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THE EXPECTATION RATIO HITS A TWO YEAR HIGH

In a clear sign that this earnings season is blowing away expectations, our Expectation Ratio hit a new high today at 1.95.  The components of the indicator are showing incredible strength across the board as revenues stabilize, margins expand and bottom line growth skyrockets higher.  Of course, this is an intuitive and forward looking indicator which is compared to analysts estimates and expectations so it is a sign that we are in the middle of a very powerful earnings trend that is unlikely to whither before earnings season is over.  The reality of the current earnings environment is that analysts are far too pessimistic about everything income statement related.

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I would expect a substantial amount of catch-up in the next few weeks by the analyst community.  That means price targets are going higher and stocks are getting upgraded.  That likely means sideways to higher markets until earnings season comes to a close.  As we mentioned before earnings season began, being long is the only option here.  Short strategies and market neutral strategies should continue to perform poorly over the coming month.

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