Wednesday, October 19, 2011

Earnings Reports Mostly Positive

The market is mixed in early trading, with Apple's results weighing on the Nasdaq, but the other major indexes pulling into positive territory.

AAPL dipped below the $400 level this morning, but is holding above there as of this post. The company missed EPS estimates for the first time since 2004. But they also raised guidance for next quarter, which is an equally rare occurrence for the company. And despite the weak iPhone number, gross margins were very solid.

I think for a company that has executed as flawlessly as Apple, investors should be willing to give them the benefit of the doubt and see if it was just a one-quarter blip. I expect them to have a very strong fall quarter, and am not selling any of our shares at this juncture.

Other strong stock reactions to earnings reports include ISRG, INTC, and ABT to name a few. Despite a few outliers, I think the net reactions to earnings season thus far have been fairly positive and I'm interested to see how S&P profit projections hold up once we get through the rest of the reports.

Asian markets were higher overnight, and Europe is higher this morning. The tone in Europe is improved despite Moody's downgrading Spain's debt rating. This wasn't a big surprise, but it is interesting to see that CDS spreads in Europe are improved today.

The dollar is flattish today, and commodities are mixed. Oil prices are higher again to $89.40 and gold prices are up slightly near $1657.

The 10-year yield is higher this morning near 2.18%; and the VIX remains interesting in that it cannot get below that 30 level folks are watching. Today it is actually higher to 32.66. Those sustained elevated levels in the VIX mean that traders are still expecting more swings in the market.

Trading comment: The market recouped Friday's losses yesterday and then some. The price action certainly feels good, and the indexes have indeed held above their 50-day averages thus far. Earnings season remains a wild card for individual stocks, but those companies that report good earnings I think can be bought for more upside in Q4. The market may be overbought in the short-term, but there is still considerable bearish sentiment that has built up and could help offer support under this market.

long AAPL


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