On Monday, the 30-stock Dow Jones industrial average surged 132.79 points, or 1.29%, to 10,450.95.  The broad Standard & Poor's 500-stock index rose 14.86 points, or 1.36%, at 1,106.24 and the tech-heavy Nasdaq composite index jumped 29.97 points, or 1.40%, to 2,176.01. Trading volume was light, with NYSE volume less than 1 billion shares, as advancing shares outran decliners by a four-to-one margin.  Wall Street’s fear gauge, the CBOE Vix, plummeted 4.6% to 21.16.

Treasuries lost ground as investors’ risk appetite grew.  A number of analyst upgrades also helped shares yesterday and after the close Hewlett-Packard (NYSE:HPQ) came out with strong numbers and also announced plans to triple its repurchase plan.

Among the DJIA components, all but two gained, led by Verizon (NYSE:VZ), up 3.0%, AT&T (NYSE:T), up 2.9%, General Electric (NYSE:GE), up 2.9%, and Chevron (NYSE:CVX), up 2.6%.  A Barron's article suggested AT&T (NYSE:T) shares undervalued due to concerns its exclusive iPhone contract with Apple (NASDAQ:AAPL) might not be extended next year; Verizon (NYSE:VZ) shares jumped shot up on hopes the exclusivity agreement might not be extended.  And Chevron (NYSE:CVX) shares gained from the dollar’s retreat.

All ten S&P 500 industry groups advanced, led by consumer services and telecommunications, both up 2.7%, oil and gas, up 1.6%, and industrial and tech shares, both up 1.5%.

Gold prices jumped to fresh highs yesterday, before giving up some ground to settle at $1164.70, up $17.90.  Meanwhile, the greenback dropped 0.7% to 75.13 against a basket of currencies.  This afternoon's FOMC meeting minutes will be scrutinised by investors for any evidence of a timing change for its asset purchase programs.  Such considerations are also key to the trajectory for gold pricing, viewed as an inflation hedge.

Earnings reports are due from Barnes and Noble (NYSE:BKS), Borders (NYSE:BGP), Dollar Tree (NASDAQ:DLTR), Heinz (NYSE:HNZ) and Hormel (NYSE:HRL).

On Friday, the 30-share Dow Jones industrial average fell 14 points, or 0.1%, to close at 10,318.16.  The broader S&P 500 index closed 0.3% lower at 1091.38 and the tech-heavy Nasdaq finished the day at 2146.04, off 0.5%.  On the week, the Dow average managed to hang on to gains, registering a paltry 0.5% advance.  The S&P 500 and the Nasdaq fell 0.2% and 1%, respectively.  On the New York Stock Exchange, 1.1 billion shares exchanged hands, with declining issues ahead of those that advanced in price by a three-to-two margin.

Last week’s disappointing reports on housing and weak forecasts from technology companies had antsy investors swooping up safe haven investments like Treasury bonds and dollar.  The demand for safe havens also spiked after European Central Bank President Jean-Claude Trichet remarked that the bank is planning to unwind some of its stimulus measures.  A higher dollar pushed crude prices lower and pressured stocks.

Nevertheless, at the center of the activity on the Wall Street is the ascending price of such physical assets as gold, which touched its fresh highs of $1146.80 on Friday, and a declining dollar.  The metal, although lacking fundamental valuation measures, has surged 29.7% so far this year.  Since India's central bank bought 200 tons from the IMF, the metal has jumped 11.5% on its dollar-alternative, safe-haven, inflation-resistant appeal.

Meanwhile, the decline in the US dollar has raised valuation expectations for the major industrial companies, with offshore sales expected to boost revenues.  Nevertheless, this week’s highlight remains today’s after-market-close earnings from Hewlett-Packard (NYSE:HPQ).  Last week the company preannounced strong quarterly numbers, anticipating record sales results of $30.36 billion, and earnings of $1.13, and also lifted its 2010 guidance.

