Earnings Season Stage One Starts

April earnings season begins in earnest today. Last week was sort of the earnings preseason with AA and MOS reporting, along with a smattering of others. Today we pick up the earnings reports momentum with stage one, and finally, next week we hit earnings season stage two, which is the full bore, all out reporting season.

Pre-market futures came down slightly after GS reported good earnings but decided to cut its quarterly dividend and also issue a $5b public offering to raise capital.

The futures held steady in slightly negative territory through a roughly in-line PPI (Core PPI). However, the report was not good news for producer prices, especially on the non core level, which missed by -1.2% vs. 0.0% expected. I mentioned yesterday that the PPI is a tier one report that is not market-moving currently because traders are focused elsewhere. You can see the muted response to the report confirms what I stated.

Now, the Retail Sales report, that's a different story this morning. Retail Sales came out with a number of -1.1% vs. 0.3% expected. Consumer spending is 2/3 of GDP, and the Retail Sales number most certainly will catch traders attention during a bear market, especially a miss this big. The decrease in spending means the recession is probably not quite as over as the Googly-Eyes hoped. Especially troubling is that gasoline sales fell off 1.6%, which is exactly what I chirped about when I said the pop in the market causing a pop in oil prices would only put a lid on the economy. Government "leaders" who were hoping that the U.S. consumer would sustain an almost immediate .50 cent jump in gas prices last month, just like they sustained up to $4.00 per gallon in 2007, are getting their answer.....This isn't 2006 and 2007 when the average American was using their house as an ATM machine. This is 2009 when the average American is actually thinking about their spending habits.

Perhaps a better way to put this is to point out that the market made a sharp, historically huge V-Bottom recovery that has been the steepest one-month uptrend since 1938 - because fund managers were so excited about the "potential turnaround" in the banks and the economy. As soon as the word "stabilize" hit the news wires, the fundies knee-jerked into the sharpest V-Bottom in the stock market in over 70 years.

Here is a chart of the SPX showing a V-Bottom so sharp and so vertical that it looks like Excalibur's Sword:
(click on image to enlarge)

Trader's put a sharp V-Bottom on the charts, but will we also get a sharp V-Bottom in the economy? Perhaps fund managers believe the economy has stabilized enough that the stock market is unlikely to ever visit the lows of March again, so the V-Bottom represents the first stage of economic recovery. However, as I have been stating here for many months, the most likely scenario for the economy is not a V-Bottom recovery, but rather a long, protracted, and sometimes painful recovery with artificial ceilings, especially with the types of spending and policy decision we have seen in the past six months.

Fund managers may dream that the recovery will be like the Chosen One pulling the V-Bottom sword from the stock market stone and marching to an exciting, rousing economic victory.....

.....But I wonder if this whole enchanting story will turn out more like this:

Well, after all that market commentary, I always come back and say trade what is and not what seems sensible. I won't fight the overwhelming tide of bullishness. I've been playing calls almost exclusively for the past month and I have encouraged you to do the same, which has led to many nice profits. It doesn't matter what I think, it only matters that I trade in the direction of the trend. If the fundies all prove to be right, and the economy is in the midst of a sharp, V-Bottom recovery then fantastic! None of the data supports that thesis, but if it's really happening, then we can all throw a celebration and enjoy the good times again.

7:45 am MT: The net result of the first wave of earnings and economic reports was an identical gap down on the SPY this morning as yesterday morning. The big difference in the two, however, is that this one comes after the earnings and economic reports.

Didn't I mention something about all those gaps on the market yesterday?..........

The SPY is already in the 84.50 support area, which is the top side of the gap from Thursday. So this morning is very similar to yesterday. And it looks like the same fundies that bought the 84.50 support area yesterday are going to try and do it again today.....I guess they want to see more evidence that the economy is not in a full blown recovery.....

