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tdp2664 InvestorPlace Before every earnings season, I look at a chart to see if there are any consistent price patterns that would allow me to draw conclusions about where prices are heading. The chart below shows all 2011 earnings seasons, each being kicked off with Alcoa’s earnings announcement. Unfortunately, no crystal clear price patterns jump out. Although earnings numbers were initially well-received, they eventually led to a significant selloff. In January, the S&P rallied for 28 days following Alcoa’s announcement, then sold off 6.9%. In April, the lag time between Alcoa’s earnings release and an 8.2% decline shrunk to 14 days. In July, the S&P dropped a whopping 20% just nine trading days after earnings season began. Of course, thanks to a weak dollar, QE2 and corporations’ metamorphosis into lean, mean, profit machines (at the expense of millions of employees), earnings generally were good for much of 2011. In fact, Standard and Poor’s projected 2011 earnings to exceed 2007 peak earnings. That’s a big elephant in a small room. Considering everything that’s happening, how could 2011 corporate earnings possibly be higher than in 2007? This question brings up the all-important issue of (over?) valuation. Let’s take a look at the prospects of a year-end rally before looking at the long-term implications of the valuations picture. Seasonality Via the ETF Profit Strategy Newsletter’s Oct. 2 forecast for the month ahead, I stated that “Even though October has hosted some ugly bear markets, it has also killed its fair share of bear markets. I don’t think October will kill this bear market, but it should spur a powerful counter trend rally.” The same update precisely
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