Stock rally on earnings
Before earnings season started, I’d postulated that I thought estimates were low enough that we were likely to rally as the reports started flowing in. And as it happened, this week has seen a lot of rallys strength in the stocks that have reported, even when those reports were “worse than expected”. As always, it’s not the news that matters, but how the stocks react to the news that matters to our portfolio, so let’s run through some of the recent action and see if there’s any good “tells” in the action.
F5 FFIV for example, reported a good quarter, mostly inline with estimates but their guidance was a bit “soft”. That means they told the Wall Street analysts who cover the stock that FFIV’s next quarter probably won’t be quite as strong as the analysts had been expecting. The stock dropped after the report last night and was down early in the action today and is now up 3% plus. And that’s after it was up 7% in yesterday’s markets. I continue to hold my FFIV position steady.
Intel used to be one of the best tells for not just overall tech market trends, but also for the trading action of other stocks. And sure enough, in yesterday’s action, it too had rallied sharply after a quarterly report that was also soft in guidance. I don’t have a position in Intel, but the strength there is probably indeed another good tell for the very-near-term, at least until proven otherwise. See FFIV above for more affirmation of this trend.
Other stocks that are rallying similarly include IBM, EBAY and QCOM, all up sharply after their earnings reports last night. It doesn’t mean every stock will rally off a soft report and it doesn’t mean that this trend will last all the way through earnings season. But the playbook, as I laid out a couple weeks ago when the Bulls Were Scaredy Cats has played out in combination with earnings season as planned and I am sticking with it for now.
Sandisk is up tonight and I’m worried about it after it’s rallied 10% in the last few days and I’m also worried that the company’s pricing power hasn’t been great this quarter. I’m holding my position in Sandisk steady for now despite those near-term worries, in part because the action in these post-earnings reports has indeed been so strong.
