Market Stats Table
Goldman Sachs (Nyse:GS) reported earnings of $2.7 billion for Q2. This compared to a loss of $3.29 billion in the worst four months of the financial crisis. Goldman managed to earn that $2.7 billion with stock and debt underwriting and high risk trading. Trading is their core strength and they are actually closer to a hedge fund than a commercial bank. The wild market swings and billions in TARP funds allowed them to take advantage of the opportunities presented. Goldman has now paid back the TARP and is free and clear of Treasury restrictions. Meanwhile many of their competitors are still limping along and trying to find traction in the weak economy.
Goldman was forced to take $10 billion in TARP funds even when they claimed they did not need it. They used the money well to add to profits but the payback during the quarter forced them to take a 78-cent per share charge. Even with the charge Goldman earned $4.93 per share and well over the $3.54 analysts expected.
Despite the blowout earnings Goldman shares gained only 22-cents for the day. Analysts already expected Goldman to beat the street and Meredith Whitney already caused a +8 spike on Monday with her bullish comments on Goldman. Goldman had gained +$16 from last Wednesday's low of $135 to the opening spike to $151 this morning. That was too much of a rebound on expectations to have a continued rebound on the actual news. Goldman shares also ran into strong resistance at $150 and well below Whitney's price target of $186.
Goldman Sachs Chart
The Goldman news succeeded in overcoming numerous earnings warnings to keep the markets slightly positive for the day. Dell (Nasdaq:Dell) held their analyst meeting today and they used that opportunity to warn that enterprise sales were "very weak" and gross margins would fall. Dell said it had to cut prices to retain market share. Dell shares fell -8% for the day. Dell did say they expected 10% unit growth in 2010-2012. That was obviously a calculated comment designed to prevent a complete collapse in the stock price. They threw out a growth forecast 2 years in the future to cloud the current impact of sales falling and margins imploding.
Other warnings today came from Sun Microsystems (Nasdaq:JAVA). Sun warned that quarterly results will sharply miss Wall Street projections. Oracle, which is buying Sun for $7 billion, was quick to say it had reviewed Sun's projections and was still confident it would add to Oracle's profit in the first full year after the deal closes. Sun has been traveling a tough road with Intel's chips getting progressively faster and cheaper and IBM's and Hewlett Packard's server business both taking market share from Sun. Sun projected revenue of $2.63 billion for the quarter and short of analyst estimates for $3.06 billion. Sun also projected a loss of 24-34 cents per share compared to analyst expectations for a loss of 8 cents. Sun stock did not react to the news because of the Oracle comment.
Sun Microsystems Chart
Take-Two Interactive (Nasdaq:TTWO) fell -10% after cutting its guidance. The company said slow orders from retailers and a delayed game release would cause it to lose 65-75 cents for Q2. Analysts were expecting a 54-cent loss.
Martin Marietta Materials (Nyse:MLM) lowered its full year outlook again claiming the recession was ongoing. Martin said state and local governments were not spending money on construction projects, roads, bridges, etc. Martin supplies sand and gravel for those projects. No roads being built means no concrete and asphalt being purchased. Martin said profits are not expected to be in the $2.70-$3.30 range and down from previously lowered estimates of 3.70-4.15 per share. Analysts were already expecting $3.55 per share.
After the bell Intel (Nasdaq:INTC) blew away earnings estimates of 8-cents with earnings of 18-cents for Q2. This excluded a $1.45 billion anti trust fine from the European Union. Sales of $8.02 billion were higher than the $7.28 billion analysts expected. Intel also gave guidance for Q3 revenue of $8.5 billion that was $700 million higher than analysts expected. Even gross margins surprised at 51% compared to estimates of 45%. Intel even projects that Q3 margins would be over 53%. Everyone was worried that the low price notebooks and netbooks would hurt Intel's margins but evidently the increased volume has helped lower costs.
Intel called the bottom in the PC sector last quarter and it appears they were right on target. Even with their raised guidance they will not be back to their pre crisis level of $9.47 billion but they are recovering strongly in a slow economy. When the real economic rebound arrives it is Intel that will benefit strongly. Intel's share price spiked from the $16.82 close to $18.11 in afterhours and helped push S&P futures up +10 points.
