Earnings Schmearnings

Watching earnings roll out this morning, I’m reminded of the great line from Shakespeare’s As You Like It:

“I must tell you friendly in your ear…sell when you can, you are not for all markets.”

Caterpillar earned $2.66 versus estimates of $2.88 (and we all know the 2.66 was adjusted out the wazoo.) Revenue also missed at $12.76 B versus $13.57 expected. One-off miss? Hardly. The company also slashed its outlook by about 12%.

As one would expect, the stock plunged sharply – shedding over 10 points, a loss of 8.2% from yesterday’s highs. An hour later, all was forgiven and the stock had regained all of its losses and then some.

Madness, right? Especially as these prices already represent serious resistance.

CAT could do no wrong from Jan 2016 through Jan 2018. Then both the market and CAT stumbled. After 9 months of steady decline (the channel shown in purple below) the stock broke out on announcement of a share repurchase plan…but broke down again on disappointing earnings. An expansion of the share repurchase plan briefly put things back on track, but by Aug 2019 it was testing its former lows again. It was time for a new channel.

Enter the more generous white channel which could accommodate all those pesky swings. This is the 8th time since Jan 2018 that CAT has tested the top of that channel. Are we to believe that the stock should break out based on these results? That’s where we are now: on the brink of madness.

I drive past several farm equipment dealers on occasional visits to my daughter in college. Each one has a lot overflowing with inventory that no one wants to buy because prices are in the toilet — much of it due to the trade war which, last time I checked, has not been called off.

When fundamentals no longer matter and stocks rally on dreadful financials which are much worse than anyone expected, what does that say about market integrity?

Meanwhile, all the algos care about is that USDSJPY is “breaking out” again……and that VIX is conveniently being crushed.To think, futures are almost back in the green and Trump hasn’t even commented yet on how well the trade negotiations are going nor why mortgage applications plunging 12% is a good thing.