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UPDATE: THE EXPECTATION RATIO REMAINS FIRMLY BULLISH

13 October 2009 by Cullen Roche 2 Comments

The expectation ratio marked a new annual high this week hitting 1.58.  The indicator which is made up of almost a dozen different earnings components, compared to current expectations, measures the likelihood of future strength in earnings.   With the ER reaching a new high one can only conclude that expectations for the earnings outlook remain far too low and companies have plenty of room to maneuver and toy with the analysts this earnings season.  Another quarter of beat and raise should shock the analyst community.  Price target increases and stock upgrades will be the likely aftermath.  I continue to think short strategies and market neutral strategies will underperform over the coming 4 weeks.

ER

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Comments
  • Henry

    thank you. Market is less bullish in my opinion. We’ll see how the banks earning coming out. That call for XLF is off the chart

    10/13/2009 at 9:30 AM
  • Greedsgood

    TPC- Do you track the performance of the initial earnings reports in the first 1-2 weeks of the season to get a sense for how they are reacting to good/neutral/bad news?

    I’ve been tracking a dozen or so from last week (AA,YUM,etc) and have noticed that despite the initial pop at the open, they sold off later. This cannot bode all that well for the market if good news is being met with selling.

    I would think that your Expectation ratio might benefit by being integrated with a “reaction ratio” to gauge the effect of the beat/meet/miss on sales/eps.

    10/13/2009 at 1:00 PM