Whenever preparing meat for consumption, one does their best to cut out as much fat as possible before digesting it. In Corporate America, the analogy is the same. For a company which is trying to buffer itself in bad times, the first thing it does is to try to cut expenses. For instance, if every employee flew first class on a business trip, maybe the company will have them fly coach. In worse cases, some of those same employees are let go with the remaining employees picking up the slack at the company. The problem comes when a company cannot cut any more “fat” to enhance profitability. At that point, since gross margins are maximized, the only thing that a company can do to enhance profitability is to grow revenues. It is ostensibly at this juxtaposition that we happen to find ourselves at in Corporate America at the present time. With the S&P 500 up 70% from its March 2009 nadir, the expectation is now widely in place that the global economy is recovering. Thus, for earnings to grow, it is time for revenues to start expanding. In one of the young earnings season’s first examples, AA met earnings expectations on Monday night, but they missed revenue guidance. The stock traded down around 2% throughout the next day. A couple of quarters ago, merely meeting estimates of earnings would have been awesome because of the palpable fear out there but with higher prices comes higher expectations. So, as we look to our friends at earnings services such as First Call, realize that we cannot just look at whether a company is beating earnings guidance this quarter but also whether it is besting revenue guidance as well as raising future revenue guidance when day trading based on a company’s earnings report.
Markets were up slightly in Asia overnight with Hong Kong up 0.2% and Tokyo ahead 0.6%. In Europe, the bourses are flat. The dollar is stronger across the board with commodities generally slightly weaker. There have been numerous negative events overnight. The Thai stock market fell substantially after a crackdown by the military. The spreads on the Greek bonds widened out. China’s economic growth for last quarter was substantially higher than expected leading to speculation that the yuan will be revalued. Yet, UPS and FDX are sharply higher after UPS raised guidance, there is more merger activity, and a number of microcaps are higher. This is all leading to a small downtick in the market overall. For the day, look for a lot of choppiness with muted movements in between the choppiness. Keep an eye on the euro. Focus on the microcaps and any relative strength plays particularly early in the session.
Reiterating-
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
UPS, FDX, AMZN- UPS pre-announced earnings to the upside; FDX and AMZN may move with it
AAPL- closed near a high
RDN- closed near a high
BCSI- closed near a high
AUXL- closed near a high
VECO- closed near a high
ENTG- closed near a high
HXM- closed near a high
EOG- closed near a high
JOYG- closed near a high
LSTR- good earnings
JBHT- decent earnings
CCRT- announced Dutch auction plan to purchase stock at 7
INTC, CSCO, BALT- mentioned on “Mad Money” last night
DVAX- hepatitis B Vaccine showed promise in kidney disease in a phase II study
RMBS- closed near a high amid rumors of a deal with AAPL
CLF- closed near a high
CSX- closed near a high after posting good earnings
FSLR- closed near a high
PNX- closed near a high
ME- being acquired by APA for 7.80 in cash plus 0.17043 APA shares
CXDC- good earnings guidance
IDIX- positive results with IDX184 from interim analysis of phase IIa Hepatitis C study
IOC- signed preliminary works joint venture agreement with Mitsui
ANDS- positive phase II study of Hepatitis C treatment
IMGN- announced favorable update provided by Roche related to its Trastuzumab-DM1 regulatory plans
MDVN- reported positive results from phase 1-2 trial of MDV3100
Bad-The following stocks have bad news and/or a weak technical pattern
MGM, LVS, WYNN- MGM warned on earnings and announced a notes offering
SNTS- announced timing of launch of its generic Zegerid is now uncertain due to a patent lawsuit loss
MAC- share offering
KRC- share offering
WHI- closed near a low
FCS- poor earnings
Earnings:
THURS APR 15 BEFORE
BTU FCS FUQI
PPG SCHW
THURS APR 15 AFTER
AMD CBST GOOG
ISRG PBCT
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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