Stock prices surge now, but will drop soon(Read article summary)
Stock prices race upwards as we approach earnings season, but once companies report that they didn't earn as much as projected, their stock prices will fall hard and fast. Just look at poor Equinox.
Joshua M. Brown / The Reformed Broker
For the seventh straight quarter, stocks raced higher into earnings season, which for 3rd quarter, officially kicks off tomorrow with the Alcoa ($AA) report. Today's action in the cloud computing names does not bode well for companies with shortfalls to announce.
Had the company beaten by 2.2%, I doubt we'd be looking at a 30% rally. The term for this type of action is Asymmetrical Risk. Even a stop loss can't protect you when a stock gaps down 28 points before the market even opens. You're getting executed wherever, Pancho.
EQIX was one of the momentum leaders in the cloud group, along with Citrix ($CTXS), Rackspace ($RAX) and VMWare ($VMW). Going into their earnings report last night, the stock was trading at 90 times trailing earnings and 41 times next year's. The tightrope act you're faced with at that kind of multiple is such that the company cannot even afford to hiccup.
With 88% of stocks trading above their 50 day moving average, I would say it's highly likely that we'll be witnessing other public executions this fall.
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