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Traders,
Last Friday saw some volatility and negative pressure as the unemployment rate came in below expected (-85,000), however the over-all trend was positive. The news did put pressure on the dollar and gave the investment community some level of relief that the Fed will not raise interest rates in the near term, as some have feared. Certainly the negative jobs report does play into the Fed's policy decision (as it is part of their mandate). Towards the end of the session we saw strength return and all the indices moved slightly higher into positive territory.
Now it's earning's season again and what should we expect? I think we could see some mix news, certainly some upside surprises in the retailers - as the expectations were set very low and in the last week of December did show some better than expected growth in sales. The cost cutting story still is the big driver as domestic revenues continue to contract and we see sales continue through and after the holiday season, in some cases even steeper cuts. The focus should be on the forecast for the rest of the year, because last year was about low expectations and beating them on cost cutting, this year is going to half to be about growth (in fact it is expected by many analyst). If we see companies keeping revenues flat or lowering forecasts, then they certainly are concerned about revenue. It's time to get off the cost cutting train and start focusing on top line revenue. That will be the make it or break it this year. |
| Earning's Kick Off
Alcoa leads off... |
Today earnings kicks off with ALCOA, one of the largest producers of aluminum. They may report a profit as the year-end saw a continued rally in metal prices. While the U.S. saw major contractions in building and durable goods, domestic aluminum sales didn't see strength until year end. The international story has been different as emerging market continue to consumer, there has been some demand increase on the domestic side as well. Expectations are for a profit, they most likely will not have blow-out earnings, but a steady increase.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRI0YKOxNmgU |
| LENO gone!
GE's NBC in trouble... |
GE continues to real from the massive headache known as NBC, the complete flop of Leno in prime time has finally got the axe. Top that off with expectations that the Winter Olympic coverage will also be a big money loser. They paid $820 million for the rights to broadcast the games, but with ad revenue down and a failed line-up going into season openers it looks to be a losing course. Mr. Immelt, of GE, told investors that he expects NBC would lose a couple hundred million on the games. NBC expects to air 835 hours of Olympics programming, let's hope they get the ad revenue. The question on investors mind is how will it affect GE's bottom line, even Immelt is saying it's a loser. We will probably hear more during earnings. http://www.cnbc.com/id/34802151 |
| Futures Pre-market
Where's the action! |
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The futures are up in the pre-market, part of that is due to China's increase in imports - many suspect the emerging markets will continue to carry the Western nations out of the recession. |
| Support / Resistance
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INDU 10,500 / 11,000 (Earnings kicks off and we could see some volatility injections - possibly to the upside.)
NDX 1900 (Closing in on 1900 - as we kick off earnings season.)
SPX 1100 / 1200 (We are almost in the middle and we could see a visit to 1200 during earnings season.)
RUT 600 / 700 (Almost to 650 - which will be a pivot point.) |
| Conclusion
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Dollar coming off and heading into earnings season. It seems that many companies managed their inventories and with continual cost cutting (job cuts) we could see them beat expectations again. The job front and top line revenue remain a concern and this could be the last earnings cycle that companies can rely on cost cutting to maintain positive margins. The key to listen to are the forecasts (true some companies have refrain from doing that since the recession has started). It's the revenue story that analyst will want to hear about going into the 2010. This is almost a physiological game, we have become use to several earnings in a row where companies and analyst forecast very conservative or even bleak guidance, thus setting the bar very low and companies have not really "surprised", but rather just beat very low estimates. Now the optimism of the recovery is prevalent and we may see analyst start setting higher guidance and higher expectations going forward. It's like we gave companies a break last year and now I suspect that will change this year. Profits overall decreased in the S&P last year, this year they are expected to increase. No more tossing them a bone. That is going to put some pressure on some of this companies going forward and they will start needing to see demand strength and top line revenue increases. | |
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| Author |
| Michael Williams has 20 years experience as a institututional floor broker and options market maker. He is a partner in both Silexx Financial Systems (a trading software company) and Kinetic Strategic Group (a private investment firm). He co-authored the book "Fundamentals of the Options Market" a McGraw-Hill text and has lectured throughout the country on Options, Risk Management, and Volatility. | |
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