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Thursday, June 11, 2015

Daily update 6/11 Phony earnings

A little more up, but no fireworks.

SPX tested above the 18 SMA, but failed to stay there.  It looks like we  are sitting right near that lower trend line.  This could be a kiss good bye as we did not really get clearly back above it.  The bulls still need to push higher here.  The breadth was a +54%.  New highs dropped to 106 while new lows increased to 90.  Definitely not numbers that would indicate this is a launch.  If we don't roll over tomorrow we could still test the highs again.  However, I don't think we will get significantly higher unless we see some real strength.  The buying seems to dry up above 2110.

We have green bars and positive crossovers on the indicators.  The bulls should be in control here.  It is just a question of whether they want to push price higher or not.

This decline really whacked market internals.  This bounce could be just a pump job so the big boys could get into some shorts.  I just can't say for sure.  If we continue up tomorrow then I think the odds shift to another test of the highs.  If we roll over the selling could pick up considerably since the internals are already weak.  It could depend on what global markets do.  Many of them are a little precarious at the moment. 

When I started trading full time in 2000 I read a lot of earnings reports.  After a few quarters I realized that nearly every company had "one time charges" every quarter.  Really.  I soon quit looking at them since they are obviously nothing but manipulated  numbers.  I found this article kind of interesting.  Experts worry that 'phony numbers' are misleading investors

NEW YORK (AP) -- Those record profits that companies are reporting may not be all they're cracked up to be.

As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they're doing better than they really are.
What's worse, the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they're largely passing along the rosy numbers in reports recommending stocks to investors.

"Companies are tilting the results," says fund manager Tom Brown of Second Curve Capital, "and the analysts are buying it."

Does any of that sound familiar to you?  That part could have been written in 2000.  Anybody remember Henry Blodgett.  That scandal supposedly led to changes in the industry to make the analysts do their job better.  Here is some more interesting stuff.

An analysis of results from 500 major companies by The Associated Press, based on data provided by S&P Capital IQ, a research firm, found that the gap between the "adjusted" profits that analysts cite and bottom-line earnings figures that companies are legally obliged to report, or net income, has widened dramatically over the past five years.

At one of every five companies, these "adjusted" profits were higher than net income by 50 percent or more. Many more companies are in that category now than there were five years ago. And some companies that seem profitable on an adjusted basis are actually losing money.
It wasn't supposed to be this way. After the dot-com crash of 2000, companies and analysts vowed to clean up their act and avoid highlighting alternative versions of earnings in a way that could mislead investors.

But Lynn Turner, chief accountant at the Securities and Exchange Commission at the time, says companies are still touting "made-up, phony numbers" as much as they did 15 years ago, perhaps more, and few experts are calling them out on it.

What is that old saying.  The more things change the more they stay the same.  Wall Street firms are in the business of keeping everybody invested so they can collect fees and commissions.  They could care less whether the individual makes money or not.  After the next big crash there will probably be another big scandal and Wall Street will promise once again to clean up their act.  Rinse and repeat.

Here is a graphical look from another article  The Non-GAAP Revulsion Arrives: Experts Throw Up All Over "Made Up, Phony, Smoke And Mirrors" Numbers

Notice when times got a little tough in 2012 the addbacks increased.  That last quarter was ridiculous.  Actual earnings did not come in ok.  Too bad they don't have Q1 updated. 

If you just can't get enough of this topic here is another one.  The Earnings Season "Scandal"  That one has this interesting chart.

While it is normal for earnings to increase considerably more then revenue in percentage terms.  I am not sure the spread is usually that much.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.