Yardeni: Expect Inverted Recovery

Tuesday, July 14, 2009 8:20 AM

By: Julie Crawshaw

Economist Ed Yardeni predicted we will have an inverted head-and-shoulders recovery, and said the first shoulder has already happened.

Yardeni said the first shoulder of the formation came on Nov. 20, 2008, when the Standard and Poor’s 500 index fell to the year's low of 752.44.

The index then rallied to 934.70 on Jan. 6, before tanking to an intraday low of 666 on March 6. Then it rebounded to this year's high of 946.21 on June 12.

"If it holds that level over the rest of the summer, then the resulting head-and-shoulders formation could set the base for the next leg up for stocks," Yardeni told The Daily Press.

However, Yardeni said that his optimistic technical picture won't be realized unless the fundamentals cooperate, in the form of an upturn in earnings.

"I expect that there will be plenty of positive earnings surprises during the second-quarter earnings seasons this month, as there were during the first quarter," said Yardeni, adding that cost cutting should boost margins.

Thirty-one companies, a scant 6 percent of the S&P 500, are due to report results this week, CNN Money reported.

However, the list includes major financials Goldman Sachs, Bank of America, Citigroup and JPMorgan Chase, along with technology leaders Google, Intel, and IBM.

S&P earnings are expected to have declined 36 percent in the second quarter compared with a year ago, according to the latest Thomson Reuters estimates. That would make the second quarter the eighth straight for weaker profits.
http://www.moneynews.com/streettalk/ed_ ... ode=8350-1