Traders,
A slight rebound off the lows, but there is still some unsettling feelings about short-term political decisions that could affect market conditions. There is also the Bernanke countdown to Jan 31st (the vote need to confirm him for the next term). Obama is pulling out all the stops to make sure to secure the vote and the numbers look like he will get confirmed. However, even though he most likely will be confirmed, the last minute and narrow margins brings more trouble for the administration as to setting new policies and also bring more pressure on the Fed as well.
Earnings have been fair for the most part, but there have been some rather conservative estimates going forward and that is not bringing confidence to the investing community that really wanted to see a raise in guidance going forward, not more of the same "fragile" talk.
The VIX exploded last week from 17.50 to almost 28 in a couple of days. Clearly there was some hidden volatility loaded into the market and that unloaded quickly. The higher volatility may stay in the market through the end of the month with Bernanke's confirmation and also waiting for the Administration turn down those "fighting" words and some element of calm return. |
| Apple
earnings beat - surprised? |
Apple, which traditionally sandbags their estimates, surprised yet again with a 50% in their most recent quarter profits. Net income advanced $3.67, there was an accounting change that had created a halt in after-hours trading until the news could be confirmed between the pre/post accounting changes, however even using the previous accounting method they beat estimates. The stock which would traditionally move higher on the news is slightly up, but now everyone is waiting this week for the big release of their new tablet before getting behind the stock. With the tailwind of these positive earnings and a raise in their forecast - if the tablet gets caught up in the same euphoria as the iPhone we could see this stock move higher.
Stock is up 5.5 points in the pre-market helping to keep the NDX futures in the green.
Tablet rumors: http://www.bloomberg.com/apps/news?pid=20601109&sid=auWPt.yNKBjs&pos=12 |
| Verizon
tied to domestic economics... |
Verizon is rumored to be courting Apple after the AT&T exclusive deal for the iPhone and possibly new iPad, which is much needed as the company saw difficulty in subscriber sales. The rising unemployment has hurt demand and has seen a increase in the drop of existing consumers. Sales increase 9.9% to 27.1 billion, that missed the already conservative $27.3 billion estimates. The company had a net loss of $653 million (-23 cents a share) vs. a profit of 1.24 billion or +43 cents a share a year earlier.
Verizon compares their sales forecast to the unemployment rate for their fix-line subscriber services. Now it looks like 2010 may be again a tough year, unless they can see an increase in the jobs market. Verizon is firmly rooted in the domestic markets and are subject to the domestic economy. Expect it to be a bumpy road for the company in the near term. The company could be considered undervalued (by some estimates)- but is it? Until we see net profits, rather than continued net losses, it is really hard to determine if it is over-or-undervalued. Certainly if we see jobs return we could expect to see growth in this company.
What could be the diamond in the rough is their wireless services, if they are able to ride on Apple's wings with the iPhone and iPad could be enough to help boost revenue.
Stock is slightly off in the pre-market. |
| Futures Pre-market
Where's the action! |
|
The futures are negative and under-pressure in the pre-market. They are off their early morning lows and the NDX is positive, as Apple is higher in the pre-market. Apple's pre-market gain of $5 is about $10 points in the NDX. Without Apple NDX would be down about 9 to 10 points in the pre-market. |
| Support / Resistance
Going higher or lower? |
INDU 10,000 / 10,250 (Can we get back above the 10,250 level - I am not sure a visit either to 10,000 or 10,250 is in the cards as volatility remains high - earnings are generating some positives - but maybe not enough.)
NDX 1800 (Right back to that 1800 level, can we hold? Apple is a driving force and keeping the futures in the green this morning, but just barely as the rest of the index is dragging lower.)
SPX 1100 (We are below 1100 and we need to see some strength to get back above 1100.)
RUT 600 / 650 (We are still holding above the 600 mark.) |
| Conclusion
|
There is still some volatility in the market, we are not sure how these political games are going to play out and that means more volatility not less. The housing numbers yesterday were very disappointing (prices down another 12%). While we continue to hear positive spin about the economic data the Senate Democrats are already talking about another $80 Billion dollar job stimulus package. There is also more negative news coming out about AIG after investigators dig in and find out who knew what and what was not disclosed, this is drawing in both Geithner and Bernanke which may bring more uncertainty not only to Bernanke's confirmation vote, but also how much longer Geithner will remain as Treasury Sectary. Obama had serious problems filling his cabinet when taking office and now he may have problems refilling seats as more difficulty arises.
The credit crisis continues, S&P just downgraded Japan's credit rating and Europe is still having headaches with Greece. Europe continues to remain under pressure and the recent China news about implementing a plan to increase their required reserves for their banks is sparking some concerned about their own real-estate bubble. Banks in China have already restricted new loans and that is causing a wave of concern, not necessarily indicating a problem - rather the alarm is about their future growth.
VIX is probably fairly priced in the 22-25 area - expect that kind of volatility in the market.
| |
|
|
|
 |
| Obsidian |
| Professional trading platform!
FREE DEMO |
|
| 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. | |
|
