As a former Wall Street insider, I don’t relish in acknowledging the fact that investment pros “rig” the game.
I’m not saying they do anything illegal, though we’ve seen that in the past. There are good, honorable, and brilliant people that work on Wall Street.
But as a group, those pros are not above squeezing every possible advantage out of a complicated system, usually at the expense of the rest of us just trying to build our wealth.
We’re just a few weeks away from a reliable example of this that happens four times each year – quarterly earnings seasons.
As you know, Wall Street analysts issue thousands of estimates for how much money companies will make.
But you may not have realized that eight out of every 10 estimates are wrong.
This is fact, not opinion. It’s clear as day in data (my favorite thing) from the well-respected firm FactSet.
When reporting second-quarter results, 79% of S&P 500 companies earned more than analysts said they would.
And that wasn’t a one-time fluke. The five-year average is 77%.
So, for the last five years (at least), analysts have been wrong in their estimates 80% of the time.
We tend to overlook these errors because companies beat estimates, and that often lights a fire under their stocks. All’s well that ends well, right?
Well, there’s more to the story.
Either analysts get it wrong 80% of the time – or something else more sinister is happening.
I think we can all agree it’s most likely the latter, so let’s talk about what’s really going on before the next earnings season kicks off.
You Can See the Money Flows
Everyone knows that earnings drive stock prices. Sure, there are plenty of other variables investors consider, but the bottom line is the bottom line.
If any other professional, from a doctor to a weather forecaster, were wrong nearly 80% of the time with something so important, we would run them out of town.
But wait, there’s more… as the late-night infomercials tease us.
In short, after a stock beats Wall Street’s arguably “phony” estimates, something even stranger happens. This phenomenon has been studied, and academics even have a name for it – “post earnings announcement drift.”
Studies show that stocks drift in the direction of the earnings surprise for up to one year after the announcement.
In other words, Wall Street, through its coverage and estimates, has the opportunity to influence – rig? – the action in a stock for up to one year.
You can make a lot of money in a year.
I’m convinced that Wall Street is about to engineer this upcoming earnings season to become one of the most profitable yet – for them anyway, but also for those who know the game.
One reason I say this is because my quantitative analysis system provides me with a map of how Wall Street has moved stocks all year.
One reason I say this is because my quantitative analysis system provides me with a map of how Wall Street has moved stocks all year.
I use my M.A.P. system in both my research business for institutions and hedge funds and my Quantum Edge investing services. One of its great strengths is sniffing out what Big Money – aka Wall Street – is doing.
Check out the chart below, starting with the yellow line. That’s M.A.P. watching Wall Street’s money flood into the market. I call it my Big Money Index (BMI). And you can see that money is leading where stocks move next.
Now, look at the timing of when this money has been hitting the market.
Every earnings season this year.
And the next one starts in just a few weeks.
Ride the Wave with Big Money
This is complete validation of all the millions my team and I spent on M.A.P. so we could see what Big Money is doing.
Wall Street has tremendous influence over the direction and duration of a stock’s move after earnings.
You can get caught in a prolonged slide that costs you time and money, or you can ride the Big Money wave to profits.
In my system, these Big Money signals are green for buys and red for sells. Here’s what they look like on one of the most widely owned stocks in the world: Tesla (TSLA).
Notice how the signals tend to repeat. They are not so much a wild mishmash of buys and sells, but clumps of each with the stock moving accordingly each time.
As we look ahead to the next earnings season, we know that certain winners will soar to even higher heights, and losers could sink into oblivion. And we know that will be determined by Big Money in many cases.
The simple truth is that Big Money moves stocks. We don’t have to like it, but we’d be foolish to not accept it.
If you’re not riding the Big Money wave, you’re about to get tossed around by it. Might as well go along for the ride.
Talk soon,
Editor,
Jason Bodner’s Power Trends
P.S. I expect to see movement in red-hot artificial intelligence stocks this next earnings season.
The AI boom created $5 trillion in new wealth this year, so you can be Wall Street is paying attention.
Some of that could be put to the test in this upcoming season, due to the market anomaly we’ve talked about today. You can learn all of the details here to make sure you’re prepared.
I also just recently released my favorite play on the massive AI boom. I put all of the detail sin a new report called M.A.P.’s #1 Move for the $5 Trillion A.I. Reckoning.
You can learn how to access it here, and also find out more reasons why the coming months are packed with profit potential.
