy is a professional stock trader, money manager and author. Mr. Christy is also the President CEO of Christy Investment Group, Ltd., a registered investment advisory firm. He is also the Managing Partner and Portfolio Manager of Plato Advisors, LLC. At the time of publication, Mr. Christy may from time to time write about stocks in which he, Christy Investment Group Ltd or Plato Advisors LLC has a position. In such cases, appropriate disclosure is made. Under no circumstances does the information in this column represent a specific recommendation to buy or sell stocks. Mr. Christy appreciates your feedback and invites you to send it to rac@christyinvestments.com. |
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