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Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) joined the other 80% of companies reporting third quarter results, which beat Street estimates. However, while some believe the bested sales and earnings estimates confirm the economic recovery is happening, others see the estimates themselves as, at least, pessimistic enough to foreshadow the economy's long struggle up, or, worse, as setting the earnings' bars too low. Nevertheless, the daily SmarTrend(R) uptrends to downtrends improved slightly at 10:40. This recovery from Thursday's highly- biased-to-the-downside performance was not enough to cause the IBDI and Trend Ratio to rise. The Trend Ratio was level, but the IBDI declined sharply. Thus, the investing environment still awaits the intermediate-term uptrend's return to action, although the long-term uptrend continues its upward trek. In short, the slightly weakened investing environment remains favorable to long stock buying, and is expected to regain strength when the near-term downtrend rotation is complete later this week.
The near-term downtrend rotation has been going on since last week, but it has mainly been a sideways move, with the DJIA bouncing above and below 10,000. The props under the near-term trend indicators have been supplied by the long-term uptrend. However, so far only one of the near-term trend indicators has started up, the SmarTrend(R) Ratio, and the other three indicators still appear headed for their oversold zones. This is a risk problem for investors because at any moment the DJIA could decide to drop sharply as it did two days last week. The best course now will be to wait for the near-term trend indicators to find bottoms, probably in the next three trading days, before a near-term uptrend rotation commences, providing a trading environment that is also favorable to buying long stocks.
The other trend driving the trading environment, the trade-term trend, demonstrated on Friday that under certain conditions its influence can be substantial. The DJIA dropped 176 points from its intraday high to low Friday, and it did so in a near-term downtrend confirmatory manner. At the end of the day the trade-term trend had become mildly oversold, and will try to bounce back up this morning. Today 37 of the S&P500 companies will report earnings, with Verizon (NYSE:VZ) attracting the most attention. Investors will be sensitive to how much ground Verizon Wireless has given to the AT&T (NYSE:T) and the exclusive iPhone. These anticipated earnings reports are discussed below. Any deviation from 80% of the reporting companies beating estimates could lead to a quick curtailment of an intraday surge up, and be followed by another nosedive by the market indices as an exclamation point to the trading environment downtrend-in-waiting, not expected to bottom before Wednesday. To examine the complete list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
Equities drew breath last week, taking profits after the broiling, 62-plus percent rise in the S&P500 off their 12-year lows of last March. Better-than-forecast interims failed to motivate buyers, as concerns crept in regarding the strength of the consumer, the two-thirds-of-the-economy elephant in the room of the current recovery. And so as the S&P500 failed again to break its 1100 level, traders gave heed to the calls for a market pullback, generating a near-24 point retreat in the DJIA, or a 0.2% decline, to a close under 10,000 at 9972.18; for a drop of 0.1% on the NASDAQ to 2154, and a 0.7% haircut on the S&P500 to 1079.
As demand assumptions for the recovery wavered, aggrieved by a pair of railroad companies' lowered guidance, crude prices dropped for the second day on Friday, off 69 cents, or 0.9%, to close at $80.50, clipping energy shares 2.2% Friday. A rebound in the US dollar sent commodities lower, taking down shares of basic materials (-2.3%), and industrials (-1.6%). US Treasury plans to auction a greater-than-anticipated, record $212 billion in government debt this week sent Treasuries lower, with the yield on the 10-year closing Friday at 3.490%, up from 3.410% the prior week.
The week's scorecard revealed nine of the ten S&P500 sectors closing lower, with the exception of tech shares, which finished up 0.9%. A resurrection of Obama's health care initiative felled health care shares, off 1.8% on the week. Next, industrials shed 1.5%; oil and gas as well as basic materials lost 1.3%; utilities dropped 1.2%. Consumer goods and consumer services slumped 1.0%, with financials down 0.9% and telecommunications off 0.5%.
Mirroring the relative strength in the NASDAQ for the week, tech shares managed a 0.9% weekly advance, on continued estimate-topping results from its components. On Friday, Amazon.com (NASDAQ:AMZN) reported estimate-topping top and bottom line results on the strength of Kindle sales. Microsoft (NASDAQ:MSFT) launched the 7 operating system and also topped fiscal first quarter estimates. However, several chip firms disappointed, cloudy the group's momentum picture, as MEMC Electronic Materials (NYSE:WFR) released a greater-than-projected loss, and Broadcom (NASDAQ:BRCM) warned of little sequential growth likely in its fourth quarter sales report.
The quarterly interims have amassed an 18.2% profit decline from last year, with revenues off over 10%. The numbers have bested estimates by the greatest amount since 1993, with 80% of the S&P500 firms running ahead of expectations since the start of third quarter reporting.
This week's momentum may be based as much on the deluge of economic data as earnings releases, however. The calendar covers Chicago Fed national activity index (Monday); August's S&P/Case-Shiller Home Price Index and October Consumer Confidence (Tuesday); September Durable Goods Orders and September New Home Sales (Wednesday); initial jobless filings, advance third quarter GDP (Thursday); with September personal income and spending and the October University of Michigan Confidence measure (Friday).
Housing may continue to demonstrate signs of stabilization, with today's Case-Shiller expected to rise for the fourth month in August, up 0.6%, slowing the annual pace of price declines from July's 13.3% decline to an 11.5% YoY drop. September's new home sales are estimated to climb to a 440K unit rate from August's 429K.
Headline durable orders are expected to reverse August's 2.4% decline with a 0.7% advance. Excluding volatile aircraft orders, economists expect a 0.7% improvement on the heels of August's 2.7% plunge.
