Morning Call [8:12am ET] Prior to earnings season, I recommended that traders switch their focus onto the top line versus the bottom line as the latter can be manufactured with the aid of all kinds of tricks. Besides, since the overriding concern today is employment and personal income, it would be hard for a corporation to be expansive with employees if the business itself isn’t growing. Since the US economy is consumer driven, traders need to see revenue growth and enough to meet or exceed expectations.
Yesterday that did not happen with IBM or Texas Instruments and their stocks sold off in after market trading. A few days ago a couple key banks ran into the same problem. This morning all eyes are on Goldman Sachs. The present market environment is so fragile, it seems, that if Goldman Sachs reports a strong quarter, then stocks will rise, defying the Bear pressure that’s been evident since mid-April, and if not, then the broad market will likely tumble.
You’d like to think that a $14.7 trillion US economy would not be so influenced by a company that has annual revenue of about $55 billion and earnings of about $14 billion, but it is, at least at this point.
So, Goldman Sachs just reported. The current quarter revenue is $8.84 billion and earnings were $613 million ($0.78 vs $4.93). The stock is down -2.5% in pre-market trades.
Have a great day.
p.s., Potentially the first storm of the season to hit Nassau Bahamas (and later the oilfields of the Gulf) is on the way. I'll be on my way out of town tomorrow though!
CTA Trading Desk Post-Close Report
Yesterday evening we remarked, “After the close both Texas Instruments (TXN+3.15%) and International Business Machines (IBM+1.37%) reported disappointing revenue figures causing the stocks to drop -5% and -3.8% respectively after hours, perhaps putting a damper on the outlook for technology shares tomorrow morning. It will be interesting to see whether semiconductors (SMH+2.59%) a source of strength Monday will be able to shrug off weakness in these tech bellwethers and build upon its recent uptrend. IF the market can finish higher tomorrow in the face of these two disappointing earnings reports Bulls will have scored an important victory.”
Lingering disappointment about corporate earnings shoved the S&P e-mini futures contract down towards the all-important 1050 level in early morning Globex trading Tuesday, enticing bargain hunters into the market at perceived value at this lower auction area. Buyers targeted steels, materials, and natural resources on their shopping spree injecting a much needed positive vibe into the stock market, igniting an impressive upside reversal in equities as the broad market sprinted upward into the closing bell (S&P+1.14%).
After the close Apple (AAPL+2.88%) soothed investor concerns reporting earnings on the high side of estimates propelling the stock another +3% in after hours trade.
If the S&P can clear 1105, Bulls will clearly have the momentum on their side, with 1130ish an achievable upside target by the end of the month. Mr. Market will no doubt throw many more curveballs trying to fool investors as the earnings confession season unwinds, so traders should take it one day at a time, trailing stops on winning positions.
Keep a close on eye US Treasuries (TLT+0.12%) as yields are approaching historic lows on the short end, meaning many large capital pools are clearly worried about the strength of the world economy. If this flight to safety begins to unwind, risk appetite will be increasing – a sure sign money will eventually be flowing back into equities.
Have a great evening.
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Comments
Cara 100 Ratings Changes
Good morning.
AAPL - PT Lowered from $345 to $330 @ Oppenheimer. Outperform
CVX - PT Lowered from $100 to $95 @ RBC. Top Pick
ICE - Intercontinental Exchange Upgraded to Outperform at BMO Capital based on valuation and the company's growth outlook. Target $125.
TXN - PT Lowered from $28 to $26 @ Caris & Co. Average
TXN - moved to Market Perform from Buy at Charter Equity Research on strongly bearish sentiment surrounding the stock.
XOM - PT Lowered from $80 to $78 @ RBC. Outperform
Re: Goldman Sachs Results
Ex-items EPS was $2.75, but I guess this no longer matters now GS is the financial sector's new whipping boy.
MFC - Manulife
dr. cosa said:
"most of the money made by insurance companies is from premiums."
Oh! Thank you for correcting me. I'll go tell my brother the insurance executive that he's wrong, then.
Re: MFC - Manulife
I recall Warren Buffet saying that insurance companies generated massive float which they kept lying around to pay off their policies. They then invested that float, and so even if they broke even on the insurance business, they made great sums of money on the return from the invested float. How well the insurance business did was "cost of float" - sometimes float was free, if the business did well enough.
That's why he liked Geico. It spun off large amounts of cash in float, which Buffet then used to buy businesses that generated income. An insurance business is like borrowing money at some very low interest rate - assuming you run it well enough so that you don't miscalculate your premiums vs. the risk you are taking.
