Earnings Season: Churn, Churn, Churn

Speaking to a fellow trader earlier today, I mentioned that I thought the overriding tone of trading during this earnings season would be that of selling upon announcement of earnings. To clarify, most stocks with any kind of momentum will gain prior to their earnings release date, and upon the announcement, traders would quickly scoop up profits, causing most stocks to fall.

In response, my friend said, "then you expect stocks to go down over the next few weeks."

I replied, "no, because while some stocks will be going down, others will be bid up in advance of earnings. I expect the market to go sideways."

Therein lies the rub. This is the classic trader's market, wherein quick reflexes and astute chart-monitoring will result in healthy gains for those who are eager to lock in profits. In a general sense, stocks are already somewhat overbought, though there could still be more to this rally, even though it may take weeks for it to make another forward move. The most likely outcome is that stocks will end up generally right where they are now, somewhere between (on the Dow) 7700 and 8100. The 8100 level has yet to be cracked, but there is plenty of room on the upside - all the way to 9000 - before violating the primary bearish trend.

Less seasoned investors will see any rally past 8200-8300 as signs of a new bull, but they will be sadly mistaken. The Dow in particular has plenty of room to roam before breaking into bullish ground, and the chances of that are, at this time, slim to none. Most analysts of any quality are now calling for recovery in the year 2010, so even a presaging move by the markets before July would be premature and likely to be killed off by a combination of profit-taking and outright selling.

There's almost surely to be another round of terror in the markets, caused by anything from a large company reporting truly ugly results, another nightmare from the banking sector, bad housing (or commercial property) news, more unemployment, and so on. There is truly no limit to the scenarios within which the Dow and associated markets could take another dive below 7000, the S&P back into the 750 range and so forth. Getting through April will look like a picnic in retrospect by the time June rolls around. There is still widespread uncertainty concerning everything from the government's budget deficits to bank solvency to a GM bankruptcy. Anything can happen, and it probably will.

The case today was cynical, on the whole. After Goldman Sachs (GS) announced their "outstanding" earnings a day early, the company came back with a stock offering at 123, sending shares lower at the open. It was something of an outlier and partially designed to cover the great deceit which GS played on investors. Their 1st quarter earnings covered the period of January through March, but since GS ad changed their accounting periods when they changed their designation from an investment bank to a commercial bank, they managed to leave out their $1 billion loss from December, 2008.

Seriously, it was just never reported, which is something of a first, and an evil ploy to hoodwink not only investors, but the financial media as well, who did little to uncover the fact.

In any case, Goldman set the tone out of the gate, sending the major indices out in the red, a place in which they remain until the closing bell.

Dow 7,920.18, -137.63 (1.71%)
NASDAQ 1,625.72, -27.59 (1.67%)
S&P 500 841.50, -17.23 (2.01%)
NYSE Composite 5,301.50, -108.78 (2.01%)

On the day, declining issues ran well ahead of advancing ones, 4403-2102. New lows remained in the dominant position over new highs, 76-19. Volume was better than it has been in days, owing to options expiration on Friday and a willingness, seemingly, to take profits in all quarters.

NYSE Volume 1,749,256,000
NASDAQ Volume 2,267,111,000

Over in the commodities arena, oil drooped 64 cents, hitting $49.41 at the close, the first close below $50 in over a week. Gold fell $3.80, to $892.00. Silver finished unchanged, at $12.77.

For all the excitement in the markets, it was a fairly quiet session, as stocks, once they bottomed out around the noon hour, traded in a fairly tight regimen the rest of the day. also weighing on investors were lower retail sales figures for March (-1.1%), and a sharp decline in the PPI, off 1.2% in March. Both readings were said - by the supine financial press - to be surprising, though one wonders just who was surprised that spending and prices were both dropping. It seemed to be not so much of a shock, but merely more evidence that the recession is deeper and longer than most people would like.

Speaking on the economy, both President Obama and Fed Chair Ben Bernanke, voiced concerns that while there have been signs of hope, the economic forces at work were nowhere near done doing their dirty work on the US economy. As per usual, both politicians spoke from both sides of their mouths simultaneously. One could take the entire volume of their words and just chuck it all in a waste bin, as all they do is mouth the same garbage all the time. Their speeches, and those of Treasury's Tim Geithner, are about as meaningful as seeing flowers bloom in Spring. Nothing new comes from anybody involved in the various government bailouts, rescues and assorted alphabet soup plots and plans, as they are mostly designed to cover up the most obvious bank insolvencies (B of A, Citigroup, JP Morgan Chase) and will more than likely do more harm than good.

Of the few bright spots was Dow component, Johnson & Johnson (JNJ), which reported earnings which were 0.04 ahead of Street expectations, at $1.26 per share. Other than that, of the 30 Dow components, only Citigroup (C), Intel (INTC) and General Motors (GM) finished the day with gains.

Don't look for any loud corporate noises on Wednesday, as there are no influential companies reporting. On Thursday, Biogen Idec Inc. (BIIB), Google (GOOG), JPMorgan Chase & Co. (JPM) and Nokia (NOK) will add a degree of interest as they report 1st quarter results.