Consumer worries regarding job security and rising unemployment levels have riled concerns on spending prospects for the holiday season and beyond. Projections call for personal income to show no growth in September, as personal spending declines 0.5%. The Fed's preferred inflation measure, the core personal consumption expenditure deflator, is expected to remain unchanged at 1.3%.
What may prove most decisive as equities balance traders' interest in booking profits against an ongoing appetite for risk, are the advance third quarter GDP data to be released on Thursday. Last week's global data showed China economic growth a whopping 8.9% through the third quarter, while recession continued in the UK and its economy contracted 0.4%. At home, though, the recession is expected to find its coffin nailed, with 3.2% estimated growth demonstrating the most significant pace in two years. Central to the growth debate, however, is the forward-looking concerns regarding the handover of federally-stimulated growth to growth impelled by improvements in consumer spending, capital investing and housing, for which the jury remains out.
According to our analytics team, the DJIA remains vulnerable to a sharp drop as occurred two days last week. Therefore, investors should await a bottoming of near-term trend indicators, likely to be reached over the next three trading days, before a near-term uptrend rotations starts. For a look at our more complete technical report on today's trading, as well as the stocks changing trends recently, please click on http://www.mysmartrend.com.
In the corporate corner, the week's calendar covers releases from the likes of: Verizon (NYSE:VZ) and Corning (NYSE:GLW) today, BP (NYSE:BP), Visa (NYSE:V) and US Steel (NYSE:X) on Tuesday; ConocoPhillips (NYSE:COP), GlaxoSmithKline (NYSE:GSK), and General Dynamics (NYSE:GD) on Wednesday, with AstraZeneca (NYSE:AZN), ExxonMobil (NYSE:XOM), Procter & Gamble (NYSE:PG), Aetna (NYSE:AET), Sprint (NYSE:S), Kellogg (NYSE:K) and MetLife (NYSE:MET) on Thursday, and Chevron (NYSE:CVX) on Friday.
Verizon (NYSE:VZ) reported third quarter results, which topped estimates by a penny, coming in at 60 cents on revenues of $27.27 billion, inline with expectations. Wireless revenues gained 24% versus a year earlier.
Corning (NYSE:GLW) CEO and Chairman noted, "The improvement we have seen over the past two quarters has increased our optimism for the fourth quarter," as the firm announced third quarter earnings of 42 cents, topping estimates of 39 cents versus 49 cents a year ago. Revenues of $1.50 billion topped estimates of $1.42 billion.
McGraw-Hill (NYSE:MHP) reported third quarter results of $1.07, two cents ahead of estimates, on revenues of $1.88 billion, off estimates of $1.94 billion. The firm expects 2009 sales down 7% versus a 5.5-6.5% drop, with earnings at the top end of a $2.20-$2.25 range; the Street expects $2.24.
Alberto-Culver (NYSE:ACV) reported fiscal fourth quarter earnings of 33 cents, one penny above estimates.
Lorillard (NYSE:LO) third quarter post missed by 8 cents as earnings hit $1.44, on revenues of $1.42 billion.
RadioShack (NYSE:RSH) posted third quarter earnings of 30 cents, for a one penny miss, on revenues of $990 million.
By Chip Brian, Editor-in-Chief, Comtex news Network
www.Comtex.com -- editor@mysmartrend.com
The following equities mentioned above include:
Comtex SmarTrend Alert
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Ticker Last Close Trend Direction Trend Price Trend Date
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AMZN 118.49 Uptrend 83.19 9/10/2009
BRCM 28.50 Downtrend 28.17 10/23/2009
GLW 15.65 Downtrend 14.69 10/2/2009
MSFT 28.02 Uptrend 17.95 3/23/2009
WFR 13.87 Downtrend 16.71 9/28/2009
INX -- S&P 500: 1,080 Lo: 1,075 Hi: 1,096 Change: -13.31
http://www.mysmartrend.com/images/INX20091026.jpg
INDU -- DOW JONES: 9,972 Lo: 9,933 Hi: 10,110 Change: -109.13
http://www.mysmartrend.com/images/INDU20091026.jpg
QQQQ -- NASDAQ: 2,154 Lo: 2,149 Hi: 2,190 Change: -10.82
http://www.mysmartrend.com/images/QQQQ20091026.jpg
This report is divided into three sections. The first deals with our 5 proprietary market indicators, the second section examines important economic and business happenings which are expected to affect U.S. Stock market movements and the third section describes specific company announcement and earnings releases. Experience demonstrates that when these 5 indicators reach extremes they can shortly be expected to change direction and move in the opposite direction. When such happens in all or most of the 5 indicators, on or about the same time, followed by a move from below an extreme (oversold) to above that extreme (or vice versa for overbought), a change in market direction is very probable. The near term market moves are measured to identify the best possible returns for traders/investors. Daily price/volume examinations provide the best data upon which to base such forecasts. In this report though, intraday indicators are examined to improve the point of entry timing for the expected move.
Comtex News Network, Inc. is not a registered investment advisor and does not provide investment advice. Investors bear complete responsibility for their own investment research and decisions and should seek the advice of a qualified investment professional prior to making investment decisions. SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright, Comtex News Network, Inc. 2008
Comtex News Network, Inc. ("Comtex") obtains information from sources deemed to be reliable; however, Comtex does not guarantee the accuracy of any of the information or commentary provided. Comtex makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. In no event shall Comtex be liable for direct, indirect, or incidental damages resulting from the use of the information. Comtex shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. Comtex does not make specific trading recommendations or provide individualized market advice. The information contained in the Morning Call product is provided as an information service only.
To subscribe to this newsletter, please visit http://www.mysmartrend.com/newsletter . To learn more about SmarTrend, go to http://www.mysmartrend.com or call Comtex sales at (212) 688-6240.
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