...
toby... i thinks something is up with your smallest priced bio...and its not juvenile !
Cara 100 Update (Final)
BA - estimates trimmed at Barclays. BA 2Q10 and FY10 EPS estimates lowered to $0.98 and $4.15, respectively. Changes incorporate strike impact from labor actions. Maintain $87 price target and Overweight rating.
GILD - price target cut at BofA/Merrill to $37 from $43. Pressures on AIDS Drug Assistance Program. Maintain Neutral rating.
IBM - estimates boosted at UBS through 2011. Company raised guidance, because of higher margins, but is seeing slower services signings. Neutral rating and $142 price target.
TXN - estimates increased at UBS through 2011. Company is seeing better sales in most areas, other than wireless. Neutral rating and $25 price target.
baz22/bio
what a cryptic remark......short the vvus 5 puts for this mo..just need it to hang around pending news, trying to take positions in MYGN today.......sold puts on ALNY again for this mo..........own a reasonable amount of RWM for the long term but am not permitted to sell calls against a "non-tradional" ETF in acct or I would sell the aug 45s for $1 immediately.......big brokerages can be a bummer.......selling CLNE 14 puts naked for this mo looks reasonable as a non-bio play....good trading
tobyt
May not be the case, but it seems that certain funds are ' harvesting ' shares of ' imgn ' for the past few weeks... big-time news is likely in six weeks, or less... unsung monoclonal company with stellar technology in final phase testing...
''ELITE CLUB''- membership, only for default Operating Systems
What do Bill Cara, Alexander the Great, Edmund Hillary, Carlos Santana, and little humble Me have in common.
it's our birthday(today)
BILL CHEERS,
HAVE A WARM AND HAPPY BIRTHDAY.
Brazil
Bill -
WIR discussion of VALE, FBR, GGB, BBD proving you're indeed the Wizard. Happy birthday.
Happy Birthday
Hope you enjoy your day and your early Birthday gift, your new grand-daughter.
Re: Happy Birthday
The B'day is Wed. I turn 39.
In my dreams.
But, thank you anyway.
Re: MFC - Manulife
manx928 said:
"Oh! Thank you for correcting me. I'll go tell my brother the insurance executive that he's wrong, then."
i would ask him to clarify his thoughts on earnings of an insurance company as your statement could only be considered right in certain scenario's:
if insurance company A takes in $1000 in premium payments from it's customers, and invests all of it (which they dont do, only part of it) in the market, they would need to earn more than %100 annually to claim that most of their earnings are via capital appreciation of invested assets non?
the way you could be construed as correct is if the company has an existing capital base large enough that the %5-10 per year they earn on these funds exceed total premium payments for that same year. (which is a bigger source of earnings; premiums or return on investments?) That being the case, "most of the money" they earn would come from investment returns, but %100 of those investment returns originated via premiums paid, and their ability to invest X amount is based on ongoing premium payments and limited pay-outs.
ultimately the source of an insurance company's earnings originate from premiums collected, as they provide the wiggle room for investment of funds and allow adjustments to any risk-profiles for investment.
Re: MFC - Manulife
The insurance industry terms are "underwriting profit" and "investment profit." The best run insurance companies generate both, although if "underwriting profits" grow too much, the insurance companies may run into trouble with regulators. High margin underwriting profits over time are evidence that the company is "overcharging" consumers and the ability to sell insurance in most countries is a privilege not a right which requires a license that only the local government can grant.
I brought up Manulife (MFC) because it is a Canadian company and given the geography of many of this website's users they might have an opinion. I was stopped out yesterday on my initial position and am presently regrouping. It looks like we are nearing an important support point around $13.21, however I though the same thing around $14.10 and was stopped out at $13.97. I will be watching this one for a good long term entry point, but I don't want to buy at $14 and sit on it while it retests the lows around $8.
.........
tobyt... looks like market is trying to take ' mygn ' to $ 12.50 ish... ( waiting to see concept. news affect their earnings )...
Today's Action is VERY BEARISH
for the bears.
Canaco - CAN.V
They halted yesterday afternoon when the stock was trading at $1.68 and announced a $20m financing at $1.40 a share. Normally I would expect at least a momentary sympathy drop to the offering price of $1.40 but low and behold it opened this morning at $1.53 and has been rising all day, now trading above $1.70. This thing has more than doubled in the less than 10 trading days from a low of $0.75 on 7/7/10. Wowzers - someone really likes this thing. As I mentioned this company has management connections to Goldcorp and Silver Wheaton. No position (wish I had one but scared to chase now!).
ha! - my O.S. needs a new service patch
Bill,
Age has it's toll, as I'm 5-yrs and a day older to you.
