Friday, July 16, 2010

Chart of the Day - Corporate earnings approaching credit bubble highs

The folks at Chart of the Day have done it again, with a fascinating big-picture look which focuses this time on stock market corporate earnings. There's been a huge rebound since the precipitous drop! Either it's a simple reaction bounce that will weaken out soon, or a bullish increase that will lead to new highs. But there's a problem - what's the real likelihood of actual earnings coming in to support new highs in stock index prices? We nirmally focus on technicals rather than fundamentals, so I won't try too much speculation. What I really suspect is that the recent months' stock index weakness presages some weakness in earnings. Then the big question is whether we move onward in basic bull market mode, or do cycles call for more protracted weakness?

It seems prudent to be alert for the market respecting important support levels. That's why I'll be watching $SPX 1060 very closely! Meantime let's see what they're saying at

Chart of the Day
With earnings season having kicked off this week, today's chart provides some long-term perspective in regards to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low -- the largest decline on record (the data goes back to 1936). Since its Q1 2009 low, S&P 500 earnings have surged (up over 700%) and currently come in at a level that has only been exceeded during the latter years of the dot-com and credit bubbles. Current expectations on Wall Street are that earnings reach the mid-$70 level by the end of 2011 -- a level surpassed only briefly during the tail-end of the credit bubble.

- Where's the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus.

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Quote of the Day
"Human-nature will not change." - Abraham Lincoln

Events of the Day
August 09, 2010 - PGA Championship begins (ends August 15th)

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