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October 18, 2006

Earnings, Round One

In recent weeks when the SPX has rocketed out of the gate, the index has either kept soaring or spent about an hour giving back half of the opening gain and then proceeding to soar. Today, the index rocketed out of the gate then gave back all of its opening gain over the next hour. Perhaps this action means nothing, but at times seemingly inconsequential action can signal change. In any case, it was enough to get me to give the short side a go via a spoo sale. I sold into the first bounce of the day, and within a couple hours it seemed like the selling could really catch fire. Unfortunately, the market stabilized and hit my tight stop, leaving me with a miniscule gain.

I detail this trade only to reveal that I am more attentive for signs of a market reversal than I have been in about a month. For one, the tape looks very tired. Buy-the-dippers are still active, but over the last two session, they have not shown the same fortitude of the last few weeks. Also, earnings season has frequently provided the catalyst for trend change. I think for bulls it will be very important to best Monday's close or even today's high by the end of the week.

On to the reportsÂ… IBM won top prize in yesterday's batch of releases by beating earnings estimates. I don't have a lot to say about Big Blue since I do not follow the company closely. Instead, I take what I can from the market's reaction to their news. I found it devilishly gratifying that the Dow could not close above 12,000 on a day when one of its bellwether members was winning the numbers game. So we now have Dow 11,992.68. Does anyone remember the summer of 1990 when the Dow closed at a record 2999.75 two days in a row before proceeding to plummet 20% into October? Does anyone find it interesting that the NDX is 2% lower over the last two days while the Dow is trying to breach a new round number?

In the not-so-happy category lie Yahoo and Motorola, both of which got tagged for about 4.5% after disappointing on the top line. Yahoo's guidance was weak, as well, which is especially interesting considering that they are finally rolling out new ad display software supposedly designed to boost revenue. A look at Yahoo's chart shows that the shares have now resolutely breached long-term support at $25 and look to drop to $20 at the least.

Motorola appears to be finally feeling the effects of a saturated mobile phone market, though if one is to believe Ron Garriques, manager of their mobile phone unit, the shortfall is not of Motorola's making, but rather the fault of the lack of demand for walkie-talkie phones. Either way, it adds up to slowing revenue growth. Not to worry, though. Garriques also professed, "I don't believe in a slowing of growth." Inspires confidence, doesn't it? I wonder how Blackstone feels about their purchase of Freescale Semiconductor right now?

Intel's report was more or less a non-event. Everyone knew what was coming. The only aspect of their delivery that could have made a difference was guidance, but they didn't rock the boat. I really don't think much in the way of good news can come out of this company. We Intel bears will simply have to wait for more updates or a general shift in psychology. With the SOX sinking 5% in two days, it wouldn't take much for bearish sentiment to get a foothold.

A quick glance at today's reporters shows Apple winning and AMD swooning. Let's see how all this affects tomorrow's action.

Disclosure: Long YHOO, MOT Puts


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