Sorry for selfishly remembering your date of birth by clubbing with mine; hope I didn't spoil any of your surprises.
A different veiw from Daniel Hannan
Reykjavik , Bars are heaving, restaurants have improved beyond recognition, houses boast new hot tubs, land cruisers are parked on every street. A banking collapse wipes out paper fortunes; but it doesn’t wipe out hard assets. The króna has lost 60 per cent of its value, and Iceland has slithered down the global wealth tables accordingly. But the sheep are still lambing, the aluminium is still being smelted, the tourists are still wallowing in the Blue Lagoon, the trawlermen are still returning with their rich catches (richer than ever, apparently, as the seas warm).
Virtual wealth has evaporated; but, in the real world, surprisingly little has changed. After two decades of phenomenal growth, there has been a correction, and Icelanders are now living like Danes rather than like Kuwaitis. Their situation remains enviable by almost any standard. I’m far from convinced that they’re right. But what if they are? To see the consequence of a banking collapse, look at Iceland, which was in no position to rescue its bankers. Life there is better than in most EU states. Once the assets of the failed banks have been sold to satisfy depositors, including British and Dutch depositors, Iceland will be left with a smaller national debt than most of the countries which stepped in to guarantee their banks’ liabilities. Growth can then begin again on a more sober basis. In Britain, by contrast, Gordon Brown attempted to reinflate the bubble, with calamitous consequences (see here). I’m quite serious about this. If I had anything to invest, I’d be putting it in Iceland. http://tinyurl.com/27uj7vz , Bob.
Well, that was fun
out for the day.
Re: Today's Action is VERY BEARISH
Maybe. But I'm not seeing a big rush out of bonds just yet, and most of today's positive move appears to be short covering.
It is a positive sign when XHB and XRT aren't in the cellar any more, and XLU is closer to the bottom like it is today. But I'm not seeing XLF or XLK moving, so - I'm thinking today is about short covering, with some help from positive moves in gold & oil. I'm guessing shorts were sucked in by this morning's gap down open below yesterday's low, perhaps?
AAPL
everyone seems to think that AAPL will make everything alright and we will explode to 1150. I'm taking my profit from buying it this am, sometime before the close.
Nice chart set up
for new highs on breakout soon in EXPD. Accumulation since gap off earnings.
Re: MFC - Manulife
Sounds like we have similar understanding on insurance profitability, soulek1. I got into Sun Life some weeks back, thinking it was oversold and could potentially benefit if the markets had a summer rally, but it's now time to cut my losses. Rising Canadian interest rates make their dividend less attractive and a soft market makes it hard for them to earn profits from investment, so I think there's plenty of downside risk. Maybe it'll look more attractive a couple months from now - we'll see.
Re: AAPL
While I do acknowledge that AAPL has a large market cap and thus large representation in a number of various market indices, I think it is wrong to fixate on AAPL's short-term stock action as an indicator of the broad market. Think about it, is AAPL's antenna hiccup (currently influencing AAPL trading and NasDaq index especially) really a broad indicator of the state of earnings for U.S. companies?
My take on yesterday's reports from IBM and TXN was that earnings came in fairly in-line but revenues were on the lighter side of projections. The revenues on the lighter side seem to me a cause of the extreme strong USD movement that unexpectedly occured in Q2. Now that the USD/EUR strength has reversed a good clip, I expect those revenues to improve in the next quarter.
I guess my point is, were those earnings from IBM and TXN that were bashed by talking heads last night and this morning really bad at all? I for one don't think so. I am expecting some really knockout earnings coming down the pipe in the next few weeks and rosier than expected outlooks.....
I think we will be looking back at the end of last week and beginning of this one as a shakeout a few weeks from now.
Just my $0.02.
Re: MFC - Manulife
dr.cosa
I would encourage you to read soulek1's response - particularly his reference to premium earnings versus investment earnings. Payout ratios are typically very high, (I understand them to commonly be 96 - 99%). Revenues are primarily from premiums, but it is historically normal for the bulk of earnings (the highly variable and most significant portion) to be from investments. But, that's just my understanding from an insurance executive and doing the math from those payout ratios versus reported earnings. I've got no particular need to sway you.
AAPL
taking my 8 pts. from AAPL and saying thank you very much.
