It's All About Earnings

Wall Street shrugged aside more defeating economic news and focused instead on upbeat earnings reports from a number of key companies on Wednesday, boosting stocks on a day-long buying binge.

Results from JP Morgan (JPM), Intel (INTC) and Coca-Cola (KO) all beat analyst expectations handily as the bulk of quarterly earnings reports begin to flow from corporations to Wall Street.

Dow 12,619.27 +256.80; NASDAQ 2,350.11 +64.07; S&P 500 1,364.71 +30.28; NYSE Composite 9,203.76 +225.57

The rally was widespread, with 4976 advancing issues to just 1335 losers. The more startling development may be the shift in positions for new highs and lows. On the day, there were 197 new highs and 201 new lows, a very narrow, and generally insignificant, margin.

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What this may indicate is that Wednesday's rally could be the start of a broad move to higher ground, though there still is overhead resistance in the 12,700-12,750 area on the Dow. On the other hand, there is a voided area between 12,700 and 13,700, which could find itself occupied soon if the rally continues.

What will make the entire market move forward are improved earnings, like those seen today. While the price of oil continues to skyrocket, firms seem to be taking the unusual economic conditions in stride, largely unaffected by either slack US consumer demand or unbearably tight credit conditions.

Light, sweet crude oil gained $1.14, to another new record of $114.93 a barrel on the Nymex. In keeping with the tone of the day, gold added another $16.30 to close at $948.30, while silver gained 48 cents to $18.33.

The disconnect between the US economy and the stock market bears some inspection. How American companies can continue turning in solid profits in the face of a stagnant or slowing economy is just one of the implications of globalization. Many stocks listed on the major exchanges are global in scope and benefit from a weakened dollar in foreign markets, so it should not surprise anyone that these companies retain their competitive edge.

Companies that are more nationalistic, such as retailers, are seeing a harder time overall.

NYSE Volume 4,260,363,000
NASDAQ Volume 2,148,321,000

Bad News Spreads but Market Remains in Denial

There was enough discouraging news spreading around Wall Street for even the most intrepid investors to take note, but the major indices shrugged off soaring food and energy prices, more ugly housing statistics and uneven earnings reports to close marginally higher on Tuesday.

According to the monthly Producer Price Index (PPI) issued by the Labor Dept., wholesale prices rose by 1.1% in March and are up a stunning 6.9% over the past 12 months.

Also in March, there were 234,685 foreclosure filings against US homeowners, a 57% increase over last year. Nevada, California and Florida were the hardest hit states in the survey released by Realty-Trac, Inc.

Dow 12,362.47 +60.41; NASDAQ 2,286.04 +10.22; S&P 500 1,334.43 +6.11; NYSE Composite 8,978.19 +55.35

In earnings news, broker Charles Schwab, Inc. (SCHW) reported income from continuing operations rose to $305 million, or 26 cents per share, from $236 million, or 19 cents per share, a year earlier.

Johnson & Johnson (JNJ) bested estimates with $1.26 per share reported for the 1st quarter, though those numbers were tempered by slowing sales in several categories and the overall numbers boosted by the weak US dollar.

U.S. Bancorp (USB) saw a 4 percent drop in its first-quarter earnings while drug maker Forest Labs (FRX) posted improved earnings, but investors punished shares on a disappointing forecast for the remainder of 2008, sending the stock down 9%, losing 3.67 to 36.13.

Advancing issues edged decliners, 3431-2627. There were 277 new lows to just 96 new highs.

The price of oil added to the gloomy overhang, reaching a new high of $113.79, up $2.03. Gold gained $3.30 to $932.00. Silver was up 6 cents to $17.85.

Intel (INTC), Washington Mutual (WM), Coca-Cola (KO), JP Morgan Chase (JPM) and Wells Fargo (WFC) highlight the companies releasing earnings on Wednesday. The March CPI reading will also hit the markets prior to the open, and considering today's PPI numbers, they're likely to send another shock.

How long the markets can continue to ignore the steady flow of bad news is anyone's guess, but, considering the low volume of trading the past couple of weeks, the guessing game may soon be at an end as investors protect whatever profits they have left by selling.

NYSE Volume 3,540,240,250
NASDAQ Volume 1,843,419,375

Quiet Day Keeps Stocks in Range

Stocks zigged and zagged in a tight range on Monday (85 points in all on the Dow), but eventually ended the day on an unpleasant note as investors line up for earnings reports from major companies.

