The NASDAQ Composite moved above resistance on Thursday. The mood was moderately bullish as the first week of earnings were slightly better than anticipated but investors are accustomed to seeing companies manage expectations in order to deliver 'surprises' so the upward move was muted with volumes holding at around the 50 day average. Earnings from several of the big banks are due this week (Wednesday and Thursday). Their earnings projections will be an indicator of the extent to which they expect underlying demand to improve this year, so bullish projections will give a lift to the market. 



The number of breakouts fell in comparison to last week's exceptional level but was above the 13 week average. The average gain was just over 3% at week's end, well above the NASDAQ's overall gain of just 0.8%. The best performer was Dalek Holdings (DK) which broke out on Thursday with a modest 1% gain over breakout price which the rocket up a further 10% on Friday on almost 5 times average daily volume. Dalek is in the oil and gas sector which is expected to do well as the country satisfies more of its energy needs from domestic oil and gas resources.

We resolved a bug that occasionally caused our intraday charts of the major indexes to stall in mid-session.

Future Earnings more Important than Earnings Acceleration

Our analysis over the years has shown that earnings, despite being an important factor in CAN SLIM analysis (the C for Current earnings, and the A for earnings acceleration), has only a weak correlation with future stock performance. A case in point is what happened to Wells Fargo (WFC) on Friday. Although the bank announced a 24% increase in net income, and a 7% rise in revenue year-over-year (earnings acceleration) the stock closed down 1% by the close. The drop was due to analysts' focus on the 2% decline in net interest which is perceived as being detrimental to future earnings.

To illustrate my point you can try a simple test in our Cup-with Handle Backtest Tool. Run the test with CEF2 (our measure of earnings acceleration) set to its maximum value of 1. and the12 gain is 24.6%.

Now run the test in our Zacks Backtest Tool and the gain rises to 38%. The Zacks ranking model assess stocks based on future earnings potential. This shows that future earnings rather than previous earnings are a significantly more important factor.