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Interpretation

January 9, 2012 – 5:55 pm

We are entering our quarterly dance of the earnings season that kicks off with Alcoa after hours today. The stock price has already been beaten up last year when ‘anticipated’ earnings were going to fall and indeed the expectation is for Alcoa to report a loss tonight due to lower prices for its products.

The dance of earnings, as shown in Alcoa’s case, is one based on expectations of future earnings not the actual number as it is reported quarter after quarter. As you look at recent strength in Alcoa’s stock price most less informed investors would question why is it gaining a little strength after being down 40% last year and is going to report a loss? It was the second worst performing DOW Jones Industrial stock for 2011. Again, it is all about expectations. The fall or rise in prices of stocks takes place, just as it does in the overall market, ‘before’ the actual event of earnings growth or shrinkage occurs.

Once that basic lesson is learned understanding starts to dawn. Of course that is only the first lesson in this very complex and ever changing dance party we call the stock market.

Good Trading
Steve Peasley

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