EarningsBeats.com Strategy for Finding New Winners | Exchange places with Tom Bowley

Earnings and interest rates have always been key drivers of stock market success. There may be other short-term factors that influence price action, but ultimately, rising incomes and interest rates, which support jobs and economic growth, lead to a long-term bull market.

Organize your trade candidates with ChartLists

I watch interest rates very closely and take this into consideration when assessing future market direction, but what we actually watch most closely at EarningsBeats.com are earnings reports. Fourth quarter results aren’t complete yet, but most of the most influential companies in the Dow Jones, S&P 500 and NASDAQ have reported. Our research, including the revenue survey, consists of several ChartLists, briefly described below.

• Strong Returns (SECL): Companies that beat both revenue and EPS estimates and meet other liquidity and performance filters. I see it as a list of companies that demonstrate high quality technology and fundamentals. This is the ChartList I trade most often.
• Strong Future Returns (SFECL): Companies showing good relative strength (high SCTR scores) and adequate liquidity that are not yet included in the SECL. I think of this as a list of quality companies that weren’t able to beat estimates in previous quarters but are trading like they might do so in the coming quarters.
• Strong AD (SADCL): Companies showing excellent relative strength (high SCTR score), adequate liquidity, and a rising AD (accumulation/distribution rather than rising/declining) line. The AD line ignores the opening gap and focuses only on intra-day price movements, with volume acting as a multiplier. The companies in this ChartList tend to trade higher until the close, suggesting that morning weakness could be bought.
• Guide upward (RGCL): As the name suggests, these are companies that are increasing their guidance on revenue, EPS, or both. I like management teams that are confident in their business and provide guidance throughout the quarter.
• Bullish Trifecta (BTCL): This is a company common to SECL, SADCL, and RGCL. These companies delivered strong quarterly results, raised guidance, and demonstrated the potential for accumulation among Wall Street’s biggest players.
• Profit Advertising (EADCL): Companies that earned at least 5% profit from the opening bell to the closing bell the day after earnings were reported. We then review all of these companies and bring you the top 30, companies you might want to consider doing business with in the coming days and weeks.
• Short Squeeze (SSCL): A company with a heavily sold float. We track short companies with float ratios exceeding 20%. High short-term interest rates can trigger a massive short-squeeze rally.
• Seasonality (SEASCL): A company with a history of good performance during a specific month.
• Portfolio Chart List: Each quarter, we provide a list of companies that have been “drafted” into four portfolios: Model Portfolio, Aggressive Portfolio, Income Portfolio, and Model ETF Portfolio.
• Relative Strength Industrial Group (RSICL): This is an exclusive list of charts for annual members that tracks the relative strength of all industry groups over the past few years. Trading the leading stocks of major industry groups is the way to beat the S&P 500, and this ChartList features these major industry groups.

There are other ChartLists that we produce from time to time, but from the above you can see that our research is extensive and we regularly provide a huge amount of great information to our members. However, before trading anything, it is a good idea to evaluate the current state of the market. Is the current rally sustainable?

S&P 500: Is the current uptrend sustainable?

I agree. Sure, there may be some pullbacks along the way, but money is currently flowing into aggressive areas of the market, and this “risky” environment bodes well for future price gains. S&P 500 Price Chart Check out this S&P 500 chart that includes several key “sustainability” ratios in the panel below.

Isn’t this obvious? Money continues to pour into aggressive territory. The six sustainability ratios above can be summarized as follows:

• QQQ:SPY – Compares NASDAQ 100 performance with S&P 500 performance. The Nasdaq 100 is a much more aggressive index that focuses almost exclusively on high-growth, large-cap stocks.
• XLY:XLP – Consumer Discretionary and Consumer Staples. Two-thirds of GDP is consumer spending. It makes sense to identify Wall Street’s preferred areas of consumer spending: aggressive discretionary spending and defensive essential spending. This gives us an idea of ​​what Wall Street’s biggest names are expecting in the coming months.
• IWF:IWD – Large Cap Growth vs. Large cap value.
• $DJUSGL:$DJUSVL – Another measure comparing large-cap growth and large-cap value.
• $DJUSGM:$DJUSVM – Mid-cap growth vs. Mid Cap Value
• $DJUSGS:$DJUSVS – Small Cap Growth vs. Small Cap Value

My offensive to defensive ratios are both rising. Personally, I love all the pessimists who are constantly trying to destroy this bull market. The problem is that many analysts try to hand-pick one or two secondary indicators to determine market direction, which in my opinion is completely wrong. Looking at the key indicators of price and volume, we remain extremely optimistic. Sentiment plays a big role in marking market tops and bottoms, and my favorite emotional signal is the Equities-Only Put-Call Ratio ($CPCE).

Emotions paving the way for higher prices…for now.

There is little complacency in the options world, despite seeing nearly linear moves in the major indices since late October. Over the past 11 years, or the entire long bull market, the average daily CPCE reading has been in the .60-.65 range. A higher number indicates an unusually large number of stock put buyers (consistent with or approaching a market bottom), while a lower number indicates an unusually large number of stock call buyers (consistent with or approaching a market top). do. Although most of the 2024 measures were optimistic, the average CPCE figure for 2024 was .65. This is a far cry from the five-day average of below .55, which typically marks market highs. Look at this:

The red arrow highlights the very low 5-day CPCE reading and shows where the S&P 500 was at about the same time. After examining this chart, you can quickly conclude that this rally could continue until options traders start pouring in on stock calls. Friday’s CPCE reading was 0.48. If the S&P 500 continues to rise throughout next week, there is a chance that the 5-day CPCE will eventually peak below 0.55. Friday’s reading of 0.48 was a good start. Keep an eye out for this throughout next week.

Which stocks are likely to lead the next market surge?

Well, I believe EADCL (Earnings AD ChartList) holds the key. Again, this ChartList consists of 30 names that performed very well the day after earnings were released as new fundamentals began to be priced in. I expect many of these names to perform very well in the coming weeks. Most of the companies in this ChartList are leaders among their peers. But others may be just getting started. Let me introduce you to one of the 30 major stocks. And a stock that fits this budding description is Allegro Microsystems (ALGM), a $6.1 billion semiconductor company.

ALGM’s relative strength was terrible compared to its semiconductor peers. But is the upward reversal just beginning? The AD line began to strengthen from the initial lows of a few months ago, and on Friday ALGM finally broke through the triple high. Check the trading volume following the post-earnings execution. We make no guarantees about future price direction, but ALGM has caught my attention and I would definitely say it is a stock to watch as this could be the start of a very strong rally.

In tomorrow’s free newsletter, EB Digest, I’ll be providing everyone with a link to the full list of revenue advertising charts. If you are a StockCharts.com Extra or Pro member, you can download this ChartList directly to your SC account. If not, you can look at all 30 charts to see which stocks could be leaders in 2024. If you’re not yet a free EB Digest subscriber, it’s easy to get started. Click here and give us your name and email address and we’ll send you a list of revenue advertising charts included in Monday’s EB Digest newsletter. No credit card required, and you can cancel your subscription at any time.

Happy trading!

tom