Stocks react to a made up number (Herb Greenberg) and guidance is a myth

The quarter guidance game is a myth

CNBC Stock Blog
By Herb Greenberg
March 8, 2011

Shocker: Contrary to what you probably believe — at least contrary to my belief! — most companies do not give quarterly earnings guidance.

According to Factset, which did a run at my request:

• Only 96 of the S&P 500 give quarterly earnings guidance.
• 64 offer sales guidance.
• 50 give both quarterly sales and earnings guidance.

The story is much different with annual guidance, reflecting a growing trend of recent years, as companies have tried to pry themselves from such short-term orientation.

Further, according to Factset:

• A more robust 225 give annual earnings guidance.
• 144 give annual sales guidance.
• 116 give both annual sales and earnings guidance.

The grand finale: Only 30 give quarterly and annual earnings and sales guidance.

Moral of the story: The quarter guidance game is a myth. All of that fuss about missing, meeting and beating every quarter is mostly the result of analysts conjuring up their own numbers, resulting in a consensus that the companies than either miss, meet or beat.

Which means, in the end, stocks react to a made-up number.

Absurdity, squared.

Read More Herb Posts

Jim Rogers "I am short emerging markets ETFs, short Nasdaq ETFs." (CNBC & Zero Hedge)

Great Recap of Jim Rogers appearance

on CNBC via Zero Hedge

Jim Rogers, in his latest interview, cuts right to the chase: "I don't own many equities, because I don't know what is going to happen in the world economy. I expect more currency turmoil, more social unrest, more governments collapsing.

So I am investing in currencies and commodities rather than stocks." Pretty much like everyone else, as we have been suggesting for quite a while. Rogers snaps at the trademark CNBC question of what he would be investing in: "I have been explaining to everybody on CNBC for a year and half or two now that food prices are going to go through the roof, they're going to explode.

We have serious shortage of everything developing, including shortages of farmers... The average age of farmers in one major agricultural state is 58 years old. In 10 years it will be 68 years old. In parts of Japan they have no farmers... It takes 7 years for a coffee tree to mature. Orange trees, palm trees: you don't just suddenly snap your fingers and suddenly get some more palm oil. All of this takes time." So all those who believe that the surge in people rushing to fill the ag arbitrage holes will produce immediate results, may need to wait 3-7 years, dependant on access to manure.

On whether this is not a demand-led inflation

in commodity prices:

Whenever governments have printed money throughout history, people put their money in real assets, whether it's rice or silver or natural gas. People protect themselves, they don't just say "give me some more paper money." And if you say it's not demand: go to India, go to China, see how people are changing their lives and using more." As for supply: "Commodities are based on supply and demand. You can have demand go down, but if supply goes down more you are going to have a bull market."

The U.S. Market Manipulators waited until 1 minute before the bell for the save (Zero Hedge)

Lowest Volume Quad-Witching Day

Stick Saved By 1 Billion NYSE Share Spike After Close

Thank you Zero Hedge for the post!!

Another day demonstrating just how pathetic stock trading has become. Up until the close, the NYSE was on track to record the lowest quad witching volume in history. Fast forward to 1 minute after the close, and the machines kick in, sending in almost one billion shares down the frontrunnable chute known as the NYSE pipeline.

Too bad most retail investors still don't understand that the only time when trading actually occurs now is after the market is officially closed. And even with the post-close spike, this was still arguably one of the lowest quad witching days ever.

Stock Rally May Stall After Short Covering (David Rosenberg)

“It would stand to reason that a lot of this push-up

in the market reflects short-covering on very light volume,

which have exaggerated the price gains of late.”

By Lu Wang

Sept. 14 (Bloomberg) -- This month’s U.S. stock rally started with short interest at a 13-month high, suggesting the gains were driven by traders who had to buy back shares after betting against them, Gluskin Sheff & Associates Inc. said.

Short interest, or total number of shares sold short, climbed to 19.2 billion on the New York Stock Exchange and the Nasdaq Stock Market at the end of August, the highest level since July 2009, Bloomberg data showed. Since then, the Standard and Poor’s 500 Index has gained in eight of the past nine days, jumping 6.9 percent this month.

“The shorts had a field day in August,” David Rosenberg, chief economist and strategist at Gluskin Sheff in Toronto, wrote in a note yesterday. “It would stand to reason that a lot of this push-up in the market reflects short-covering on very light volume, which have exaggerated the price gains of late.”

The S and P 500 yesterday rose to its highest level in a month after surging Chinese production and a forecast for faster growth in Europe boosted confidence in the economy. The benchmark dropped 16 percent from its April peak to July low on concern the U.S. may slip into another recession.

