Earnings Should Make New Highs

We are entering the third quarter earnings season. Markets keep grinding higher. The CBOE Volatility Index is dragging at all time lows. Geopolitical issues keep simmering but the markets seem somewhat desensitized with little reaction even on Friday when Trump was making remarks concerning Iran.

Banks started reporting this week and next week the earnings reports pick up with a slew of S&P 500 components reporting. One of the more important data metrics tracked each week is the “upward versus downward” estimate of earnings revisions within the S&P 500. The quarter has seen upward revisions outpace downward revisions, which is setting up the markets for more new highs. The anticipated Q3 ’17 S&P 500 earnings is currently 4.4%, we expect the final number to be higher, perhaps as high as 8%. All this good news creates caution as well because we feel that the incredible run in the markets could eventually run into a nasty correction. As we stated in the last blog around every bend on Highway 101 is a better view. However, on occasion there is an earthquake that wipes the road out and the view is not good!

We issued an alert on Friday for Citigroup (NYSE:C) with a goal of making a 20% return before the options expiration in November. Analysts are positive on C with Norma rising the price target to $81 a share from $80 and RBC Capital has raised the target to $79. Citigroup was has high as 76.14 this past week and then dropped to a low of 70.91 and closing the week at 72.11. We think that the market will move it up and we should see the gains achieved.

Other equities that are attracting our interest include ATVI and BABA at this time. Everything else appears overbought at this time and we are watching for some level of a pullback before entering an alert.