Last week, the 1% decline in the technology shares came after weaker-than-expected guidance from two software companies, Autodesk (NASDAQ:ADSK) and Salesforce.com (NYSE:CRM), was compounded by disappointing numbers from Dell (NASDAQ:DELL).  Technology companies felt the heat after Dell (NASDAQ:DELL) reported quarterly earnings that were well below analysts’ expectations.  The company said sales of its computers to big businesses remain weak.  Shares in the company plunged 10% to $14.29.  So far in November, the NASDAQ has advanced 5%, and is up 36.1% year-to-date. 

The 0.2% pullback in S&P500 was caused by declines in oil and gas (-1.4%) and tech (-1.3%) sector shares that offset gains in health care issues (+1.5%) and basic materials (+1.2%).

The earnings calendar has slowed, but companies still due to report include: Campbell Soup (NYSE:CPB) on Monday; American Eagle (NYSE:AEO), Barnes and Noble (NYSE:BKS), Dollar Tree (NASDAQ:DLTR) on Tuesday, with Deere (NYSE:DE), J Crew (NYSE:JCG) and Tiffany (NYSE:TIF) on Wednesday.

The spike in bond prices came even as the Treasury announced plans to auction a record $118 billion in new notes next week – an auction schedule of $44 billion 2-year notes on Monday, $42 billion 5-year notes Tuesday, and $32 billion 7-year notes on Wednesday.

The Dow, which had plunged as much as 170 points during the session, ended down 93.87 points, or 0.9%, to 10,332.44.  The broader Standard & Poor's 500 index fell 14.90 points, or 1.3%, to 1,094.90, while the tech-heavy Nasdaq composite index dropped 36.32 points, or 1.7%, to 2,156.82.  Wall Street’s fear gauge, the CBOE Vix, jumped more than 4%.  Crude prices dropped $1.93 to $77.46. Gold prices rose to their fifth straight record close, up 70 cents to $1141.90.

As glimmers of a full-blown economic recovery fade, investors have increasingly become intolerant, locking in profits at every opportunity.  Also, a lack of conviction on part of the market to push beyond the current rally has been a dampener and concerns of an asset bubble build-up due to accommodative monetary policies have diminished risk appetites, sending daily average volume to levels of only about 1 billion.   

Nevertheless, to show not all is bad, the OECD raised its growth estimates for its 30-country members to 1.9% in 2010 from June's estimate of a 0.7% growth, and to a 2.5% GDP expansion in 2011.

Tech shares, already up 54.3% year-to-date, fell 1.7% Thursday, after Merrill's analyst slashed 2010 global growth targets, and downgraded ten companies in the semiconductor sector.  Intel (NASDAQ:INTC) shares fell 4.1%, and Texas Instruments (NYSE:TXN) retreated 3.4% after the downgrade.  Dell (NASDAQ:DELL) shares plunged 6.1% in premarket trading, after the company reported earnings that missed analysts’ projections.

Among the S&P 500 industry groups, energy producers, off 2.1%, were the biggest decliners.  ConocoPhillips (NYSE:COP) fell 1.9% and Chevron Corp. (NYSE:CVX) dropped 2% as crude prices fell for the first time in four days. Schlumberger Ltd. (NYSE:SLB) shares fell 3.3%.

The Dow Jones industrial average, which hit an intraday high of 10,341, advanced 44 points, or 0.4%, to close at 10,291.26. The S&P 500 added 6 points, or 0.5%, to close at 1,098.51, and the tech-laden Nasdaq composite rose 16 points, or 0.7%, to end the day at 2,166.90.  On the New York Stock Exchange, 19 stocks were higher in price for every 11 that declined

Nine of the ten S&P500 industry groups ended in the green, with financials (+1.3%), basic materials (+1.0%) and technology (+0.7%) leading the gainers.  Utilities fell 0.2%.  On the DJIA, Bank of America (NYSE:BAC) led the advancing issues as the firm’s CEO noted the integration of Merrill was running ahead of schedule, and will result in greater-than-anticipated cost savings in 2009.  Wal-Mart (NYSE:WMT) advanced 1.3% ahead of this morning's results.

