The grand majority of economic theories, market forecasts, trading strategies, and hot tips usually do not work. At the end there is only one thing that dictates where a stock will go: earnings. Earnings are the net profits of a business. They are what ultimately drive share prices. The reason is simple: A share of stock is part ownership of a business. And just how much investors are willing to pay for those profits will determine what a company is worth in the market.
You will find there is a near perfect correlation between a company’s growth in earnings per share and the movement of its stock from quarter to quarter and year to year. Forget about market breadth, trading volume, put-call ratios, short interest, mutual fund inflows, advance/decline numbers and other technical market indicators.
If you are a long term investor always remember that share prices follow earnings. this is what pays off in the end. Choose companies that report good earnings because those are outperforming. And they will likely keep outperforming in the months and probably years ahead.
Sven Franssen