Wednesday, October 17, 2012

Earnings Reactions Skewed To The Downside

The markets are mixed in early trading.  The S&P 500 is slightly higher while the Dow is a bit lower along with the Nasdaq 100.

Overnight, markets across Asia were higher following another solid rally in the US.  Thailand's central bank surprised the markets by cutting its key interest rate by 25 basis points to 2.75%.  It was the first interest rate cut there in 9 months.  China only added 0.3% ahead of tomorrow's GDP report.

European markets are also mostly higher after Moody's reaffirmed Spain's rating while placing it on negative outlook.  This helped push Spanish bond yields lower to 5.51%.  Also, Spain's PM Rajoy told German Chancellor Merkel not to believe the rumors regarding Spain's interest in accessing a line of credit with the ECB.  It seems that you pretty much can't believe any rumors coming out of Europe these days, even as they move the market.

Earnings reports have started to flood in last night and this morning.  As I run down the list of companies reporting, I see a lot more stock showing negative reactions to earnings reports vs. positive reactions.  Here are some examples--

Stocks rising on earnings: ISRG, APH

Stocks falling on earnings: INTC, IBM, CHKP, FTNT, CSX, HAL, ABT, STJ, DGX, TXT, SWK

In corporate news, CYMI is up more than 50% after received a takeout bid from ASML.

The dollar is lower after the euro got a boost from Spain news.  Commodities are mixed with oil prices higher earlier but then selling off back to $92 level.  Gold prices are a bit higher near $1749.  Copper prices are higher today also.

The 10-year yield is getting another nice boost taking it up to the 1.79% level.  That's nearly a 1-month high.  And the VIX is still hovering around the 15 level.

Trading comment: The indexes have continued to show positive price action since the S&P 500 tested its 50-day average.  Leadership the last few days has been more in the healthcare/biotech areas as well as some financials.  But tech has been lagging after losing AAPL as its key general.  It prob won't help that IBM is getting hit today.  So it's a bit of a mixed bag for growth investors.  I prefer to wait to see companies that beat earnings and show strong reactions and then look to add to those names on pullbacks.  I continue to believe that trying to play laggards will be a losing strategy in the near term.

KAM Advisors has long positions in AAPL, IBM, HAL


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