Shares in home building companies rose after Toll Brothers (NYSE:TOL) said late Tuesday that signed contracts for new homes in its latest quarter jumped 42%.  Toll rose $3.02, or 16.4%, to $21.41.  Pulte Homes Inc. (NYSE:PHM) advanced 77 cents, or 8.1%, to $10.23, while Beazer Homes (NYSE:BZH) advanced 63 cents, or 12.4%, to $5.73.

Meanwhile, the greenback plunged to its lowest level since 2008 and ended the day just below $1.50 against the euro.  The steady decline in the greenback has been precipitated by continuing suggestions from the Fed that interest rates will remain low for an extended period as the recovery strengthens.  Across the globe, markets have interpreted this language as suggesting a mid-2010 timetable for raising rates. 

However, gold prices steered clear of wavering sentiment and hit an all-time high Wednesday at $1114.60 per troy ounce, up $12.10.  China reported greater-than-expected industrial output and retail sales, sending resource-related shares higher. Commodity prices also rose, with the broad-based, DJ-UBS index up 0.6% to 133.408. Crude prices gained, up 0.3% to $79.28.

Today's retailers' results will be an indication of consumers' appetites for goods.  Although the third quarter is seasonally slow, the current quarter numbers will be closely watched as the holiday season approaches.  Yesterday's reported loss at Macy's (NYSE:M) was less than anticipated; however, its raised fourth quarter guidance failed to meet expectations. Companies reporting results today include: Kohl's (NYSE:KSS), Nordstrom (NYSE:JWN), Urban Outfitters (NASDAQ:URBN) and another key consumer-driven firm, Disney (NYSE:DIS).
 

The Standard & Poor's 500 Index shed 0.01%, to 1,093.01 and the technology-laden Nasdaq Composite Index slipped 2.98 points, or 0.14%, to close at 2,151.08.  On the New York Stock Exchange, three stocks declined in price for every two that rose.  Volume was light as only 990 million shares exchanged hands.

Record low interest rates and a sliding dollar have helped stocks in recent months as investors have taken their focus away from some of the persistent worries of the economy.  Also, with the Federal Reserve continuing its highly accommodative monetary stance and the G20 finance ministers pledging to keep economic stimulus in place, risk appetites have received a boost lately. 

Of the $81 billion in Treasury auction scheduled for this week, yesterday’s $25 billion sale of 10-year notes witnessed decent demand, following robust demand for the $40 billion in 3-year notes on Monday. Bond markets are closed today for Veterans Day.

Shipping company FedEx Corp. (FDX) yesterday said it expects to ship more than 13 million packages on December 14, its busiest shipping day of the year.  United Parcel Service Inc (NYSE:UPS) said it sees growth in its volumes next year as the global economy recovers.  American Express (NYSE:AXP) said cardholder spending grew in October, with billing up 3%.

Meanwhile, Bank of America's (NYSE:BAC) Ken Lewis noted his firm is "keeping its head above water" this year.  Bob Toll of Toll Brothers (NYSE:TOL) noted, "Home buyers began to emerge from their bunkers in late March 2009 and the market continued to gain momentum up to Labor Day.  Since then demand has been volatile. This may be due in part to typical seasonality, but the more likely cause is concern about unemployment and the overall economy."

A number of Fed speakers yesterday sung the tone of caution, while mostly agreeing on the fragility of the economic recovery.  Both Lockhart and Yellen warned unemployment rate may remain high for the next several years.  Rosengren warned that with high unemployment levels, the US economy is not yet in a position to warrant exit strategies.  This morning Treasury Secretary Geithner reiterated the importance of the dollar strength for the health of the US economy.

1. MAKING SENSE OF THE STOCK MARKET
2. THE SECRET TO TIGER WOODS SUCCESS…AND OURS
3. DEVELOPING STOCK TRADING INTUITION

Typically, the higher potential returns is what draws us to these smaller companies even though they carry higher risk. Research clearly shows that small caps outperform the rest of the market by a wide margin. Most investors would agree its worth bearing that extra risk.

Why do small caps outperform? And why should you consider putting even more of your money into these stocks? Read on for the answers.

Who Doesn't Want to Beat the Market?

As I said earlier, we are all in the market to make money, so why not be in stocks that outperform the S&P 500 by 20%? Yes, 20%. In a study conducted over the 80 years prior to 2007, small cap stocks beat the index 12% to 10%.