The chip sector appears to be in rebound mode. Texas Instruments (Nyse:TXN) raised guidance for Q2 a couple weeks ago. Micron (Nyse:MU) and National Semi (Nyse:NSM) beat expectations. Novellus (Nasdaq:NVLS) said on Monday it was seeing a rebound in orders. This could be the real green shoots investors were hoping for to come back into the market.
Johnson & Johnson (Nyse:JNJ) posted profits that fell -3.5% after the strong dollar and generic competition took a toll on their prescription drug sales. JNJ still beat estimates mostly on a -13% reduction in research and administration costs and production costs by -6%. Earnings were $1.15 per share compared to analyst estimates of $1.11. JNJ reiterated its full year forecast.
Not all the earnings reports were good. Yum Brands (Nyse:YUM) beat the street with earnings of 50-cents per share and 7-cents above estimates. However, Yum lowered estimates for same store sales for the rest of 2009. YUM shares fell -4% in after hours.
The earnings due out for the rest of the week include (Nyse:IBM), (Nasdaq:GOOG), (Nyse:HOG), (Nyse:JPM) and Bank America (Nyse:BAC). Bank America Merrill Lynch released a report this week claiming the recession was over. It will be very interesting to see if their earnings reflect this newfound optimism.
Exxon (Nyse:XOM) made the news today with a $600 million investment partnership with Synthetic Genomics. The plan is to develop transportation fuel from algae. This could be just a prime example of green washing with Exxon trying to improve its image but there has been a lot of research into the algae area. Algae can be grown on land unsuitable for normal crop production. Algae consumes green house gases and produces oil that is suitable for refining into gasoline and diesel. The problem is scale and developing a highly productive strain of algae. How many acres of hydroponics will it take to produce any measurable quantity of oil? Of the $600 million, $300 million will go to SG and $300 mil used internally by Exxon. This is a multiyear project with those funds spread out over five years. This is a drop in the proverbial bucket for Exxon when their research and exploration budget is $29 billion for 2009.
In the earnings today the Intel report was far more important than the Goldman Sachs report. We already know that Goldman has a very good trading department and they are responsible for a large percentage of the program trades on any given day. That may produce profits for Goldman but it is not an indication of economic activity.
The Intel earnings and raised guidance is a very strong indication that the recession is over and the economy is improving. We can only speculate about how much better it will be in the fourth quarter when Windows 7 begins delivering and the upgrade wave shifts into high gear. I have reported several times that IT managers are already planning their upgrades to new hardware complete with Windows 7. Microsoft always offers upgrade licenses to provide users with an incentive to buy the hardware early with Windows XP or Vista installed and to upgrade free to Windows 7 later.
If you have every gone through the hassle of an operating system upgrade that lost your files and erased your setting then you realize how few users actually take Microsoft up on this offer. The vast and I do mean vast majority would rather suffer through their existing PC problems for a couple more months than go through the conversion process of upgrading operating systems. They will wait until systems with 7 preinstalled hit dealer shelves in October. I believe the buying will be brisk and continue for several quarters.
This means Intel will not see a big lift in Q3 but their Q4 could be explosive and that should carry over into Q1/Q2 of 2010. The fact that Intel is seeing increased chip sales today is extremely positive for the economic outlook. Novellus said the same thing as did Texas Instruments. We could have a real recovery brewing and these are the very early signs.
The Intel news sent the S&P futures up +10 points in afterhours and the Nasdaq futures up +29. Even the Dow futures are up strong at +59 at 7:PM. Obviously a lot can change overnight but this should be a positive for Asian markets as well. Those Asian markets are already pumped after Singapore upgraded its economic outlook and said GDP rose by 20.4% in June.