The most salient news was from Wachovia (WB), the latest victim in the ongoing banking/finance/credit crisis, posting a first quarter loss of $393 million or 20 cents per share. The nation's 4th largest banking outfit announced a cut to its dividend from 64 cents to 37.5 cents and is actively pursuing a $7 billion cash infusion through the sale of common and preferred stock, a highly dilutive - and desperate - plan.

Shares of Wachovia were hammered, losing more than 8% on the day.

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Overall, the news was pretty ugly, though largely expected, thus, the market's tepid reaction. Oddly enough, while the US equity market barely budged from the break-even line, indices around the world were roiled even before the Wachovia news, though especially the far-Eastern markets. The Nikkei and Hang Seng both lost more than 3%. European markets sustained losses of roughly 1% overall, while the US markets were essentially flat.

Whatever there is to the correlation between world markets, it seems that the US generally fares better, even though it is the bearer of most of the bad news. How far risk has been spread comes into play, as does the relative strength/weakness of currencies and economies. The confounding issue is that with all the weakness in the US economy, stocks still have not responded in a cascade of losses. Maybe the upcoming spate of earnings reports is about to change that dynamic.

Dow 12,302.06 -23.36; NASDAQ 2,275.82 -14.42; S&P 500 1,328.32 -4.51; NYSE Composite 8,922.84 -13.27

Stock sellers didn't miss any opportunities on Monday. Losing issues outnumbered gainers, 3827-2396. New lows ramped up to 277, to just 84 new highs. That gap continues to expand, signaling another downturn dead ahead for the major indices and stocks in general.

Crude oil gained $1.62 to $111.76. Gold advanced $1.70 to $928.79; silver added 10 cents to $17.79.

The lull in the markets is surely a temporary phenomenon as investors await all-important earnings reports. But, more shocks to the system like that which Wachovia delivered today will not be taken lightly much longer. We're close to a turning point and unless some major companies defied the markets and sentiment in the first quarter, life on Wall Street is going to get a heck of a lot cheaper very soon.

NYSE Volume 3,565,027,000
NASDAQ Volume 1,640,094,875

GE, Consumer Sentiment Savage Stocks

The forecast for Friday was fair, but it turned gloomy as General Electric reported 1st quarter earnings well below analyst estimates and the University of Michigan Consumer Sentiment Survey recorded its lowest reading in 26 years, plunging to 63.2 after checking in at 69.5 in March.

Investors did what anyone would rightly expect, they sold as fast and as much as they could. Shortly after the 10:00 release of the Michigan survey, the Dow was off more than 175 points. It never got much better than that as the Dow recorded its first loss of more than 200 points (a common occurrence in January) since March 18, a span of 17 sessions.

Dow 12,325.42 -256.56; NASDAQ 2,290.24 -61.46; S&P 500 1,332.83 -27.72; NYSE Composite 8,936.11 -160.75

The double dosage of damming economic news was exactly what the market needed to shed its overbought position, leaving the Dow less than 600 points from it's near-term closing low from March 10. With new lows being put in place just about every two months, the markets are in a condition of flux and should remain so unless quarterly reports begin to come in worse than expected. Even if that's the case, a few headline stocks meeting or exceeding expectations will surely fuel big rallies.

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The market in equities continues to be highly volatile, which is a trader's dream or nightmare, depending on how well one reads the tea leaves in the news, economic reports and earnings releases.

As expected declining issues trounced advancers, 4893-1334, or nearly 3-1. New lows expanded their edge over new highs, 201-56. This particular indicator is pointed intensely towards the negative, flashing a bright neon sell sign which should not be missed. After relinquishing the lead to new highs for two days this week, the new lows are beginning to expand once again.

Oil barely moved, gaining only 3 cents to close the week at $110.14. Gold lost $4.80 to $927.00. Silver continues to take larger losses, relative to cousin gold, dropping 35 cents to $17.69 the ounce.

For the week, all of the major indices were lower by roughly 2%. The bear remains in a growling, angry, ravenous mood and with earnings due in force next week, the grizzly one may whet his appetite aplenty.

NYSE Volume 3,693,357,500
NASDAQ Volume 1,918,384,125

Faux Rally Sputters in Final Hour

Veteran market watchers can say they've seen this before, and they probably have, but there is little reasonable explanation for today's rally other than short covering. Seldom, if ever, is there a pre-earnings rally, as investors usually wait until companies actually release their earnings reports, not before them.