“It is fascinating to watch how emotions shift so suddenly,” Rosenberg said. The current advance may turn out to be one of the market’s “huge headfakes,” similar to rallies in the summer of 2000 and the fall of 2007. “It doesn’t feel good to get head faked, but Mr. Market has made a living doing this to people,” Rosenberg said.

Past Slumps

In 2000, the S and P 500 climbed 7.1 percent from July to September before succumbing to a two-year slump. In 2007, a two- month, 11 percent surge from an August low heralded another bear market. After hitting an all-time high of 1,565.15 on Oct. 9, 2007, the benchmark plunged 57 percent over the next 17 months.

Rosenberg said the S and P 500, which has been stuck in an 80- point band between 1,050 and 1,130 in the past two months, will soon revisit its July 2 low of 1,022.58 as a slowing economy forces analysts to slash estimates.

It is likely “that when this prolonged trading range breaks, it will break to the downside,” Rosenberg said.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

Grandpa

The Repetitive Anemic Volume Manipulative Short Squeeze

 During the initial 8 trading days in September, the S and P 500 launched 73 points (7 percent) on average daily trading volume of 3.617 billion shares.

During the final 8 trading days in August, the S and P 500 dropped 26 points (2.4 percent) on average daily trading volume of 3.809 billion shares or 192 million more shares per day than the initial 8 trading days in September.

Meanwhile, CNBC just realized High Frequency Traders might have an impact on the overall equity market and after pooling their coffee money, produced Man Versus Machine which surely places them in contention for a Peabody Award.

Remember the ramp to dig yourself out....

Short Sale Rule Passes After 3-2 Party-Line Vote, Shorting Anything To Be Illegal Shortly (Zero Hedge)

Zero Hedge:
By the thinnest of margins, the SEC just voted 3-2 to institute the short-selling rule which will put curbs on shorting individual securities that fall over 10% in any one day. Dow Jones points out that even market decisions are now split according to party lines: "Republican Commissioners Kathleen Casey and Troy Paredes said Wednesday they would vote against the proposal. Democratic Commissioners Luis Aguilar and Elisse Walter signaled their support for it, along with SEC Chairman Mary Schapiro, who was appointed last year by President Barack Obama." Paredes was further quotes as saying that the rule is "rooted in conjecture and too speculative." Not surprisingly, Aguilar and Walter, both likely reading from the party lines said that this would "help bolster market confidence."

At this point we are too lazy to pull the S&P chart of what happened in 2008 when shorting in select stocks was proclaimed verboten for a certain amount of time. We fail to see, however, how eliminating this critical piece of market testing will do anything but further increase speculation that the entire market is now a sham, propped up by various regulations and money printing practices.

At least the SEC can now go back to doing what it does best, which is not enforcing the law against blatantly obvious instances of insider trading and market manipulation.

The Key to manipulating the equity market….reduce the volume

The top brokerage (a.k.a. TARP banks) Cheetos eating, Red Bull drinking algorithmic gamer traders kicked some serious booty during the prior week. Not only was it “manipulative options expiration week,” the volume was anemic compared to prior weeks.

S & P 500 (yes Scarlett you can manipulate trading on a basket of 500 stocks):

Week ending 2/19/10
4,040,725 average daily volume (8.24% less than prior week)
1,109.17 close (up 3.13% from prior week)

Week ending 2/12/10
4,403,416 average daily volume (13.4% less than prior week)
1,075.51 close (up 0.874% from prior week)

Week ending 2/5/10
5,082,238 average daily volume
1,066.19 close (down 0.0072% from prior week)

Week ending 1/29/10
5,079,534 average daily volume
1,073.87 close (down 1.666% from prior week)

The S & P 500 closed up 35.3 points or 3.3% from the January 29th close. At the same time, the average daily volume dropped 1,038,809 shares or 20.5%. The cheerleader crew on CNBC does not offer this reality check analysis as their parent company (GE) trained them well on managing data.

The superior man understands what is right; the inferior man

understands what will sell.

Confucius

“The man who is admired for the ingenuity of his larceny is almost always

rediscovering some earlier form of fraud. The basic forms are all known,

have all been practiced. The manners of capitalism improve.

The morals may not.”

John Kenneth Galbraith

David Rosenberg's view of 2010

Investors are growing more risk averse as they question the macroeconomic outlook as the government withdraws its support. Moreover, as last year’s sugar high continues to wear off, what we can expect to see is a return to what can only be described as heightened volatility in the markets, and the need to shift towards less cyclical and more defensive and income-oriented strategies that work well in a period of increased economic uncertainty.

