Wednesday, October 28, 2009

Morning Note...

Futures -60bps this morning as the mini-correction from the 1101.36 year-high in the S&P500 continues.  Using this morning’s 1055/1056 on the futures, we’ve now corrected over 4% from the October 21st high.  Durable Goods Orders came in at +1%, exactly in-line with expectations.  New Home Sales are due at 10am.  Remember Q3 GDP and Initial Jobless Claims are due tomorrow morning.  In corporate news & earnings, educator APOL (-15%) is trading lower after earnings and an announced SEC investigation into revenue recognition.  Global steel giant MT (-2%) beat on earnings but missed on revenues.  Global software maker SAP (-8%) also beat earnings estimates, but missed on revenues.  On the plus side, credit card giant Visa (+1.5%) beat by 2c and authorized a $1B share buyback plan (yesterday, IBM authorized a $5B buyback plan).  Across the pond, the trend toward “stimulus removal” continues, as Norway raises rates 25bps, becoming the first European member to do so.  Results of the US Treasury auction are due at 1pm today.  In Washington, there is more and more talk about enhancing the government’s ability to crack down on “too big to fail” firms.  WSJ reports AMZN, EBAY, SHLD have increased spending.  WSJ also reports that “the auto supply base in the US remains largely cut of from capital funding needed to finance new vehicle programs and ramped-up production schedules.  This means that both auto parts suppliers and auto manufacturers could find themselves in a lurch if the vehicle market recovers next year.”  Interesting action yesterday, as the R2000 and the NASDAQ were off over 1%, versus a relatively flat day in the DJIA. 

Some important backdrop data… roughly 80% of companies reporting Q3 estimates have beat estimates, and we entered this week +62% off the March lows.  Since Alcoa kicked off earnings season October 7th, the S&P is up only 0.5%.  Recently, the market tone seems to have shifted into “selling off on good news” mode, which is certainly concerning… From a trading perspective, we’ve reached an important “tug of war” stage given the recent 4% pullback.  Will these types of dips be bought?  Or will the market continue to correct given the potential lack of buy interest from those who have taken profits and are enjoying an extended holiday on the sidelines?  Certainly everyone is aware of the “need” for a long-overdue correction.  But the markets are genius at fooling the largest number of people possible.  So what’s the surprise?  The potential exists for the velocity of a looming sell-off to surprise people, especially those who have not locked in gains.  5% down will get them thinking… 7.5% down might get them panicking.  Imagine the mind-set of the hedge fund manager who has just trumped the high water mark and is back in the “green” following 2008’s bloodbath, but who finds that cozy feeling rapidly slipping away as markets move downward.  In some sense, the potential inverse of a short squeeze could occur.  We’ll know soon enough, however.  If the S&P500 holds roughly 1050, which is the 50-day moving average, then the bulls will have defended their territory.  If not, we may see a quick additional leg down…  Further consideration can be given to the USD’s influence as well, given recent strength.  Any hiccup in global economic recovery would probably lead to a sustained, near-term, flight to quality rally in the USD, which would also create additional downward pressure on commodities and equities.  To simplify, if the global economic recovery pauses or falters on its own accord (i.e. naturally, like the recent UK GDP reading) or stimulus removal begins in earnest (i.e. artificially pausing) and this is viewed as “too early” by investors, the USD will probably gain and US equities will falter, along with commodities like gold, copper, platinum, oil, et. al…

BofA/MLCO ups CR; cuts APOL, RX.  CITI ups AKS, TGT.  DBAB ups WAT.  GSCO ups BPO, EW, TXN, UDR; cuts NUVA, SNDK.  KBIW ups BUSE, PNNT.  MOKE ups OSIS.  OPCO ups WYNN; cuts EVEP.  BARD ups EXAC, GKSR.  WELA ups CRDN.  ROTH cuts INTC, MELA, MRVL, NVDA.  BARD cuts ILMN.  WELA cuts LRY.  WSJ cautious on NYT, GCI.  AIB, IRE lower on proposed EU repayment requirements.  MSCO & RBCM cut APOL.  BWLD reports in-line but misses on revs.  CECO, COCO, ESI, STRA lower in sympathy with APOL.  CEPH higher on earnings and reaffirmed guidance.  CQB higher on earnings beat.  DWA beats by 7c.  HRS beats by 7c.  ILMN earnings miss.  MEE beats by 1c.  MOLX beats by 3c.  NATI beat by 3c. PEET beat by 3c.  RFMD beats by 4c.  PSYS misses by 6c.  PNRA beats by 7c.  Q beats by 2c.  VCLK beats by 1c.  HMC triples profit forecast.  WLP beat estimates.  Vitamin Shoppe IPO prices above the range, at $17. 

Asia mixed overnight.  Europe over 1% lower.  USD +10bps.  Gold +5bps.  Oil -90bps. 

Brightpoint News: 

Brightpoint PreMarket (yest close/premkt/% change/volume):

S&P 500 PreMarket (last/% change prior close/volume): 
APOLLO GROUP-A           62.00    -15.03%            1440393
FISERV INC                    43.40    -11.57%            400
UNISYS CORP                25.43    +5.65%             900
CONSTELLATION-A         15.547  -4.62%              10938
LEUCADIA NATL             22.39    -4.52%              500
MASSEY ENERGY CO       30.00    -4.18%              96941
DIRECTV GROUP IN        24.56    -3.99%              2000
CBS CORP-B                  12.90    +3.7 %              961
SIGMA-ALDRICH             52.05    -3.4 %              500
GANNETT CO                 11.18    -3.37%              1700
ADV MICRO DEVICE        4.98      -3.3 %              122154
FREDDIE MAC                1.19      -3.25%              84035
SYMANTEC CORP           15.65    -3.16%              1980
ORACLE CORP                21.20    -3.06%              89094
XILINX INC                     21.89    -3.01%              1000

Today’s Trivia:  What physical ailment is Pepsi actually named for?

Yesterday's Answer:  A “MacGuffin” is a plot device that moves along a story, but is essentially meaningless in and off itself.  Supposedly Hitchcock coined the term.  Popular examples include the Maltese Falcon statuette and the Ark from Raiders of the Lost Ark.

Best Quotes:With roughly 80% of companies reporting third quarter results beating estimates, the bottom-line results are far from disappointing.  Granted there is room to bemoan the lack of top-line growth in most cases, yet there has been little difference in the character of the earnings reports between the second quarter reporting period and the third quarter reporting period.

The big difference is the market's response to the reports.  Unlike before, "good" earnings news isn't provoking strong rally cries.

There have been some good sessions in the past few weeks and certainly some very good individual trading responses (see AMZN), but the net change for the S&P 500 since Alcoa reported its results Oct. 7 has been approximately six points or 0.5% (note: we're still talking a gain here). 

In the same length of time following Alcoa's second quarter earnings report, the S&P 500 had gained roughly 100 points or 11.4%.

Naturally, participants were hoping for more with the third quarter reporting period.  They haven't gotten what they wished for primarily because stocks were run up so much ahead of the actual reports.

This isn't to make light of the recent losses.  They are raising some eyebrows because they have been driven by the underperformance of the financial sector, which has dropped 3.2% since the time of Alcoa's report.  Recently, the tech sector has also acted poorly.  It is down 1.2% since the close on Oct. 19.”

No comments:

Post a Comment