Re: AAPL
I'd say that's a nice day trade and probably best to keep it simple and take profit. Lots of things to be bullish about IMO but AAPL seems priced for perfection. Even if they surprise, not worth the agony of getting whacked with a potential recall announcement or something of the sort this afternoon. Plenty of other values out there.......
bonds flat - perplexing
I'm wondering how we get such a nice move in SPX (with oil drillers +3.6%, XHB +3.5%, etc) while TLT remains green. One might think a real bull move would involve movement out of bonds? I definitely see the VIX dropping, but why not bonds as well?
FD: currently biased long
Turnaround tuesday
stocks tend to reverse on Tuesday following option exp Friday. SPX closed 1096 on Thursday
Re: bonds flat - perplexing
Dave,
My guess (that's all it is) is there a lot of people like me — don't expect the market to do well while the economy is sucking most people under. Therefore we are mostly in bonds.
I plan to hold mostly bonds until/unless the Fed makes a move of more then their jaws.
Re: bonds flat - perplexing
Grym, Just curious what kind of action from the Fed you are looking for that might convince you to move away from bonds?
I tend to agree with your reasoning that there are A LOT of folks, especially those relying on fixed income, that have been put in a position where risk aversion is the top priority. There is only so much volatility that folks can stomach when relying solely on savings/investments.
Re: Today's Action is VERY BEARISH
10 day ATR for
INDU 170
SPX 20
NAZ 46
all point movement today was less than half the average daily trading range for past 10 days.
FD: Net short
Re: Today's Action is VERY BEARISH
range for today on the S&P was about 30 points.
Re: Today's Action is VERY BEARISH
if it had closed up 20 pts from yesterday's close, that would have been impressive. We've seen a series of lower highs and lower lows since April 26.
Still trading below the 50 and 200 DEMA.
I will concede the Smart Money Indicator shows the SPX was down 9 pts by 10 AM when stops are gunned and the big boys bought it up 7 pts at the close.
Sumthin for everyone...LOL
Re: bonds flat - perplexing
Billy,
It would probably take an actual raise in rates to chase me back to cash.
Lately Bernanke has not even mentioned a possible raise and there has been less speculation of a raise anytime soon. To do so would push the economy into terrible condition. I was in a total bond fund for some time, but now only GNMA and Treasuries.
While I realize PIMCO's Gross talks his book, I agree with his view that equities pose too much risk for too little gain. (I should mention that I'm not much of a short term trader.)
Jobs are the problem for more people all the time and no one is addressing the problem in any realistic way. We live in a surrealistic time when media and government seem to be in total denial of what most people must deal with.
Some people, for the first time in their lives, are counting the cost of everything and safety is now a primary concern. If you are working or spending the day looking for work, bonds are the choice for what is left.
TREASURY NUMBERS
ALOHA!!
Some US Treasury numbers from Monday, July 19th ...
TOTAL YTD MARKETABLE US DEBT ISSUED = $6.512TRIL USD
TOTAL YTD WITHDRAWALS FROM FEDERAL RESERVE ACCOUNT = $9.1TRIL USD
TOTAL YTD NET WITHDRAWALS PLUS NET DEBT = $10.4TRIL
TOTAL YTD NET TAX REVENUES = $1.2TRIL USD
Total withdrawals just went over the $9TRIL mark on Monday, while total net revenues just went over the $1.2TRIL mark the same day.
Any way you want to slice it its a major REVENUE DEFICIT. I never thought I'd live to see the day when $1.2TRIL in revenues for any entity could be called a "deficit".
Just two and a half months left before FY 2010 ends. At the current rate "total net withdrawals plus net debt" will be 100%+ of GDP, at $13.14TRIL USD. That essentially means all the annual productivity and wealth created in America will be wiped out by US Treasury spending and debt issues. Now how high will taxes have to be raised to fix that? Answer me that S&P and Moodys ... Well let me ...
Let me show you how it works in the real World where us taxpayers live without the aid of debt machines and accounting fraud. This is how WE THE PEOPLE live ...
At the current rate total net tax revenues by the end of FY 2010 will be $1.52TRIL USD. Take $13.14TRIL(withdrawals + net debt)then divide by $1.52TRIL(revenues) and you get 8.65 times or 865%. Just to cover(break even)US Treasury spending and debt in one year tax revenues need to increase by $11.6TRIL more USD. Now that's the "true" definition of "PAY-AS-YOU-GO" Mr Franks and Mr Reid and Mr Obama. Its not your ten year hiatus then pay chump change! It's not cutting a measly $20BIL(as Obama proposed in his last State of the Union)out of spending either.