7:53 am MT: Here is a current 15m chart of the SPY showing the almost identical early price action as yesterday:
(click on image to enlarge)

8:52 am MT: The SPY is back in a resistance area, testing the gap from yesterday's close (gaps, gaps, everywhere are gaps.....it should be a song.....). Price action continues to look very similar to yesterday, although the market may run out of gas sooner today than the highs of yesterday.

Here is a current 15m chart of the SPY:
(click on image to enlarge)

9:06 am MT: The SPY (market) did roll over early, just as I speculated. Well, this looks like another range-bound day. I think traders are going to hang around between the gaps and hope for a great earnings report from INTC and some better economic data the rest of the week. I suspect that the only key economic data this week that has a chance to surprise to the upside (substantially anyway) will be the Housing Starts/Building Permits number on Thursday.

Here are some stocks outperforming to the upside this morning: WYNN, NE, ESV, CNX, DVN, and DO. Energy is leading the market so far.

Here are some stocks underperforming to the downside this morning: MCD, SO, PEP

Now, I must go work on new service stuff again for awhile.....enjoy the cartoons.....

12:45 pm MT: The market has been range bound between the gaps today. The tussle that traders just had with the low end of the range on the SPY around 84.10 are the first cracks in the bullish armor. The SPY overshot the 84.35 - 85.50 support zone a little, which means there is a little more apprehension today than yesterday. The apprehension is not all that surprising, I noted early in the day that the one difference between the two similar price action days (yesterday and today) is that today is coming after earnings and economic reports.

The slight overshoot of support a little while ago means we may see another drop to new lows before the end of the day. We shall see.....

1:57 pm MT: The market did roll down and test the lows again, which the overshoot was portending. The SPY didn't make it to new lows, but the three-day crunch and grind will close near the lows of the consolidation range.

2:02 pm MT: Market Wrap: The market price action was down, although the SPY, for example, did stay in the 84 - 86 range that it has played in the past couple of days. The SPY did hang around between the gaps, as I speculated. The next big catalyst is INTC, which will be reporting earnings shortly. Tomorrow morning will also see a plethora of economic reports, with Industrial Production/Capacity Utilization being the most important, although the CPI will probably grab more of the headlines.

Now we all await INTC.....Don't wait around breathlessly, check back in four hours or so after all the news, guidance, and corporate speak is over. By then traders will have parsed, diced, danced, snipped, quipped, analyzed, examined, surveyed, sifted, salted, botanized, and dissected the news to their utmosed pleasure, and we will get an idea where tech will probably open tomorrow.

2:18 pm MT: It looks like the initial reaction to the INTC report is bearish. The stock is trading down about 4% just after the release. Like I said above, give this a while to get analyzed to death, and then we'll see what the expectations are for tomorrow.

6:35 pm MT: So get used to this.....I expect a lot of earnings reports like this during the current season. INTC beat expectations .11 cents vs. .03 cents, but declined to provide future guidance. I think this will be the norm. I think a lot of companies, especially banks, will say they had some decent things happen in the past quarter, but the future is still very uncertain. This dovetails right along with what I have been stating over and over again, which is that the economy will have pops and positives here and there, but the trends in employment, energy, and even to an extent real estate (although lower mortgage rates are helping), are not indicative of a V-Bottom economic recovery, even if fundies are trying to put a V-Bottom in the market. INTC is trading down over 5% after hours.

There are still some economic reports to get through in the morning, but tomorrow is shaping up as a gap down and some selling early in the day. However, the Googly-Eyes will refuse to see anything other than sunshine with a few clouds because their livelihood and perceived happiness is at stake, so they will probably be emotional and irrational tomorrow. That means they will probably try to "buy the dip" again, just like they did on the Bear Gap yesterday and this morning. Nevertheless, if we don't see good economic data in the morning we are probably headed for a profit-taking type of day at the very least. It may not be a sell-off, because too many Googly-Eyes will still be looking for more "proof" next week, but the fundies are probably a bit nervous tonight and really, really, really hoping for "good news" from the economic reports tomorrow morning.....