Traders have been feasting on earnings this week, and none has been as spectacular as Google's report, released last night. After lowering everyone's expectations with a disappointing January report, Google turned around and blew away forecasts, sending their shares soaring 7%. In recent quarters I've observed a pattern of behavior in which companies accelerate bad news into a quarter in which they know they are at risk of missing their numbers, thereby lowering the bar enough to be able to provide an upside surprise with their next report. Momentum traders lap it up and send stocks bouncing left and right. Witness the action in F5 Networks today. The company missed their numbers badly and the shares fell 13%. However, for over a year FFIV has been unable to put together two consistent quarters of reporting. Each quarter has presented a surprise in the opposite direction of the last. Unfortunately, there is no safe way to trade these reversals of fortune.
Given today's pop and accounting for their latest revenue numbers, GOOG shares are now trading at about 21 times TTM sales with a total market cap of about $131 billion. There is no doubt that speculative fervor still surrounds this company. Some very smart newsletter writers shorted Google recently (I chose to use puts to limit my potential loss) and they (we) continue to be confounded. It seems, though, that this latest rally will trap longs and shorts alike, very much like the Google's quick pop in late January. Interestingly, Google rallied after crediting its success to market share gains from MSN and Yahoo, only days after Yahoo stated they weren't losing market share.
Intel shareholders continue to be tortured slowly. The shares have slumped back to recent lows and are sharing the pain with Dell, a company that continues to suffer for being an Intel-only shop. In classic form, Citigroup downgraded Dell to a "sell" rating today... only about a half year too late.
Overall, the picture was messy for stocks today, but as always, we traders shouldn't read too much into action on options-expiration days. Let's see how next week starts off.
Gold and silver managed to bounce a bit today. Really, after a day like yesterday, today could have gone strongly either way. It will be tough to have a handle on the metals for a couple weeks, at least, so I plan to sit back and let things settle before contemplating any new moves.
Disclosure: Long GOOG, INTC Puts; Short INTC