Sam Collins

After Earnings, Market's Looking Up

by Sam Collins   10/22/08

Tuesday's earnings reports brought attention back to stocks from economics, and investors were surprised by earnings that failed to live up to estimates. Between Monday's close and Tuesday's opening, 77 companies reported earnings and 52% of those topped estimates, 35% missed and 13% were in line.

But what rattled investors is that of 49 companies that issued guidance 45% were negative, 30% were in line, 21% were mixed and just 3% were positive.

There were some that topped estimates, like 3M (MMM), American Express (AXP), DuPont (DD), Pfizer (PFE) and Lockheed Martin (LMT).

But some missed estimates like BlackRock (BLK), Caterpillar (CAT), Freeport-McMoRan (FXC), and Texas Instruments (TXN).

Then there are those who, during market hours, cut Q4 earnings estimates -- like DuPont (DD) which tumbled 8% as a result. Sun Microsystems (JAVA) fell 17.5% from a much bigger loss than expected. And Apple Inc. (AAPL) was off 7.1% during the day, but then following the close reported that its Q4 profits were 26% higher than the year before and topped analysts' forecasts.

At the close, the Dow (DJI) was down 232 points to 9,034, the S&P 500 (SPX) fell 30 points to 955 and the Nasdaq (NASD) lost 73 points to close at 1,697.

The New York Stock Exchange traded more than 1.1 billion shares, with decliners ahead of advancers by 2-to-1. The Nasdaq traded 899 million shares, with decliners there ahead by 3-to-1.

The November crude oil contract fell $2.97 to $71.28 a barrel, and the Amex Energy SPDR (XLE) closed at $48.96, down $2.33.

The December gold contract fell $22 to $768 per troy ounce because of strength in the U.S. dollar, and the PHLX Gold/Silver Index (XAU) fell $9.41 to $85.65.

What the Markets Are Saying

The Dow Industrials (DJI) and the S&P 500 (SPX) have had intraday highs very close to the same number for the past three days -- the S&P was within a point.

This is usually caused by programmed sellers with automatic sell orders guaranteed to get them out if the upper range of the day hits their number. This pattern is especially restrictive to an advance under the present low-volume condition, so it is unlikely that the market will trade higher until either they pull their orders or have them filled.

The current chart pattern developed from a symmetrical triangle to an ascending right triangle in the past three days as buyers stepped up to purchase at increasingly higher prices, while the programmers were feeding stock into the market at one prearranged price.

My favorite source for guidance on chart patterns is "The Technical Analysis of Stock Trends" by Robert Edwards and John Magee -- a book that, despite its original publication in 1948, is just as much a tool of the serious technician today as ever.

And it reads, "The Ascending Triangle pictures in the simplest and most normal form what happens when a growing demand for a certain stock meets a large block of shares for sales at a fixed price… If the demand continues, the supply being distributed at that price will eventually be entirely absorbed by new owners looking for still higher levels, and prices will then advance rapidly."

The authors of the book, of course, were not familiar with "programmed trading" and so applied their analysis to individual stocks rather than indices with hundreds of stocks. But the analysis is still solid and the conclusion the same. So as we progress in time from Oct. 10 -- the bottom -- evidence grows that the market will probably break to the upside.

What this analysis is telling us is this: If the tops at Dow (DJI) 9,266 to 9,308 and S&P 500 (SPX) 985 break, then be prepared for a very quick thrust to Dow 10,500 to 11,000 and S&P 1,100, which are the next areas of resistance.

But before a break on the upside, the market must absorb the negative Q4 and 2009 earnings estimates now being projected. Initial support for the current trading pattern is at Dow 8,000 and S&P 866 and then the market's lows.

Today futures are indicating a lower market and appear to be anticipating more earnings misses.

Today's Trading Landscape

Earnings to be reported: A.T. Cross Co (ATX), Affiliated Managers Group (AMG), Air Products and Chemicals (APD), Alcon (ACL), Allegheny Technologies (ATI), Alliance Data (ADS), AllianceBernstein Holding L.P. (AB), Amazon.com (AMZN), Amerigroup Corp (AGP), Amgen (AMGN), Anadigics (ANAD), Applied Biosystems (AMAT), Arkansas Best Corp (ABFS), Arrow Electronics (ARW), AT&T (T), ATMI (ATMI) and Axsys Technologies (AXYS).

Baker Hughes (BHI), BioSphere Medical (BSMD), Breeze-Eastern Corp (BZC), C.R. Bard (BCR), Cadence Design Systems (CDNS), Chipotle Mexican Grill (CMG), Cirrus Logic (CRUS), Citrix Systems (CTXS), CNH Global N.V. (CNH), CNX Gas Corp (CXG), ConocoPhillips (COP), Con-Way (CNW), Core Laboratories (CLB), Covance (CVD), Cullen/Frost Bankers (CFR) and CyberOptics (CYBE).

Delphi Financial Group (DFG), Dover Corp (DOV), Dyax Corp (DYAX), EMC Corp (EMC), Energen (EGN), Federal-Mogul Corp (FDML), First Merchants Corp (FRME), Foundation Coal Holdings (FCL), Gardner Denver (GDI), General Dynamics (GD), Genzyme Corp (GENZ), GlaxoSmithKline (GSK) and Hub Group (HUBG).

Intersil Corp (ISIL), Kadant (KAI), KBW (KBW), Kimberly Clark (KMB), Kinetic Concepts (KCI), Knight Transportation (KNX), Lam Research (LRCX), LaSalle Hotel Properties (LHO), Lennox International (LII), LSI Corp (LSI), McDonald's Corp (MCD), Merck & Co (MRK), MKS Instruments (MKSI) and Molina Healthcare (MOH).

Newfield Exploration (NFX), Noble Corp (NE), Northrop Grumman (NOC), Northwest Airlines Corp (NWA), NutriSystem (NTRI), NuVasive (NUVA), OSI Pharmaceuticals (OSIP), PepsiAmericas (PEP), Philip Morris International (PM), Plantronics (PLT) and Pulte Homes (PHM).

Quantum Corp (QTM), Range Resources (RRC), Rayonier (RYN), Reynolds American (RAI), Robert Half International (RHI), Rohm and Haas Co (ROH), Rollins, Ryder System (R), Ryland Group (RYL), Seacor Holdings (CKH), Seagate Technology (STX), SEI Investments (SECI), SJW Corp (SJW), Skechers USA (SKX), SLM Corp (SLM), Stepan (SCL) and Susquehanna Bancshares (SUSQ).

TCF Financial Corp (TCB), Teradyne (TER), Terex Corp (TEX), The Allstate Corp (ALL), The Boeing Co (BA), The Travelers Companies (TRV), Tompkins Financial Corp (TMP), Torchmark (TMK), TriQuint Semiconductor (TQNT), Vitran Corp (VTNC), WellPoint (WLP) and Willis Group Holdings Ltd (WSH).

No major economic indicators are scheduled today.

Yahoo (YHOO) beat estimates by a penny, Apple's (AAPL) Q4 earnings were $1.26 versus a mean estimate of $1.11, Wyeth (WYE) has reported Q3 figures of 83 cents versus an estimated 90 cents, and Wachovia (WB) reported a Q3 loss of $11.18 versus an estimated profit of 2 cents.

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