Tepid Tuesday Morning

It's earnings season!

Finally the bulls will be right.  Then the bears will be right, then the bulls, then the bears…  Kind of makes you wonder why we bother but, much like Bugs Bunny and Daffy Duck, someone is bound to get shot if they pick the wrong stock.

Today we here from AA who, like New Hampshire, gets the spotlight to kick off the Dow.  Also in the running this week are BBBY (peek under the sheets of retail), DNA (looking good), GE (ho hum – another Q, another $5B), HANS (high expectations), INDB (spillover anyone?), INFY (Dude, where is my tech job?), KKD (always fun), MTG (good read on mortgages), RAD (is WMT hurting them?  No.), RI (are consumers eating?), PIR (why do they bother?), PKX (is big steel real?), RIMM (wheee!), SNP (our first petroco) and VIP (high expectations).

The BOJ held rates steady in what seems like a weekly meeting on the subject and gave no clue as to future moves.  The Banker Who Must Not Be Named reiterated his optimistic outlook for prices and the Japanese economy, saying that "a long-lasting economic expansion on the basis of a favorable cycle led by production, income and spending will likely continue."

Meanwhile China has decided they can get along without us, probably why we are suddenly pushing the WTO issues as their exports are zooming to 40% of their GDP and the US now only accounts fro about 20% of that total.  At their current rate of growth, even a 50% drop in exports to the US would be washed out within a year.  It is a very scary thing if China is not motivated to prop up the US economy!

In fact, China is aiming to slow growth to control their own inflation and a recession in the US may be just the ticket as it allows them to bring their 10% growth under control without slowing their efforts to develop ties with other trading partners so they won't be so dependent (or beholden to) the US.  Gee what fun for us.  It's kind of like China is stepping out on US and our economy is so pathetic that all we can do is sit by the phone and hope they call except, rather than have a bad weekend, we could be looking at a bad decade…

Asian markets were up except for Japan but we're not going to worry about a 79-point pullback after a 258-point rise yesterday as they are looking very strong right now.   SNP did have huge earnings, led by refining operations with Q1 net projected up 50% from last year.  What I find most interesting about this is that TSO (5/3) is expected to earn 193% more than last year vs. VLO (4/24), who is projected to go up 30% so let's watch them both closely today for their reaction to Sinopec's report.

The ECB will set their rates on Thursday and slow but steady has been a winning formula for the European markets as they are set to test record highs this week.  Merger mania is boosting the markets with well over $100Bn worth of deals on the table today.  Things are so good in the old country that BTI thumbed their nose at Altadis' $16Bn offer, which topped ITY's bid by a Billion or so.

Back home, we can expect another day of consolidation followed by a totally random reaction to AA's earnings since they will tell us nothing about the economy since the average high school consumes as much aluminum drinking soda in a week as there is in an entire 767 and the shift to plastic water bottles will hurt AA more than any changes in US manufacturing might.  Still, tin is in but I will be surprised if they can break their ATH at $35.50 on anything less than spectacular results.

The markets are in very good shape so don't be alarmed by my new, agressive chart targets – if we don't get going this week and start losing momentum it's a long way to the bottom so let's try not to look down:

The Dow is on a 7-day winning streak (the most in 2 years) but DHI (4/19) said things still suck in the housing market – hopefully this won't come as a shock to investors.  RYL says they will be posting a quarterly loss as well.

Our pals at STX are also killing us with poor outlook which may hurt HPQ and DELL as well this morning as Seagate supplies about 40% of all disk drives.  The WSJ's featured article today is that high oil prices are no longer enough to guarantee strong returns for energy companies as oil rich nations (other than ours) are increasingly expecting oil companies to give them a cut.  Somehow this will make TSO go up….   Or perhaps it is finally take down oil day, the run has been ridiculous and has to end sometime, it would be nice if they do it before I have to roll to May.

Zman and I have our eye on the Inventories so check out his site for a virtual chartfest that paints a picture that is worth 1,000 of my words.  My favorite chart is the one that explains where our barrels went this past month – while the US had a very small drawdown, Europe had an epic build and is now sitting on record inventories as the oil boys play hide the barrel, a game that seems to fool US investors every time.  But who can blame you with Criminal Narrators Boosting Crude day in and day out?

Wow!  That's a lot of oil!  Don't worry, there's always Criminal Narrators Boosting Crude – Europe to work that side of the Atlantic as well…

As I've been saying since the close of the April contract, I just don't see how they can stuff another barrel into Cushing and the 2 front-month contracts are still bursting with 500Mb of WTIC.  While demand may be climbing, no projection on this planet has it climbing enough to outstrip the massive spare production capacity that's come on-line globally.  Don't forget that huge recent build in European inventories is coming AFTER OPEC cut production by over 1Mbd.

Any downward move in oil is magnified today as it comes against the ever-collapsing dollar and gold is bursting right through $680 this morning as global investors look for the exits on our currency.

We have our Dow mattress play in place (the May $125 puts at $1.45 with the usual follow-through) from yesterday but hopefully we won't need it.  Just because the dollar is worthless doesn't mean our stocks are going to be – US companies look downright cheap to foreigners but they may not be too keen on corporations that make most of their profits over here.  What few exporters we have stand to do well and maybe we'll be outsourcing to India some day, which would be great for our service industry!

Let's be careful out there today, I don't expect much commitment ahead of earnings and we need the Transports and the Nasdaq to lead a breakout and let's watch out for oil at the $62.50 mark.