Wednesday, January 09, 2013

Will Earnings Season Boost Stocks?

The market is higher in early trading as earnings season officially kicked off last night.  There were only a small handful of companies reporting, but so far the reactions in stocks has been mostly positive.  It will be important to see how stocks continue to react to earnings reports going forward as well as what management's have to say about the business environment and any impact they see from the fiscal cliff issues.

The few stocks trading higher after reporting include AA, STZ, and WDFC.  One stock that disappointed and is trading down is APOL.

AAPL is also trading lower despite news that it may launch a lower-end iPhone during the second half of the year.  AAPL is trying to build a base near the $520 price support.  If they report a solid Q4 earnings figure, I think having this base building could help propel the stock back above its 50-day average which it first broke below on October 5th. 

Asian markets were mixed overnight.  Japan was higher after the Bank of Japan plans to adopt a 2% inflation target and double the size of its asset purchase program.  China closed flat last night.

Europe is also mixed today.  Final Eurozone GDP for Q3 remained at -0.1%.  Germany's industrial production came in below expectations at 0.2%.  And Poland cut its key interest rate by 25 basis points to 4.00%.

The 10-year yield is flat near 1.87%.  And the volatility index is lower again down to the 13.50 level.  Hard to believe a little over a week ago it was spiking to 23. 

Trading comment: If you look at the chart of the S&P 500, you'll see that after that big spike higher on Jan. 2 the market really hasn't given much back.  We had a chance the last couple of days to selloff more, but the market usually found its footing and closed off of its intraday lows.  Today is basically the 5th day that the SPX has hovered around that 1460 level, and the sideways consolidation has allowed the market to work off its overbought condition.  It now appears that this brief rest could be enough to give the market a chance to work higher again.  With the fiscal cliff at least partially behind us, folks seem more inclined to continue to put money to work in the market.  For now the price/volume appears constructive.

KAM Advisors has long positions in AAPL


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