Warren I know you have said in the past that you do not care if your taxes go up, then why don't you cover the 865% increase and come up with an extra $11.6TRIL by Sept 30th. Maybe you can sell 153 BRK.Bs ... That is what it would take to make up $11.6TRIL USD, 153 BRK.B market caps. Or only 60 BRK.As ... It still wouldn't cover the US PUBLIC DEBT now at $13.2TRIL USD. Thanks Warren!
Re: bonds flat - perplexing
My comment originally was written because with bonds closing flat, that means we were not seeing any money flow out of bonds and into equities. So I'm thinking this is not a move driven by public interest in taking more stock market risk - nobody is reallocating their bond money into stocks because of awesome earnings. Perhaps it is just the big prop desks jumping on an over-shorted market, or maybe money printing from the Fed. After all, the money had to come from somewhere, yes?
Just my attempt to read the tea leaves and figure out who is doing the buying.
one more thing
Hey Papa did you like UXG's move off the 50 dma? I got a small position Monday just for fun. The RSI near 30 in conjunction with the proximity of the 50 dma and the nice support line at 4.30 convinced me it was worth a shot.
Apple will be the peak bull siren.
No other co is doing better in gaining consumer mkt share in their segment or stock awareness.
That is bad news for sustained rally, just my uneducated opinion. I think whoever sold today were happy.
But I am not actively trading either.
Edit: I am waiting for euro banks to lie and say all is rosey as a red apple and will position myself accordingly. Until the 200 ma is captured decisively.
2 months & 23 days ago
That was the peak of SPX at 1219.8 on APR 26. A lot has happened since then, like a 11.2 % decline. Now, that peak was only a few days after the gulf oil spill and perhaps the market was not fully aware of the extent of the disaster. I sought out this evening to see if the trend change was attributable to or correlated with anything I could chart with Stockcharts.com. Here are some comparisons:
SPX:USO +4.4% (+14% to May 25)
SPX:XLE +3% (+8% to June 1)
":$EUR -4% (-7.5% to June 30 and steady since)
" :EWZ -4.3%
" :GXC -8% (-10% to July 6)
" :$USD -9.5% (-18% to June 7)
" :UNG -10.7% (-20% to July 1)
" :$GOLD -11% (-18% to June 30)
" : TLT -18.6% (-24% to July 1 thru 6)
So congrats to anyone who shorted SPX and went long on bonds, gold or nat gas during this period.
Wall Street stages a comeback
screams CNN Money:
S&P +16.40 / +1.54%
Level 1,080.20
Fair Value 1,079.88
Difference 0.32
Nasdaq +33.50 / +1.86%
Level 1,839.00
Fair Value 1,838.68
Difference 0.32
Dow -30.00 / -0.29%
Level 10,148.00
futures at 1am. Oz, Shanghai, Japan sluggish
Futures 5am - European autos and banks up in volatile trading
S&P +2.50 / +0.23%
Level 1,082.60
Fair Value 1,079.88
Difference 2.72
Nasdaq +8.75 / +0.48%
Level 1,848.50
Fair Value 1,838.68
Difference 9.82
Dow +22.00 / +0.22%
Level 10,200.00
A little respect for the Financial Services Reform Bill
The press release states:
Liability: Investors can bring private rights of action against ratings agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source. NRSROs will now be subject to “expert liability” with the nullification of Rule 436(g) which provides an exemption for credit ratings provided by NRSROs from being considered a part of the registration statement.
This appears to change the rating game in a very important way. Instead of the blanket immunity from liability that the rating agencies enjoyed for blatant falsehoods they could now become liable for what has become the foundation of their business, i.e., the issuance of ratings that are sufficiently bloated to please their customers by enabling the customers to sell mislabeled junk thereby justifying the fees charged for such ratings.
Can these people actually do business if they are compelled to be honest or face legal liability?
Re: bonds flat - perplexing
Dave,
I suspect you are right in the assumption that the big boys jockeying is moving the markets. My job comment late yesterday was once again confirmed with a headline in my morning paper today: Senate votes to extend jobless benefits which will extend the recovery.
"Jobs are the problem for more people all the time and no one is addressing the problem in any realistic way. We live in a surrealistic time when media and government seem to be in total denial of what most people must deal with."
Extending benefits is an emergency measure which many will grasp with thanks, but people on the dole is like a dog snapping up scraps. A "negative income tax", "jobless benefits" by any name are not signs of a healthy nation nor can they sustain such a large percentage of our people.
We need JOBS! We need a congress which works for US. We need a president who is pro-American above all.
We have none of the above!
You cannot tax a nation into prosperity!