Jon Stewart on the bankers

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Obama Takes On Bankers
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Crisis

Sunday Comics

"I won George, I'm now the Speaker"

"Brutal, Copenhagen was a nada, my ratings are tanking,

 Scott Brown wins, health reform is lukewarm

and now the Supreme Court conniving 5"

Ford Focus, Best Green Car of 2010 Detroit Car Show

Feinberg wants AIG to

reduce retention awards

                                               AIG, "but $195 mil due in March"

Senators predict Bernanke confirmation

Jim Cramer's Market Rally post Scott Brown election

Here's a little song I wrote

You might want to sing it note for note

Don't worry, be happy...

Scott Brown Victory Dance

"It's all over the internet, 70 phone calls in 14 hours

including your buddies at JP Morgan and Goldman Sachs"?

 

In Cramer We Trust, Scott Brown Victory equals Market Rally (oops)

Tuesday, January 19th, Cramer boasted how the equity market would rally after a Scott Brown victory in Massachusetts. RESULT: Dow ended the week down 552 points since Brown’s victory. “Brown better win or else there’s no tomorrow for this rally”.

BIG OOPS JIM (as usual)

"Let's see how I can spin this..."

Ride This Cramer

An Equity Market Rally with No Legs?

The equity market produced a remarkable run in 2009. It left quite a number of us scratching our heads given the underlying global economic fundamentals. A full bottle of Selsun Blue could not remove the urge to scratch. There are ample “experts” and analyst pundits paraded around all day, every day on CNBC. They are giddy about a “V” shaped recovery so I will not even bother taking the other side of a less than bullish perspective regarding true and accurate economic fundamentals. Note to self: these are the same experts and pundits that remained bullish the entire way through the lost decade of the equity market.

An interesting fact is that this monster rally occurred with a precipitous drop in volume. Even the pundits might sneak a head scratch to explain the lack of commitment based on trading volume.

On July 10, 2009, the 3 month daily volume average for SPY was 245,300,000 shares. On January 5, 2010, the 3 month daily average was 165,218,000. This is an 80,000,000 daily share reduction.

During this same period, the S & P 500 went launched from 879 to 1136 (257 points or 29%). This is a 29% increase in just under 6 months. The market needs a blood test as steroids are likely present. One can’t help but continue to scratch the annoying itch given the average daily volume of SPY experienced a nosedive of 32.6%.

I for one wonder who is running this race as given the lack of volume (a.k.a. lack of commitment), this has been one hell of a sprint on one leg.

Nicely done Stifel

The bell goes off and Capital One Financial was the hit of the party. There were many buyers simply waiting in the weeds for an upgrade so they could buy in. They are no longer in the weeds. Closed pretty much at the high of the day so I am sure the analyst's trading desk had a most productive day and their large clients will head home with a smile on their face.

We will see what the balance of the week has to offer.

QTQX3BXJM6TB

You gotta love analysts

What an American treasure these analysts. One has to wonder what their real agenda is when they change the rating of a stock. Maybe they simply have too much inventory and merely need to mix it up a bit and afford their trading desks with a couple of high volume days. It could be as simple as finding those stocks with a measurable short position and commence with the time favored short squeeze. Let’s not forget about the larger position clients that want to get out of a position and what a better way to put a big smile on your clients’ faces than to get them out with another 3 to 5% gain. This of course assures one of attending all the fancy holiday events.

Today, an analyst at Stifel Nicolous raised his rating on Capital One Financial (COF) to Buy from Hold and raised the earnings estimate for 2010 to $2.86 from $2.53. The analyst took out his crystal ball and justifies the rating change as the ball told him that “the worst of losses from loans is likely past”. Of course this “Ouija board” forecast comes on the heels of COF noting increases in delinquencies and write offs for the month of November and the CEO projecting flat business for 12 to 18 months.

It appears that during the summer months, many analysts work the carnival circuit in an effort to maximize the usage of their crystal balls. Summer months tend to be slow for the equity market and the carnival fortune telling and guessing someone’s weight affords the average analysts an opportunity to hone their skills for the fall equity season.

On April 14, 2009, Stifel Nicolous downgraded the stock to hold from by. The same day, the stock closed around $17.00. Yesterday, COF closed at $39.05 ($22 increase or 130%). WOW, what a scholar. The analyst could not justify anyone to taking on a new position under $20…just hold and now that it has more than doubled, it is time to open the flood gates for newbie’s to BUY so we can move inventory, squeeze shorts and enable our larger clients to smile.

I wonder if the analyst rating call agenda would be the same if their grandchild was sitting in their lap.