Don't make the mistake in believing that's only a 2% advantage. Its 20%, and I'll prove it. Let's say that Bill Gates gives each of us $100,000 to invest this year. At the end of the year we keep the profits and return the $100K to Bill with no interest cost (he's a very generous guy indeed).

So I make 10% on that money, which puts $10,000 in my pocket. Whereas your small cap picks rack up a 12% return, putting $12,000 in your pocket. Is that 2% or 20% better than me?

Now imagine that you kept doing 20% better every year. Through the power of compounded returns that 20% advantage grows and grows over time.

Case closed. Small caps soundly beat larger stocks.

3 Reasons Why Small Caps Outperform

1. Higher Growth Rates: Why is a cheetah faster than an elephant? It’s not the spotted fur. It's about size and agility. Smaller companies can simply move faster than bigger ones to take advantage of business opportunities. This gives them higher growth rates, which begets higher valuations and greater returns for investors.
2. Buyout Targets: Some big companies spend a lot of money on research and development to create next generation products and services. Other companies watch smaller competitors develop the new ideas and then buy them up before they get too big. Since most buyouts are done at a significant premium, it provides another key benefit for the ownership of small cap shares.
3. Flying Under the Radar…But Not for Long: There are over 10,000 stocks traded in the US alone. Not surprisingly a lot of small caps can go unnoticed by investors for a long time. But once they do take notice, then things get exciting in a hurry.

   Consider that Wall Street analysts hate being the first one to cover a stock because they don’t want to be wrong. But once a small company does get coverage, then usually the ball gets rolling. Each additional analyst report that the stock picks up is a super-charged marketing message enticing that firm’s clients to get on board. As the stock starts moving upwards, then even more investors take notice. It’s a virtuous cycle that plays out again and again. Not for every small cap, but certainly for those experiencing the best earnings growth and estimate revisions.

Not All Small Caps Are Created Equal

The investment study we noted above says that the average small cap produces a 12% return. Yet there are some that do 2 and 3 times better than that. Most people assume those would be the ones with the highest growth rates. If only it were that simple.

Our research has helped us isolate the small caps most likely to outperform. In fact, over the last 10 years these stocks have produced a +32.7% annual return versus a brutal -2.8% loss for the average S&P 500 stock.

Right now we are inviting investors to join our priority waiting list to get exclusive details on this research study. There is absolutely no obligation to buy anything. We just want to provide you insight on this small cap trading strategy and how the stock picks it produces could help you greatly outperform the market in the years ahead.

Just click here to learn more.

Best,

Bill Wilton

Bill is an expert on the Zacks Rank stock picking system. You may already know him from his growth stock articles on Zacks.com. He will also be the editor of the soon to be launched Zacks Small Cap Trader. 

On Tuesday, the 30-stock Dow Jones industrial average closed down 17.53 points, or 0.18%, to 9,771.91.  The broad Standard & Poor's 500-stock index added 2.53 points, or 0.24%, to 1,045.41 and the tech-heavy Nasdaq advanced 8.12 points, or 0.40%, to 2,057.32.  On the NYSE, volume slowed to 1.38 billion shares.  

The news of a sale of 200 tons of gold to India sent gold futures surging $32.10 to $1086.  Treasury prices declined with the 10-year off 16/32 to 101-08/32 and the corresponding yield surging to 3.47% from 3.41% Monday.      

Burlington Northern (NYSE:BNI) surged 28% to $97 after the $26 billion offer from Berkshire.  Technology stocks were under pressure following a Morgan Stanley (NYSE:MS) analyst downgrade of semiconductor companies. Intel (NASDAQ:INTC), the world’s biggest computer-chip maker, fell 2.7% to $18.50 and Novellus Systems Inc. (NASDAQ:NVLS) declined 5.2% to $19.71.  Shares in basic materials, oil and gas and industrials rose 1.8%, 1.5%, and 1.3%, respectively in yesterday's trade.  Meanwhile, automakers reported October sales numbers mostly higher from a year ago.  General Motors (NYSE:GM) posted its first y/y sales gain, in nearly two years, as its sales rose 5%; Ford (NYSE:F) said its sales rose 3%; Toyota (NYSE:TM) sales, although flat, were ahead of estimates of a 6% decline.  Chrysler sales fell 30%.