The Meredith Whitney banking upgrade on Monday morning created an enormous short squeeze off what was critical support at the close on Friday. That upgrade was a blessing since she was very bearish only 2-3 weeks ago. She was seen as late to the upgrade party but she does have an influential voice. Her upgrade to the banks and a new price target of $186 for Goldman was bad news for shorts that had loaded the boat last week in anticipation of a support failure. Monday's rally was clearly short covering led by the financial sector.
If the futures gains after today's close carry over into Wednesday we could see the tech shorts follow the same pattern as the financials. Techs did not really make any forward progress on Tuesday as traders waited for Intel to report. Tomorrow they will be chasing the markets either trying to open positions or close those that have gone against them. This is an option expiration week and all those July options have very little life left.
The Nasdaq Composite closed at 1800 today and a +30 point futures bounce could push the index very close to the highs from July 1st. From a technical perspective a +30 point bounce would put the Nasdaq right at the downtrend resistance from the June highs. That resistance is 1835-1850.
Remember, July, August, September are normally known as Death Valley Days for tech stocks. This means a lot of investors were either shorting techs in anticipation or simply not invested and hoping to pick some up cheap later this summer. Did Intel change the game enough to make those investors race into the market or will they be comfortable waiting until later this summer? Time will tell but you can bet a breakout over the June highs at 1875 would trigger a gold rush panic to get long techs.
Nasdaq Chart - Daily
Nasdaq Chart - 180 Min
On the Dow we have been watching a head and shoulders top form and the neckline support at 8300 was broken last week. The rebound this week to 8359 on the financial short covering does not negate the H&S. It may have just postponed the breakdown. However, a move back over resistance at 8500 would be seen as bullish and with Intel a Dow component that may be a possibility.
The Dow futures are up +59 points in afterhours trading and that roughly equates to Dow 5400 at the open on Wednesday. Should a real rally break out that takes the Dow over 8500 it could be a game changer.
The S&P-500 closed at 905 and still well under the right shoulder at 930. S&P futures are up about 9 points as I type this giving the cash S&P a 915 print. That is still well below resistance with support still at 880. The S&P futures are not as strong now as when Intel announced earnings. They have lost about 5 points from the highs and that could be just some minor profit taking. Any further weakness would suggest to traders that the 930 resistance is still safe.
The TMI chart shows the index is still using the down trending 200-day average as support and faces overhead resistance on any Intel rally. The Russell-2000 has the identical down trend pattern as the TMI.
Dow Total Market Index Chart
Russell 2000 Chart - Daily
On Wednesday we need to watch for a sell the news event on Intel. Not because the news was not good but because Intel is up significantly on the expectations. It is the shorts getting squeezed tonight that powered the $2 gain. It is not buyers suddenly wanting to own Intel.
Volume was very light today at only 7.4 billion shares and Monday's big rally only managed to hit 8.3 billion. This is far from a confirmation of any major rally. Monday was a short squeeze and today was treading water ahead of the Intel news. You can't determine market direction on less than 10 billion shares. 7.4 billion shares is not even a decent churn rate.
This is also an option expiration week and any trades done with July options will lose value faster than yesterday's newspaper if those positions are not closed ASAP. There are no real earnings that will shake the tech trees again on Wednesday with the big news coming on Thursday with IBM and GOOG. With expiration on Friday I would be surprised to see any major trend develop until next week. Once the earnings news from this week and OpEx is history then the real market trend should emerge.
Hopefully tonight will be the last text emails you receive. We have undergone a significant conversion process and HTML emails should return on Wednesday.
NATCO Group - NTG - close: 31.87 change: +0.71 stop: 29.75
Why We Like It:
Tupperware - TUP - close: 27.36 change: +1.00 stop: 24.95
Why We Like It:
Humana Inc. - HUM - close: 28.28 change: -2.31 stop: 31.05
Why We Like It:
In Play Updates and Reviews
Double-Long Oil ETN - DXO - close: 3.46 change: -0.02 stop: 3.28
Oil tried to rally this morning but traders sold into strength. The DXO made it to $3.57 before fading. I would expect another dip toward the rising 100-dma. Look for a dip near that 100-dma (3.35) as another entry point to buy the DXO. Oil will bounce eventually.
