EPS Surprise – Do Earnings Matter Anymore?

Reading the news first thing in the morning these days disturbs my coffee.  When I read things like, "The New York Fed joins a group of investors demanding Bank of America buy back mortgage securities...."  What?  That is not what I call a stabilizing force in the fragile Banking Industry right now (Financial Sector is the 2^nd row, right side).  What happened to due diligence and back channel sorting out of issues to solve problems?   Unfortunately this is one of many problems that are clouding what I call the "Confidence Factor."  Anyone running a business (and I include our sparky little company, Aqumin LLC) needs to plan and they need confidence to plan.  I'm not here to argue the politics, but the market is showing us that confidence in planning is very low, probably near or below 2002 levels.  I created a simple AlphaVision Landscape to show this.

First I created a landscape with the S&P 1500 Universe that have reported earnings this cycle (just set to Latest Announcement Date in the Landscape Filter Bar and pick your dates)   All the dark green buildings are stocks that have surprised on the upside for EPS by at least 25% in the October earnings cycle (the last two weeks).  White and light green buildings are from 0 to 25% surprise on the upside.  I have Apollo (APOL) highlighted for a reference point.  Even a passing glance says companies are reporting well above earnings estimates in this cycle.  But here is the kicker: building height measures total return for the last week and I flipped this landscape over. All the names you are looking at are actually down for the last week.  I figured with the sell off yesterday these names would be back to even at worst - but not so.  At the least, the market is still selling companies that miss earnings.  Something is dependable (red spikes).  Companies are having a hard time with "guidance".  They are making money but, "don't ask for more information because we don't have it."  This landscape rounds out my low "Confidence Factor" thesis.  The unintended trading result from this landscape is that, for this cycle at least, if you want to unload a name do it the day before earnings are announced.  You will look right most of the time.  It is what a company is not saying that the market is listening to.

Andrew Giovinazzi

For AV for Bloomberg users, just click EPS Surprise with 1 Week Total Return in the View Library to interact with this view live. If you are not an AlphaVision for Bloomberg Subscriber please follow the download link here:  Download AV for Bloomberg

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Ferdinand or Raging Bull??

Those of you that have been reading my posts for the Aqumin blog I thank you for your patience as I have been contributing to the TheStreet.com's Option Profits lately.  Those posts are mostly option oriented picks for TheStreets' subscribers (but do show up in Yahoo Finance now and again on Wednesday's after the close).  For my posts at Aqumin I am going to stick to the broad volatility trends I watch daily using AlphaVision for Bloomberg.  I'll be sharing my observations with you weekly.

There has been so much takeover action (is Bain Capital really buying Gymboree?) that I thought a broad gauge of volatility in the S&P 500 was a good idea.  I am not talking about the VIX, but the short term underlying (HV10) volatility of the stocks themselves.  In the AlphaVision Landscape below the big green spikes on top of the landscape are stocks up the most for the last week with the greatest change in HV10.  You can think of these stocks as rallying with gusto (more Robert DeNiro in Raging Bull) and the red stocks show declining HV10 (more like Ferdinand in your kid's books).

I highlighted both King Pharmaceuticals Inc (KG) and Adobe Systems (ADBE) for context in the green spikes.  The simple take away here is that HV10 is trending down for most of the S&P500 (but stocks have been mostly up) which in general is a better time to write calls against existing stock positions (the red ones).

If you are looking for up and out short term, write the green spikes (too late for KG though, Pfizer beat you to it).  Of note to me as well is the general lackluster performance of the GICS Financials in the back left corners.  Not one big green spike.  Just how long will they remain the Ferdinand's of the equity market?  Tune in next week....

Andrew Giovinazzi

For AlphaVision for Bloomberg subscribers please click the 1 Week Momentum BLP view to see this in Real Time (chose the S&P 500 Universe) and navigate to the names in your portfolio.  If you are not an AlphaVision for Bloomberg Subscriber please follow the download link here:  Download AV for Bloomberg

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Processing a Volatility Play on LPS

My latest Option pick for TheStreet.com.  Follow the link below to see my post and learn more about the landscape shown here.

Volatility Play

Andrew Giovinazzi

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