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Earnings, jobless claims and CPI

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Stock futures are edging higher this morning after a plethora of earnings and economic data get processed by traders.

On the earnings front, Dow component United Technologies (NYSE:UTX) $64.40 reported earnings that were a penny ahead of expectations, while fellow Dow component General Motors (NYSE:GM) $40.20 reported earnings of $1.67 (excluding GM Hughes), which was above consensus estimates of $1.53. Homebuilder KB Home (NYSE:KBH) $44.09 beat estimates by 39-cents after reporting its Q4 earnings of $2.92 per share.

Economic data due out this morning showed a surprising drop in jobless claims for the latest week. The Labor Department reported that jobless claims fell by 32,000 to 360,000 and the number of people receiving state benefit fell by 136,000 in the prior week. Both numbers were encouraging, but many economists want to see more than a 1-week decline to help confirm that a sustained improvement in the job market is underway.

Inflation at the consumer level remained tame as consumer prices for December rose 0.1%, which was below economist's forecast for a 0.2% rise. Excluding the more volatile food and energy components, the core rate rose 0.1%, which was inline with forecasts.

Shares of Yahoo! Inc. (NASDAQ:YHOO) $19.58 are being actively traded on the downside at $18.40 in pre-market action after CSFB downgraded the stock to "underperform" from "neutral." CSFB said that while the recently completed quarter was solid and guidance positive, the firm believes valuation is stretched and that the high level of expectations is priced in at these levels and will likely have the stock underperforming the Internet group near- term. CSFB maintained its $15 price target.

All of the above and a plethora of earnings reports has S&P futures (sp03h) trading up 0.3 points at 921.30. NASDAQ futures (nd03h) are gaining 1.5 points at 1,078.50, while Dow futures (dj03h) are higher by 19 points at 8,750.

Fair value for the S&P 500 today is $0.22, which has traders looking at a flat to marginally higher open. HL Camp & Company has their computers set for program buying at $0.42 and set for program selling at $-2.02.

Conclusion to OI's Index Trader Wrap

I spent quite a bit of time last night with our "pivot matrix" and comments regarding correlative support in the SPX at 912 and resistance at 922.

Lets take a look at the Dow Industrials (INDU) 8,723 which will have three components reporting earnings today. Before the bell, we should have the numbers from United Technologies (NYSE:UTX) $64.40. This is a stock I mentioned in prior market monitor posts near $62 as a Dow component that was showing some relatively bullish supply/demand characteristics. For those following the Dow Industrials Bullish % ($BPINDU) this is probably the stock closest to giving a reversing point and figure "buy signal" at $66, which would contribute one stock, or 3.33% toward the bullish %. I'm thinking this morning's earnings and market response will be important to the stock, and may also impact today's Dow Industrials tone. First sign of trouble for UTX is a trade at $59, which would be a spread-triple-bottom sell signal. Bullish support trend is just below at $57. This stock has been hovering around its slowly trending lower 200-day SMA for the past 8 sessions. Today could be a "key" day for the stock.

Dow Industrials Chart - Daily Interval

After breaking above our downward trend (anchored from the 05/17/02 relative high) the Dow has been unable to make much of an extended move higher, and Tuesday evenings comments from component Intel (INTC) $17.35 that it saw little improvement in the semiconductor industry for the next 6-months, had the Dow pullback back below this trend. From our pivot analysis for today, about the only "correlation" of support is today's S2 of 8,607, which isn't too far off from the rising 50-day SMA at 8,605. On the resistance side of correlation, today's R2 from daily pivot analysis of 8,912 is also correlative to the trending lower 200-day SMA of 8,911. This "range" of S2=8,607 and R2=8,912 seems wide, and the market looks to have the Dow positioned almost "neutral" or in between this wide range. This might make some sense with 3 components reporting earnings today.

S&P 100 Index Chart - Daily Interval

Today's S2 from pivot analysis is 460.82 and isn't that far off from the rising intermediate-term 50-day SMA of 462 and rising 21-day SMA of 456.06. UTX, MSFT and IBM are all three components of the OEX. I would argue that MSFT and IBM earnings will be more closely watched and influential to trading and it would not surprise me a bit to see some type of intra-day trading near OEX 460 into MSFT and IBM earnings. Should the OEX close anywhere near the 460 level today, it would be a tough call for traders to hold LARGE positions overnight as a 460 close would be in the MIDDLE of our Bollinger Band and in the MIDDLE of what appears to be a large wedge formation. If balance between put and call or long/short in stocks, which would be a rather "neutral account strategy right now, I couldn't argue with that type of account management at all.

NASDAQ-100 Index (NDX.X) - Daily Chart

Intel's comments that it was cutting its 2003 capex budget for 2003 sent semi-equipment stocks like AMAT, KLAC and NVLS, all NASDAQ-100 components lower and had the Semiconductor Index (SOX.X) 324.94 -3.5% pacing tech sector declines. While Intel's earnings were perhaps a "warm up" for technology stock's earning's season, NASDAQ-100 and QQQ traders know that MSFT's whopping 12.4% weighting in this index then become roughly "3- times" more important that Intel's, as Intel is the second most heavily weighted stock in the index at 4.8%. Further comment from Intel that it saw little "recovery" taking place in the economy may give the NDX and QQQ a bit of a bearish tone into today's close. Today's S1 level of support in the NDX is 1,062, and the QQQ's S1 is $26.42. If these levels are violated to the downside intra-day, we might see a test in the NDX of 1,051 (today's S2) and QQQ of $26.12. Today's PIVOT of 1,081 and $26.89 will be the first hurdles of daily resistance. I forgot to "mark" the horizontal thick red line on the NDX chart, which the NDX fell back below today. This line marks the 1,081 level, which was placed on the chart back in early December, to mimic our "volume pivot" in the QQQ at $27.00. It was on December 4th that the QQQ fell back below $27.00 on some heavier than normal volume of 130.4 million shares. Yesterday's slip back below $27 in the QQQ came on 55.4 million shares.

I'm very "torn" between bull and bear in the QQQ ahead of MSFT and IBM earnings. To tell you the truth, I feel like "Maverick" in the movie "Top Gun." He learned that he "couldn't leave his wingman." For me, my "wingman" is and always will be the bullish %. While I consider any positions (bullish or bearish) ahead of IBM and MSFT earnings as somewhat risky, I'd take a bullish trade in partial positions, but would rather get entry at QQQ $26.12, or NDX 1,051, which would be close to tomorrow's S2 levels.

While IBM is not a NASDAQ-100 component, traders should understand this technology bellwether's impact on investor psychology for technology stocks.

Jeff Bailey

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