Nevertheless, corporate earnings so far have continued to beat Wall Street estimates, with 84% of the S&P500's 358 firms reported so far currently beating Street estimates.  Meanwhile, the S&P 500 is currently trading 55% above its 12-year low hit on March 9. 

Today’s earnings calendar includes quarterly reports from the following: Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWX), News Corp. (NYSE:NWS), Prudential (NYSE:PRU), Qualcomm (NASDAQ:QCOM), Devon Energy (NYSE:DVN), and Becton Dickinson (NYSE:BDX).

Bank of America (NYSE:BAC) said it lost $2.2 billion during the quarter after it wrote down almost $10 billion in bad loans and General Electric’s (NYSE:GE) revenue numbers were below Street projections.  Higher loan losses aggravated investors’ concerns as Citigroup (NYSE:C) and JP Morgan (NYSE:JPM) had also reported higher loan losses during the quarter.  General Electric’s (NYSE:GE) results were impacted by lower earnings at its GE Capital unit.    

The 30-share Dow Jones industrial average fell 67.03 points, or 0.67%, to close at 9,995.91. The broad Standard & Poor's 500-stock index retreated 8.88 points, or 0.81%, at 1,087.68.  The tech-heavy Nasdaq composite index lost 16.49 points, or 0.76%, to 2,156.80.

Last week only 61 of the S&P500 released results, too early to signal trends, although the results were mainly above projections.  This week hundreds of companies report their earnings, and that could signal where the economy is headed in the times to come.  So far most earnings reports have beaten expectations.

Although nine of the ten S&P 500 industry sectors dropped Friday, on the week eight of the ten sectors managed gains.  Financials dropped 2.4% Friday, and ended off 0.2% for the week.  Oil and gas shares were the leading gainers during the week, up 5%, for a 20.2% year-to-date increase, as crude prices continued their advance, rising 95 cents Friday to $78.53 per barrel.  Crude prices have been rising on promising economic signs as well as the dollar's decline.  This morning China announced that its economy grew at a rate of more than 7% during the first nine months of the year and said it was comfortably placed to achieve its full-year target of an 8% GDP growth.  The greenback rose slightly Friday from a 14-month low.

This week 75 S&P500 firms are due to report their earnings, including today's results from Apple (NASDAQ:AAPL) and Texas Instruments (NYSE:TXN) after the close.  On Tuesday results are due from: Caterpillar (NYSE:CAT), Coca-Cola (NYSE:KO), DuPont (NYSE:DD), Pfizer (NYSE:PFE) and United Technologies (NYSE:UTX).  On Wednesday: Boeing (NYSE:BA), Freeport-McMoRan (NYSE:FCX), Morgan Stanley (NYSE:MS) and Wells Fargo (NYSE:WFC).  On Thursday: 3M (NYSE:MMM), AT&T (NYSE:T), Credit Suisse (NYSE:CS), Dow Chemical (NYSE:DOW), McDonald's (NYSE:MCD), Merck (NYSE:MRK), and Travelers Cos (NYSE:TRV). Microsoft (NASDAQ:MSFT) reports its numbers on Friday.

Nothing worse than waking up to an earnings miss and heavy losses in your portfolio.

Well, third-quarter earnings season is now kicking into full gear, and there are few things that move a stock faster, up or down, than an earnings announcement.

This is especially true now as investor expectations and stock prices are much higher. Companies that disappoint this earnings season will be crushed. This will lead to devastating losses for those unfortunate shareholders. However, the owners of stocks with positive surprises will be richly rewarded. Now is the perfect time to align your portfolio to profit in the month ahead.

As most of you already know, Zacks Investment Research specializes in the coverage of corporate earnings. And more importantly, how to profit from this information. So, today I'm going to share with you 3 proven strategies to profit from earnings announcements.

(Hint: Be sure to read to the end as the 3rd strategy is by far the most profitable.)

