Do You Believe?

I do not believe the markets are on stable ground. Yes, we've seen a good rebound off the August correction. The S&P 500 fell 12.5% during the summer, and has since rebounded by 11.4% (Note: that doesn't mean the S&P 500 is back near its previous high). Volume has been decent during the rebound, but it hasn't been of the level we would see if institutions were buying heavily.

It appears that corporate earnings, on average, have declined this quarter. So with a decline in the momentum of the economy, and many top-name stocks advancing on average or below-average volume, I have to wonder how long this rebound can last. If someone is worried about missing this rally and asks me if they should increase their exposure to stocks, I will respond “Do you believe?”

Take Alphabet Inc (GOOG), ‘the company formerly known as Google'. In July, Google's earnings beat expectations by 4.3%, and the stock gapped-up 16.3%. Last Thursday, Alphabet beat earnings by 1.9%, and the stock gapped-up 12%:

Stockcharts.com's article on Gaps and Gap Analysis states “Exhaustion gaps are those that happen near the end of a good up- or downtrend. They are many times the first signal of the end of that move. They are identified by high volume and large price difference between the previous day's close and the new opening price. They can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume.“

“…if they happen during a bull move, some bullish euphoria overcomes trades, and buyers cannot get enough of that stock. The prices gap up with huge volume; then, there is great profit taking and the demand for the stock totally dries up. Prices drop, and a significant change in trend occurs”

So the stock has jumped 41% since mid-July. But Alphabet/Google's track record shows only a 14% growth rate in earnings, and maybe a 12% growth rate in revenue:

The markets are supposed to be anticipatory. But if you are wondering if you should jump on the Alphabet train, I will ask, “Do you believe?  Do you believe a 41% jump in the stock is justified by a 12% annual growth rate?” The stock doesn't even pay dividends.

One final note. With a 41% jump in the stock price, institutions must be jumping on this stock like crazy, right?

Umm, not quite. The number of funds holding GOOG has barely changed:

So who is buying GOOG?

There are many more examples. Take El du Pont de Nemours & Co (DD). DD dropped 38% from March into October. The stock has rebounded 32%:

Yes, duPont did beat earnings expectations yesterday, reporting $0.13 to the consensus $0.10. But are investors really expecting that much of an improvement in duPont's business to justify a 32% jump in the stock? The earnings and revenue track record doesn't show a company firing on all cylinders, at least up to this point:

And like Alphabet/Google, institutions haven't piled in:

So who is doing all the buying, and how long will it last?

Do you believe?

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

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Gregg Harris is the Chief Technical Strategist at MarketTamer.com.

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MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.