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Market Health

January 14, 2010 – 12:09 pm

It is very early in the earnings season and at the start the market stumbled slightly. However, this morning’s comments from Kraft foods about growth in their industry, and dismissing their need to buy Cadbury, and in conjunction with abetter outlook for retail stocks the market is starting the day on the positive side.

The market will be watching earnings and more importantly what the CEOs say about future earnings. The earnings are likely to be strong but that is primarily due to cost cutting. Therefore, the focus will be on sales growth to boost future earnings.

Without continuing good news on the economy and its resultant growth of sales the market will begin to turn toward valuation of stocks and at the moment they are high. They are high only in retrospect not prospect. The market looks and values stocks based on what it sees in the crystal ball, and even with all the faults in prognostication, the market has been very good as a predictor. As we all know the market has been saying for sometime the recovery is on the way. But also it has a history of being over exuberant or depressed in the short run.

Can you decipher which emotion the market is operating under today? I can not.That’s why earnings are so important; they are the underlying health doctor, calming the patient who has trouble controlling emotion. Long term the patient is reasonable, short term he’s not.

Good Trading
Steve Peasley

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