Our first target is $3.90. Our second target is $4.20. We want to exit the majority of our position at the first target. FYI: Keep an eye on the U.S. dollar. A weak dollar should boost oil prices.
3x Energy Bear ETF - ERY - close: 25.00 change: -1.08 stop: 23.30
Oil stocks continues to bounce even though crude oil itself is struggling to rebound. The ERY is contracting thanks to strength in oil stocks. I'm not suggesting new positions.
ERY has exceeded our first target at $27.40. Our second target is $29.90.
This is a very volatile (triple-leveraged) ETF so we're using a wide stop loss and I'm suggesting readers only trade half (or less) their normal position size.
MEDNAX Inc. - MD - close: 42.66 change: +0.36 stop: 41.40
MD is still trying to bounce. Readers might want to buy the stock here but consider a tight stop under Monday's low or the $42.00 level. It is worth noting that the daily chart's MACD indicator is nearing a new sell signal. Our first target is $47.40.
Morgan Stanley - MS - close: 27.88 change: -0.03 stop: 25.25 *new*
Goldman's earnings results were indeed better than anyone expected and yet there was no sell-off and no rally on the news. MS also traded sideways with volume coming in below average. I'm not suggesting new positions at this time. MS has exceeded our first target at $27.75. Our second target is $29.75. We don't want to hold over the late July earnings so the play may close early.
Ross Stores - ROST - close: 41.84 change: +0.24 stop: 39.40
ROST continue to inch higher. The stock set a new all-time closing high today. If you don't want to launch positions here then I would either buy dips near $40.50 or a breakout over $42.00. If you want to play it safer consider a stop closer to $40.00 or Monday's low of $40.24. Our first target is $45.75. Our second target is $49.45. My time frame is about six weeks.
Western Digital - WDC - close: 26.28 chg: -0.19 stop: 24.60
Intel's positive earnings report after the closing bell on Tuesday should help lift the rest of the tech sector on Wednesday. Our first WDC target is $29.75.
DuPont - DD - close: 25.55 change: +0.29 stop: 26.26
DD is still slowly bouncing toward resistance in the $26.00-26.25 zone. I'm lowering our stop loss to $26.26. I'm not suggesting new bearish positions at this time. Our first target $22.25. Our second target is $20.25. Don't forget that we plan to exit ahead of the earnings report.
iShares Mexico - EWW - close: 35.44 change: +0.47 stop: 38.05
The oversold bounce in EWW is reaching the exponential 200-dma. Wait for another failed rally near $36.00 before considering new bearish positions. Our target is $30.25. My time frame is probably another four to six weeks.
Gamestop - GME - close: 21.63 change: +0.60 stop: 22.65
The bounce in GME is nearing resistance at the $22.00 level. I am not suggesting new positions at this time but a failed rally under $22.00 could work as another entry point.
GME has now hit our first target at $22.05 and our second target at $20.25. We are now aiming for our third and final target at $18.15.
Gen-Probe - GPRO - close: 39.79 change: -0.08 stop: 43.55
GPRO looks poised to bounce toward resistance in the $41.00-42.00 zone. More conservative traders may want to tighten stops toward $42.50 or $42.00. I'm not suggesting new positions at this time. Our first target is $38.05. Our second target is $35.25. FYI: The P&F chart is bearish with a $32.00 target.
Intl. Speedway - ISCA - close: 24.64 chg: +0.08 stop: 27.05
ISCA has provided yet another entry point to open bearish positions near $25.00. The stock tried to rally this morning but pared its gains. I would still consider new bearish positions anywhere in the $24.50-25.50 zone.
I'm suggesting a stop loss at $27.05 but more conservative traders may want to try a stop closer to $26.00. Our first target is $22.10. Our second target is $20.25. My time frame is six to eight weeks.
