As might be divined from our past Ramblings, we are not big proponents of technical analysis. Not that we don’t think there is a place for it. Like any philosophy, if enough people ascribe to its tenants then it becomes a self fulfilling prophecy of sort. And, believe us, there are many adherents to the chart method if investing so to ignore it would be folly. Still, we remain firmly grounded in fundamental analysis while keeping a half an eye on the charts. But sometimes we like to have a few yuks at the technicians expense…
Last week a very important technical event occurred. The “head and shoulders” of doom chart pattern, which every bearish technical analyst used as proof that we were heading back to Dow 6000 and at which every bullish technician sullenly nodded his head in gloom, took a hit. The body blow came mostly from Intel with some help from a few other tiny tech companies such as IBM and Novellus. The bottom line was that, the bottom lines of tech companies (and a few really small financial service companies like Goldman Sachs and JPMorgan) weren’t as bad as analysts expected. As you recall from our last Ramblings, we suspected just the case would unfold thanks in part to conservative (frightened) Wall Street analysts’ failure to raise earnings expectations after last quarter’s reporting season. No, we are not tooting our own horn here. There are lots of earnings reports to come still and many sectors have not even begun their confessions. And, of course, we have really only heard from the “bell weather” companies. Frankly, we expect a mixture of positive and negative surprises versus expectations, which should form a “normalizable” bell curve when graphed. Yes, we know that’s not a real word but it is the best way we know how to express the fact that earnings reports are typically skewed to the positive since companies long ago learned to play the expectations game. Anyhow, all we are saying here is that this earnings season should actually turn out to be a good old fashioned one—some beats, some misses, some “in lines.” And that is what makes markets, produces opportunities on both the long and short sides and makes fundamentally-based active money management worth pursuing. So, having said that we fully expect the Dow to hit 9123.75 if it can break 8778.5 at which point we should all be buyers…unless, of course. it stalls at 8771.3, in which case it we expect it to go to 8345.295 and we would be sellers. Then again, it could just sit here and we recommend doing nothing. Wait, are we holding the chart the right side up…? Happy Investing!
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