Starting last week, companies have been reporting their third-quarter results, and they’ve been a little surprising. After reporting disappointing earnings, companies like Alcoa (NYSE:AA), Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM) fell significantly last week. That’s to be expected. But the surprising part is that after being reassessed by investors, each company’s stock turned around and made up almost all of the losses.
That’s pretty much how it’s been going so far. IBM (NYSE:IBM) reported Tuesday after the closing bell and results were terrific, but not quite as much as some investors were expecting. So, the stock traded down as much as 5.9% on Wednesday morning. But by Wednesday afternoon, investors had a chance to rethink — and the stock traded up about 1% from its low of the day.
Are you seeing a pattern here? My guess is IBM will continue to trade up higher over the rest of the week and possibly get back over $200, which it touched briefly early on Thursday.
Now, what’s interesting about IBM in terms of earnings season is that the stock market tends to trade in the same direction as IBM after its results. So, if IBM trades down in the week after earnings, the S&P 500 has also traded down over the next three months. And, likewise, if IBM has traded up, then the market has traded up 75% of the time.
In fact, the market has followed IBM in every one of the last four quarters.
So, here’s the deal: If you want to know where the market is likely to head during the next three months, watch IBM’s trading results over the rest of this week. If it’s down from where it started the week, there’s a 75% likelihood that the market will trade down over the next three months. And vice versa: If IBM is higher by the end of the week, then expect the market to be higher into February.