Equally unusual are stocks gaining on prospects of lower earnings expectations, especially after the company releases a pre-earnings warning. Various retailers released dismal same-store sales figures for March on Thursday, the worst, by some accounts, in 13 years. The actual figures were somewhat sobering:

• Dillard's Inc. -10%


• J.C. Penney Co. -12.3%


• Kohl's Corp. -15.5%


• Nordstrom Inc. -9.1%

But, amazingly, all of these stocks were up on the day!

• Dillard's (DDS) 21.14 +0.64


• J.C. Penny (JCP) 40.07 +1.15


• Kohl's (KSS) 43.72 +1.32


• Nordstrom (JWN) 34.39 +1.10

If anyone reading this has a plausible explanation for the phenomenon, please post a comment below. Surely, the brightest of the bright (CNBC analysts and Jim Cramer, in that order) will attest that the results were widely expected and already baked into the share prices. The result: massive short covering on a "buy the rumor, sell the news" upside-down trade.

OK, we've got it now, except that Dow Jones News has reported that the retailers blamed an early Easter and unusually cold conditions in the Northeast for the widespread sales declines.

Well, there are two good explanations. My very own perspective, upon witnessing this particular variety of bizarro-world trading, is to issue sell recommendations on those four companies and the one mentioned below, Boeing.

Some companies announce that they are encountering production delays in an anticipated big product. Such was the case yesterday with Boeing (BA), which gained nearly 5% after announcing that production of the 787 Dreamliner aircraft would not be finished on time, though, and we always love these statements, earnings would be unaffected Uh huh, sure, yeah, right. Boeing came back down to earth a bit today, dropping an entire 17 cents. Not to worry, the aerospace king will drift out of orbit and close below 70 in the not-so-distant future.

As for the general markets, with the retailing news in hand at 9:30 am, opened higher, lost ground and then climbed to the best heights of the session by 11:00 am. Drifting between 12,600 and 12,650 for the better part of the day, the day-traders which now overpopulate Wall Street had finally played enough and began to take profits. The Dow, which was up more than 120 points, fell back to show a gain of just 20 points with about 20 minutes left in the session. Those 20 minutes were spent as they usually are, adjusting the numbers to make them look better than they should.

Dow 12,581.98 +54.72; NASDAQ 2,351.70 +29.58; S&P 500 1,360.55 +6.06; NYSE Composite 9,096.86 +22.04

All told, the rally was built with borrowed money (nothing new there), exaggerated by short-covering and decimated by profit-taking near the close. Wall Street continues to play this game, holding the indices at unsustainable levels. Since the massive run-up of April 1, stocks are down, but barely. The Dow, for instance, is off 72 points from the April 1 close. They've absorbed day after day of discouraging words, and while the Street is no home on the range, the skies are anything but not cloudy all day.

Once actual earnings being to flow, one would expect stocks to take somewhat of a beating, unless, of course, we'll be forced to stomach the various vacuous analysis of "cold weather", "already baked in" and other such explanatory nonsense.

These markets are cooked, fried, flambed and roasted to a crisp. It's a waiting game, and there's plenty to be lost or gained. The general consensus by the major holders - mutual funds, brokerages and institutions - is that it's better to hold on than make any panicky moves. So it goes.

Internally, the markets look less than robust. Advancing issues regained a clear lead over decliners, 3793-2410. New lows overwhelmed new highs, 174-75, and my point is that if you're not making new highs, you'll test those lows eventually, and the majority of stocks are in that lower-end range, approaching their bottoms or just off them. Another bout of profit-taking or fear will send the new lows up over 500 within the next 10 trading days.

Corporate earnings are not going to be healthy. The economy continues to flounder, but the fascist news media continues to ignore most of the salient facts about the credit crunch and its implications. If banks aren't lending money, the economy is going to rot.

Oil actually trended a little lower, but not by any significant amount. Crude fell 76 cents to $110.11. Gold's short-term rally stalled, losing $5.70, to $931.80. Silver dropped 16 cents to $18.04.

The retail sales figures came in as ugly as expected and went, with the market closing higher. Eventually, all of the data gets evaluated and stocks respond with reasonable valuations. Today's traders are not interested in actual, true valuation, just how much they can squirrel away in a given day.

NYSE Volume 3,642,058,750
NASDAQ Volume 2,206,656,750