Tuesday Top Off

All in all it was a pretty good day in the markets but suddenly made irrelevant by this evening's announcements.

We were lucky enough to take a nice helping of mattress plays into the close as our tech disappointments should pretty much guarantee us a dip in the morning.

The Dow tested 12,800 but couldn't hold it but everyone ended up holding up OK and the underlying market looks pretty good but I'm concerned that the buying is nothing more than European bargain hunting as investors over there toss some money at our very devalued securities.  Tomorrow we get a proper test though as oil should continue to head down (at least ahead of inventories) and we'll get a test of market nerve over IBM and Yahoo's earnings.

We're still holding our levels despite the mild pullbacks:

We added one red, on the Transports and lost 2 greens on the SOX, not a crisis but not a good trend.  It will be critical tomorrow for the Nasdaq to hold 2,500 and for the SOX to hold 470.  The Russell is a faltering ex-leader and dropping below 820 should give us a lot of concern as well.  On the other hand it will be a great opportunity for the bulls to strut their stuff because a positive move on so-so earnings could finally get the bears to throw in the towel and give us the green light to 13,000.

Oil had a nice EOD drop-off and was weak all day.  While it may not be enough to save our hopelessly out-of-the-money April puts, the Mays we rolled into are already picking up very nicely but we're not going to get greedy and we're going to take some off the table as soon as we make up for our April losses! 

While we take the movement of the May contract with a grain of salt, it cost NYMEX traders .51 to pare down just 15Mb with 105Mb remaining ahead of Monday's rollover.  Somehow they need to get rid at least 60M barrels in 2 days so it will be hard to hold $62.50 no matter what happens in the world.  Half of those barrels rolled into June, now up to 317Mb and another 5Mb went into July, now 132Mb so we'll start looking at August, currently 47Mb as we play hot potato into the close.

More significant than the propped up .51 drop in the May contract is the $1.21 drop in the June contracts, now "just" $64.46, down $2.40 from Friday's high despite the dollar's plunge to 81.80 after a weak bounce off 81.85.  That puts the dollar down 1.6% in 5 days and there really is no end in sight so there has to be some REAL underlying weakness in crude for it to sell off like this.

Gold is also acting a little overbought but $695 is very strong and the dollar will push it higher.  At this point a dollar reversal would be bad for the overall market as it will keep Euros from flying in so let's cheer gold on to $700 because the last time it collapsed was last May, and that was not a good time to be in stocks either!

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Earnings:

IBM In line! Revenue up 7%, earnings up 12%. Most importantly, continuing increase in Gross Profit Margins…

America totally dragged down the company, up just 1% (and I’ll bet they fudged that). It also worries me that many of their earnings were adjusted for currency which would have given them a big kick as the dollar dipped about 8% for the Q vs. last year. That means they still report all income in dollars (so US flat) but any other country they collect in local currency automatically paid them 8-10% more than last year for the same work.

Also their effective tax rate was down from 30% to 28.5% and $3.5Bn worth of shares were repurchased in the Quarter (2%) and it looks like that makes about 5% since last year. Bottom line is I don’t like it that much and I’d take the money and run in the morning – if it gets that far.

INTC – revenue down and income is up. That’s good! Part of that ($300M) was a tax thing though but gross margin expansion from 49.6% to 50.1% is KEY.

They hit their staff reduction targets a Q early so that bodes well for the next one and we can blame the slow revs on Vista so they should be forgiven for that. They raised GM forecast from 50% to 51%, huge! R&D is up a bit. Trying to dig for Apple in here…  What's good for Intel here is not nec. good for the sector.

YHOO blew it! Revs are below. Earnings are .10 vs. .11 expected.

US revenues down! Int'l up 22%. US income up 2%, Int'l income up 19%. This country is hurting!!!

These are very bad numbers, they are down $400M in cash over last year and they bought back $500M in stock or things would look much worse.