Before the Bell – Wednesday, August 12

Good morning. The market has spent three sessions waiting, and the thing it has been waiting for arrives at 8:30 this morning. Meanwhile, three AI suppliers reported strong numbers after last night's close.

Tuesday drifted lower on light conviction. The Dow Jones Industrial Average fell 0.34% to 53,791.85, the S&P 500 slipped 0.32% to 7,728.20, and the tech-heavy Nasdaq lost 0.60% to 26,445.45. Small caps went the other way, rising about 0.3%. Two megacaps did most of the damage: Alphabet fell 3.8% and Amazon lost 2.1%. Crude oil rose 1.3% to $83.20 a barrel as hopes faded for a deal to reopen the Strait of Hormuz, and the 10-year Treasury yield eased to 4.68%. Worth noting underneath the red: market breadth was positive, and an equal-weight version of the S&P 500 actually closed at a record high.

Beginner note: that last detail is the useful one. Three of the four headline indexes fell, yet more stocks rose than fell, and the equal-weight index hit a record. That combination tells you the selling was concentrated in a handful of very large companies rather than spread across the market. When you only read the headline index number, you get the story of the giants. Breadth tells you the story of everything else, and this week the everything-else has been quietly fine.

We have spent two weeks on the C, current earnings, and the 25% quarterly test. The next letter of CAN SLIM is the A, annual earnings, and it exists to answer the obvious follow-up question: is this one good quarter, or is this a good company?

The standard is the same number applied over a longer window: 25% annual earnings growth in each of the prior three years. Three years, specifically. One year is noise, easily produced by a weak comparison or a single good product cycle. Five years is so demanding it screens out genuinely strong younger companies. Three is the compromise that filters out flukes without filtering out everything.

The most disciplined version of this belongs to David Ryan, who won the U.S. Investing Championship three years running, in 1985, 1986 and 1987. He ran the same screen every one of those years, and it is worth memorising because it is three numbers and they are all the same number: 25% quarterly earnings growth, 25% annual earnings growth over three years, and 25% return on equity. Twenty-five, twenty-five, twenty-five. The C, the A, and a profitability check, all at one threshold. What that combination eliminates is the company with one hot quarter and no history, and the company with a long history and no current momentum. It demands both at once.

$SMCI ( ▲ 14.18% ) builds the servers that AI data centres run on, and it reported strong results and guidance after last night's close. The stock closed the regular session at $31.60, up 0.45%, and rose sharply in after-hours trading, positioning it to clear both its 50-day and 200-day average lines. On the C test, this quarter looks like a clear pass.

Why it is worth watching: here is why we introduced the A today rather than next week. Investor's Business Daily notes that Super Micro has been a laggard for the past two years. So you have a company posting an excellent current quarter against a multi-year record that has not been excellent at all. That is precisely the case the A is built to catch, and it is the difference between a stock that passes one filter and a stock that passes Ryan's three. Do not take our word for which way it resolves. Open the financials, find the annual earnings for each of the last three years, and see whether the A is there or not. Ten minutes, one company, and you will understand the second letter better than any explanation of it can teach you.

Educational content only. Not financial advice. Past performance does not predict future results. Read the full financial disclosure.