Stuck in a Trading Range with You

Yesterday, the Dow closed for its 237th consecutive day above 10,000 and below 11,000. As trading ranges go, that’s pretty tight and long-lasting. There’s even a trading range within the trading range. The Dow has closed between 10,400 and 10,700 for 155 of the last 237 trading days. That’s nearly two-thirds of the time, plus it includes 59 of the last 62 trading days.
Can we break out of it? Absolutely, and I think that day may be at hand. But first, the market needs a catalyst. We need something that will get investors excited again. I think the upcoming round of third-quarter earnings reports might do the trick.
Wall Street is expecting earnings growth of 17.8% for the third quarter. That’s pretty impressive although, truth be told, it’s heavily tilted toward energy stocks. The energy sector is expected to deliver an amazing 73% profit growth. Still, if we exclude energy stocks, the rest of the S&P 500 is expected to have 11% earnings growth, which ain’t too shabby.
Perhaps the best news from yesterday is that General Electric (GE) reaffirmed its third-quarter earnings outlook of 43 cents to 44 cents a share, and $1.80 to $1.83 a share for all of 2005. That translates to earnings growth of 13.2% to 15.8% for the third quarter. Of course, with GE, a penny a share is about $106 million which is far more than what most companies can hope to earn in three months.
GE is just the beginning. Apple Computer (AAPL) reports next Tuesday. It won’t be long before we get an idea of how strong the earnings environment is. Hopefully, the Dow will finally be able to leave this trading range behind.

Posted by on October 5th, 2005 at 6:50 am


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