Strategy 1: Four Leading Indicators of Positive Earnings Surprises

I figured its best to get the most obvious strategy out of the way first. The 4 leading indicators I refer to are the 4 factors of the Zacks Rank. Before you skip this section, let me share some information that you may not have known.

In the mid-1970s Len Zacks took his mathematical skills to Wall Street where his job was to discover stock-picking strategies that would beat the market. He had a simple theory that was the precursor to what became the Zacks Rank.

Len focused his research on finding stocks that were more likely to have a positive earnings surprise and that would jump on the news. The journey led him to what we know as the 4 factors of the Zacks Rank. Individually, each increases the odds of owning stocks that will enjoy a positive earnings surprise. However, when you combine them together inside the Zacks Rank, it becomes an almost obscene advantage for investors. (Learn more is this video: 4 Factors of the Zacks Rank.)

Strategy 2: Stop the Bleeding

This second strategy is so simple, yet so hard for most investors to do. So, I'm going to beat it into your head...for your own good of course ;-)

Sell All Companies with a Negative Earnings Surprise

Yes, sell it immediately. Even after it falls at the open. Even if it is for a substantial loss. Why? Better to take a 10% to 20% loss in the short run than a 20% to 40% loss in the long run.

Keep in mind how earnings estimates are created. Both company executives and brokerage analysts are doing their best to create conservative estimates that the company should easily beat.

And when they fall short of those watered down estimates, it points to one of two serious problems:

• Industry conditions have deteriorated and thus they missed their forecasts. This problem will most likely not correct itself in the near-term, leading to further disappointment.
• Company leaders are incompetent. Meaning they are no good at estimating their own earnings. Or that their strategies for growth are ineffective.

Either reason should give you ample cause to abandon the stock now and move on to greener pastures.

Strategy 3: Buy High and Sell Higher - Most Profitable Strategy

I saved the best for last. This strategy has proven to be the most profitable way to harness earnings surprises. This proprietary metric is called the Price Response Indicator, or PRI.

The PRI is amazingly accurate at saying which stocks will rise in the days following an earnings announcement and which won't. Proving the truism: "Buy High and Sell Higher".

The scoring system for the PRI correlates the percent earnings surprise and short-term price reaction preceding the announcement. The model scores stocks from A to E, with A's and B's being the most likely to increase in price in the days following the surprise. These signals are produced by our systems within hours after the company reports earnings.

Stocks that are rated a PRI of A or B certainly had very strong positive earnings surprises. Even more importantly, most of them had declined in price in the days preceding the announcement. This is the key ingredient because it means that the investment community was wrong about the company's prospects.

These stocks will gap up on the news, yet still there are more gains to be made as the good earnings news spreads through the investment community. Our extensive research clearly shows that these stocks will receive extended buying pressure for about 2 weeks after the report. This gives traders ample opportunity to make consistent profits even after the stock has gapped up on the earnings surprise.

How to Profit from PRI

At this time the daily feed of PRI signals is only made available to our institutional clients. However, the Zacks Surprise Trader service filters down all the PRI signals with additional variables to find the 2% that have historically provided the best returns. From there we hand pick the signals, turning down 5 out of every 6 to provide our subscribers with a phenomenal opportunity to beat the market.

How phenomenal? Since inception in May 2006, Surprise Trader has generated a +16% return versus a devastating loss of -24% for the S&P 500. Just imagine how well it will perform in the future as we leave the bear market behind.

Today is the perfect time to learn more about the Surprise Trader. Why? First, because earnings season is coming into full swing. Second, because the service has grown so popular that it's closing to new members. It's being held open until midnight Saturday, October 17, 2009, to give Zacks.com members one more chance to join the service and also save money.

Learn more about Surprise Trader special offer.

I hope you take advantage of all three of these strategies to not just survive this earnings season…but thrive this earnings season.

Good Investing,
Stephen Reitmeister

Steve is in charge of Zacks.com and all of its subscription services. He created Zacks Surprise Trader in 2006 to help investors harness the combined power of the Price Response Indicator (PRI) and the Zacks Rank. About Zacks Surprise Trader.