Are we there yet?
Yesterday I predicted a test of our lower levels: Dow 7,900, S&P 833, Nasdaq 1,580, NYSE 5,225 and Russell 444 and we finished at Dow 7,841, S&P 832, Nasdaq 1,608, NYSE 5,220 and Russell 452 so an interesting balance there. The Dow is, by far, the easiest index to manipulate and the Russell is the hardest. It took the Russell all afternoon to leg below our first breakdown point at 456 though, so it's possible they'll catch up today but that would be bad as they're holding us up at the moment. As I said yesterday, below these levels is another 5% gap down to Dow 7,636, S&P 805, Nas 1,525, NYSE 5,075 and Russell 420 before we hit any real resistance.
As you can see from Trader Mike's chart, we have a big air pocket below our S&P close and we certainly haven't had the kind of volume we'd expect to put in a reversal. It can happen today if we are truly moving back to a stock picker's market as we have both winners and losers in today's earnings reports but not if you read the Wall Street Journal, where solid earnings and outlook from Dow components DD, IBM and BAC are turned into tabloid fodder with the headlines: ""IBM Proftit Slips Amid Weak Sales," "A $4.2Bn Profit Isn’t a Fix for BofA" and "DuPont Posts 59% Drop in Profit."
DD beat by 2 cents a .54 per share on lower revenues but guided in-line for the year. BAC blew the doors off expectations yesterday but bloggers have declared them insolvent and that stock tanked yesterday (we're buying today) and IBM beat by 2% yesterday, guided in-line for the year and guided up 15% next year but at least The Journal managed to mention that revenues at IBM were only down because the strong dollar meant they collected less foreign revenues despite strong sales orders. Services revenue was down 10% but would have been down only 2% without currency fluctuations. Services contract signings, off 1%, would have been up 10% at constant currency, IBM said, with longer-term contracts growing. Keep that in mind – earnings are what Rupert Murdoch and CNBC spin them to be if you don't read the reports yourself!
Uncle Rupert also tells us in the headlines that "TXN Profit Drops 97%" so it may be surprising to see them trading up today but the company was expected to have a loss and they earned .01 instead and: "With demand stabilizing, the company said its inventory reductions are essentially complete. It added that it expects to increase production levels in its factories during the second quarter." Guidance was stronger than expected and CEO Templeton said: "Demand for our products has begun to stabilize after sharp drops in the past two quarters. Many customers have increased orders for TI products as they have begun to slow down their inventory reductions." What if the headline had been "TXN Beats by 300%, Forecasts Increased Orders"? Well, if they wrote that then they couldn't support the on-line page one headline: "Futures Fall on Weak Earnings."
Banks led the Nikkei down to the 2.5% rule this morning as Japan may be cutting it's overall GDP forecast to -3%, far worse than anticipated. That will keep oil low and that will hit XOM and CVX and keep the Dow down this morning. CHL disappointed in China and the Hang Seng fell 3% while the Shanghai fell 1%. If you read yesterday's post, my comment there was: "That’s good enough for us to roll up and increase our FXPs (ultra-short China) calls because it’s now or never on a China pullback." The FXPs are already up 5% from yesterday's open and we picked up calls during Member Chat that are doing far better than that but we're out if our market recovers today. "In Asian markets as much as in the U.S. market, there are a lot of uncollectable loans people are concerned about," said Lucinda Chan, a division director with Macquarie Research. "Things have improved [for U.S. banks] but it's still not what you'd expect. The sustainability of earnings is what's concerning the markets."
EU markets are following through on their slide after attempting an upbeat open, down about 1.5%, which is what we're expecting for US markets to take us to the 5% rule across the board. UK retail prices fell for the first time since 1960 but the CPI was continuing at a 2.9% annualized pace and that's a bad thing as it means the ECB may have their hands tied as they are forced to fight the key measure of inflation, which is mandated at under 2%, despite the mixed economic signals. The UK is also promising a new industrial policy to support industry while Germany is considering a jobs program aimed at keeping a lid on unemployment into the September elections.
ETN, FWRD, IEX, CAT and PNR have guided down so far this week. No one had guided up this year (IBM guided up next year) but yesterday there were 20 beats and 10 misses. This morning there are (as of 9am) 22 beats and 10 misses. BJS is one of the misses, the first of my OIH bad boys to confess (we are short on that ETF). CAT was a guide down but we expected that. CHINA had a huge miss as didi PNFP, BK, NTRS, WBS and KEY – which is not helping the finanacials.
Winners included BXS, BSX, CNI (good for transports), HWAY, IBM, PKG (good economic sign), TXN, ZION (got 'em), ARB, COH, DAL, DD, FCFS, HBAN, JCI, LXK, LMT, MAN, EDU (got 'em), DGX, RF, SGP, UNH (got 'em), USB (got em) and WU. We've got plenty more to get through including COF tonight along with AMD, AMP (used to be part of AXP), CREE, FULT, GILD, HBHC, HCBK, IBKC, NBR, NSC, SNDK, STX, TEX and YHOO. So it's going to be fun and we have 200 more reports on Wednesday and another 200 on Thursday so we'll try to stay unemotional and watch our levels but the pre-markets seem determined to test our next set of levels, we'll see how the 1.5% lines hold up…
Oil continues to collapse and that will be the story of the week if we get to $40. Timmy speaks to Congress this morning and may take pressure off the banks and we'll be selling some BAC puts to start a posiiton this morning. I wouldn't say there are bargains out there just yet but big drops in fiancials and a high VIX are things we can certainly take advantage of, even if we are heading lower!
