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In the Wake of Positive Earnings

|Includes: Apple Inc. (AAPL), GE, GOOG, IBM
At ValuEngine we profile key earnings reports prior to company releases of quarterly results. We handicap market reactions to earnings so that traders and investors can judge whether or not to book profits on longs, or hold on for additional gains. This is part of learning how to “Buy and Trade”, which should be employed to replace “Buy and Hold”.
Apple Inc (NASDAQ:AAPL) ($337.45) – Last week Apple reported another blow-out quarter, but the stock could not sustain after hours strength above $350 per share. Wall Street flooded the market with raised price targets, while ValuEngine warned that good news was priced into share price strength. ValuEngine shows Apple rated a HOLD with fair value at $306.68 versus $307.56 pre-earnings. Our one-year price target fell to $347.40 from $357.89. Apple has been above its 50-day simple moving average now at $323.20 since September 3rd. My semiannual pivot is $320.21 with a weekly pivot at $338.96, and quarterly risky level at $372.21.
IBM (NYSE:IBM) ($159.63) – IBM continues to move higher, but has been downgraded to HOLD from BUY since reporting great earnings. The stock is extremely overvalued with fair value at $133.20 with our one-year price target at $165.40. This week’s pivot is $153.16 with quarterly risky level at $167.22.
Google Inc (NASDAQ:GOOG) ($611.08) – Goggle traded above $640.00 following its great earnings, but could not sustain gains above my quarterly risky level at $638.11. Wall Street raised price targets, but at ValuEngine, despite a continued BUY rating fair value fell to $612.74 from $614.47, and our one-year price target fell to $643.94 from $658.56. My semiannual value level is $600.50 with a weekly pivot at $614.11 and quarterly risky level still at $638.11.
General Electric (NYSE:GE) ($20.04) – GE remains HOLD rated according to ValuEngine with fair value at $19.05 versus $19.10 going into the earnings report. The ValuEngine one-year price target has jumped to $19.94 from $18.81, which means that good news is priced into the share price rise. My annual value level is $15.65 with a weekly risky level at $20.92.
The ValuEngine Valuation Model – This model calculates what a stock should trade at based on its fundamental economic data if the market were completely rational and efficient. While we consider many time-sensitive variables obtained from reliable and respected third party sources the key components are:
      A company's trailing 12-month Earnings-Per-Share
      Analyst consensus estimate of the company's forecasted 12-month EPS
      The 30-year Treasury yield.
The ValuEngine Forecast Model – This model analyzes stock prices using proprietary analytics to project what a stock’s price will be over six specific time horizons; one-month, three-month, six-month, one-year, two-year and three-year, where the one-year is most important as a stock’s one-year price target determines the stock’s rating:
      5- Strong Buy – projected to rally 12% or more over the next twelve months.
      4- Buy - projected to rally 5% to 12% over the next twelve months.
      3- Hold - projected to decline by no more than 5% or to rally no more than 5% over the next twelve months.
      2- Sell - projected to decline 5% to 12% over the next twelve months.
      1- Strong Sell - projected to decline 12% or more over the next twelve months.
Richard Suttmeier developed his own Proprietary Analytics – That determine a stock’s value levels, risky levels and pivots in several time horizons – Weekly (NYSE:W), Monthly (NYSE:M), Quarterly (Q), Semiannual (NYSE:S) and Annual (NYSE:A). There are two levels calculated for each time horizon, which are based upon the past nine closes in each cycle.Suttmeier’s theory is that the closes over a nine-year period are the summation of all bullish and bearish events for that market or specific stock.
      A value level is a price at which investors should add to a long position on share price weakness, or begin to cover a short position.
      A risky level is a price at which investors should reduce a long position on share price strength, or add to a short position.
      A pivot is a price that should be a magnet during the time frame specified. This is a level at which to consider more aggressive positions adjustments. A violated value level and risky level becomes a pivot for the remainder of the time horizon and has an 85% chance of being tested in that time period.
      These levels are the most important element of my Buy and Trade Strategy.
      I support Good Until Cancelled (GTC) Limit Orders: Investors should enter GTC Limit orders to adjust positions when/if share prices reach critical technical levels.
Stocks remain overvalued fundamentally according to ValuEngine with 15 of 16 sectors overvalued and only 37.7% of all stocks undervalued. This follows last week’s ValuEngine Valuation Warning.
All major averages are extremely overbought on there weekly charts and my Proprietary Analytics show weekly risky levels at 12,162 Dow, 1333.9 S&P 500, 2805 NASDAQ, 5321 Dow Transports, and 828.86 Russell 2000. There is an 85% chance that the Dow will decline to my annual pivot at 11,491 and the Dow Transports and Russell 2000 ended last week below their annual pivots at 5179 and 784.16 respectively. Stocks will peak this week, or will soon confirm last week’s highs as a peak over the next two weeks.
10-Year Note – (3.402) This week’s value level is 3.758 with a pivot today at 3.398 and the 50-day simple moving average at 3.190
Comex Gold – ($1334.7) My semiannual value level is $1300.6 with quarterly and annual pivots at $1331.3 and $1356.5 and the 50-day simple moving average at $1380.0.
Nymex Crude Oil ($87.82) is flirting with my semiannual pivot at $87.52 and its 50-day simple moving average at $87.99. The 200-day simple moving average is $80.47.
The Euro – (1.3643) this week’s value level is 1.3398 with chart resistance at 1.3786.
Daily Dow - (11,981) The daily chart is overbought with a daily pivot at 12,016 and weekly risky level at 12,162. My annual value level remains at 11,491. There are negative divergences for the S&P 500, NASDAQ, Transports, and Russell 2000
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist, (800) 381-5576
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website I have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. You can go HERE to review sample issues and find out more about my research.
“I Hold No Positions in the Stocks I Cover.”