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The Chairman
Victor Niederhoffer



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Every end of quarter, there is an opportunity to be shaken out of all good positions by ephemeral factors. First there are the earnings warnings. "Oh, my goodness, Kodak or some such company is reducing its guidance. That means every other company is going to do just as badly. Earnings will be much below expectations". Yes, of course, the companies that issue a negative guidance are going to be the worst. Similarly, for the ball-players the coach gives a bus ticket and meal money to everyone, even the worst players, but that doesn't mean the rest of team is that bad.

Well, if the warnings aren't generalized and you can't force the market down, let's try the negative correlation game. Now, if last quarter, the earnings seasons were good, then there's the negative correlation between the price performance during earnings seasons. And if you don't like quantifying, then you can always talk about how good the earnings were last year, and how this quarter is going to cool down. On the other hand if expectations are very high, then there's always the likelihood that the company's will miss expectations because random factors will negatively affect the company's ability to meet expectations.

 Of course, once earnings are reported, there's always the company like Intel that misses forecasts and comes in 2 cents below. Worse yet, it might try to guide you down for the next quarters so it can have an easier target for the next quarter just so that they can get all the weak hands out. All these things came together the last few days. First, Intel, then Apple, then Ebay, all below expectations. 4 big down opens in a row. The largest sum of the last four down opens in the last 200 days. My goodness, sell, sell, sell, it's going to open down again like it did yesterday on Intel.

What fools these publics be. The current Zacks forecast is for S&P 500 earnings to be 10% above 2005. Bloomberg reports that 100 of the S&P 500 companies have reported fourth quarter earnings so far, and 75% of them have beat forecast. A diffusion index of the number of companies reporting earnings increases per dollar of price, as well as a rereading of Bacon would save so many of the public from losing so much more money than they have a right to lose.




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