Each quarter, I try to do a brief entry as to what expect from earnings season so let’s get to it. When I first started doing this blog, the very knowledge that a company would be solvent the next quarter could spark a rally in a stock. In a little over two years, the perspective has widely changed. It’s not the complete opposite, but it’s getting there. According to various services, S&P 500 earnings are expected to rise by 12% this coming season (vs 1Q 2010) and then 15% next quarter, and about 16% the quarter thereafter. The energies, minerals, industrials, technology, and financial sectors are supposed to have relatively big growth whereas sectors such as consumer staples, health care, telecommunications entities, and healthcares are expected to show relative earnings weakness. But the general take is that as stock prices have risen, expectations for the prospects for Corporate America continue to go up as well. Furthermore, while this is admittedly an opinion, a lot of the expected growth has now been incorporated in stock prices as the perception that things will pick up pervade the landscape. Thus, what I’ll be watching for is that most companies will need to beat their earnings estimates and also announced growth at least slightly above if not well above estimates to keep going in the growth sectors. In the relatively weak sectors, it’ll take an earning beat and less (but some) expected expansion to keep stock prices going. And all of it may well happen. But as earnings season launched last night with AA kicking things off, be well aware that the word ‘growth’ is likely necessary for an earnings report to be successful this quarter.
Markets were weak overnight on news that the Japanese nuclear regulators upgraded the severity of the nuclear crisis there to Chernobyl levels. Tokyo and Hong Kong both declines about 1.5%. In Europe, prices are soggy as well with markets down 0.4% to 0.8%. The dollar is a little weaker with oil and gold a little stronger. Trade deficit data came in about as expected with Treasury budget numbers (-$189.0 billion) expected out at 2PM. Futures are down fairly hard with the S&P’s off 9 handles as of this writing. There’s a little nervous energy out there this morning. Not panic. But a sense of nervousness. Look for very choppy trading all day with several failed rally attempts and several failed sell-offs in all likelihood but net-net a weaker session. The focus will likely be on tech in the news (AAPL), rare earths and metals (MCP/AA), and relative strength plays.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
KITD- announced acquisition of ioko365 Limited and projected 1st quarter revenue
RLD- closed near a high after Avid licensed RLD’s format for media composer
CT- closed near a high
BIIB- closed near a high after positive BG-12 phase III results
MCP- closed near a high after a JP Morgan upgrade
WBMD- indicated 1st quarter results will top analysts’ views
ITMN- noted in an article in the “Daily Mail” which discussed M&A activity in the drug sector
Bad-The following stocks have bad news and/or a weak technical pattern
AA- poor earnings
NPSP- share offering
MCRL- warned on earnings
WMS- warned on earnings
SB- share offering
DRRX- poor phase II Eladur results
EXTR- warned on guidance
WPRT- closed near a low after a ‘neutral’ rating on the stock initiated at JP Morgan
ADES- closed near a low after losing an arbitration hearing to Norit
WLT- closed near a low
VHC- closed near a low
IOC- closed near a low
Earnings:
TUES APR 12 BEFORE
FAST
TUES APR 12 AFTER
ADTN
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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