Medtronic Inc. - MDT - close: 33.75 change: +0.31 stop: 35.20
Warning! MDT has broken through technical resistance at both its 50-dma and its 200-dma. Volume was light, which is somewhat bearish but the price action today is bullish. I'm not suggesting new positions at this time. We'll wait and watch for a failed rally in the $34.00-35.00 zone. More conservative traders may want to just exit early right now and step to the sidelines to wait for a new entry point. Our first target to take profits is $30.10. Our second target is $28.25.
iShares Materials - MXI - close: 44.99 change: +0.93 stop: 47.50
We were expecting an oversold bounce in the MXI. Shares are testing round-number resistance at $45.00. I expect the rebound to reach the $46.00 level. I'm not suggesting new bearish positions at this time. MXI has exceeded our first target at $44.00 and we're currently aiming for $41.25.
PACCAR Inc. - PCAR - close: 30.34 change: +0.35 stop: 31.26
PCAR did rally back above round-number resistance at $30.00 but volume has been sliding lower on the bounce. I'm not suggesting new positions at this time. More conservative traders may want to cut their losses early. We can expect PCAR to test the $31.00 level. If the stock continues to rally then the breakdown will look like a bear-trap pattern. Our first target is $25.25. Our second target is $22.65. We don't want to hold over earnings.
Raytheon - RTN - close: 44.23 change: +0.65 stop: 45.75
The oversold bounce in RTN is starting to pick up speed. Shares just rallied past potential resistance at $44.00. This should put bears on the defensive even though the six-week trend is bearish. We want to see a failed rally near $45.00 or its 200-dma before considering new positions. Our first target is $40.25. The P&F chart is very bearish with a $13 target.
Steel Index - SLX - close: 39.91 change: +0.68 stop: 42.65
I'm expecting another bounce tomorrow. Our plan is to open bearish plays on a bounce into the $41.50-42.50 zone. Our first target is $35.50. FYI: The Point & Figure chart is bearish with a $30.00 target.
TTM Tech. - TTMI - close: 8.58 change: +0.06 stop: 9.01
It looks like the bounce in TTMI stalled near $8.70 but I suspect that we could be in trouble tomorrow. Intel's positive earnings report could fuel a widespread rally in tech stocks. I would hesitate to launch positions tomorrow unless we saw a very clearly defined failed rally pattern. Our first target to take profits is $7.05. Our second target is $6.15.
Walgreen Co. - WAG - close: 29.40 change: +0.08 stop: 30.51
Nothing has changed for WAG. The stock is still consolidating sideways under resistance. I'm suggesting new bearish positions now with a stop loss at $30.51. More conservative traders may want to consider a stop loss closer to $30.00 (like 30.05). Our first target is $26.10.
Homebuilders ETF - XHB - close: 11.39 change: +0.30 stop: 12.10
The XHB is nearing potential resistance at $11.50. If it can rise past $11.50 the $12.00 level should be even tough resistance. I am not suggesting new positions at this time. Our target is $10.10. I am setting a secondary target at $9.10 but I strongly suggest readers take some money off the table at $10.10.
S&P Retail SPDRs - XRT - close: 27.80 change: +0.48 stop: 28.45
The XRT has bounced into our entry zone (27.50-28.00) to launch new bearish plays. The early July high was $28.40. Readers might want to wait for a failed rally under this level before initiating positions.
Our target is the $22.25 mark. This could be a volatile ETF as we move through the earnings season. My time frame is about six weeks.
Wellpoint Inc. - WLP - close: 49.70 change: -0.08 stop: 48.75
I'm dropping WLP as a bullish candidate. The stock just isn't moving. It failed to participate in yesterday's market rally and failed to participate again today. The trend is still up but momentum is waning. We're suggesting an early exit.
Broadcom - BRCM - close: 25.43 change: +0.51 stop: 25.51
I am giving up on BRCM as a bearish candidate. The stock's bounce has cleared the $25.00 level and its 30-dma. Shares are poised to breakout over resistance near $25.50 and the MACD is about to turn bullish on its daily chart. We'll exit early.
Liberty Global - LBTYA - close: 15.72 change: +0.37 stop: 16.20
LBTYA broke out over resistance at its 200-dma and the $15.50 level. The stock continues to have overhead resistance near $16.00 but I'm suggesting an early exit following today's breakout.
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