Another one bites the dust!
Can we film the operation? Is the head dead yet?
You know the boys in the newsroom got a running bet
Get the widow on the set
We need dirty laundry
Good morning and welcome to high noon. With the bunnies all gone (and a green Monday yawn), it's now time to mow down the vast earnings lawn. "I've watered the field and planted my seeds," said Hoofy the bull as he thought through his needs, "and if these reports are filled with good deeds, I'll spoil Ms. Daisy with all the proceeds!" Will the upside reward those in Matador City or are they now ripe for some scornful stock pity? Settle those nerves and please shake off the jitters 'cause earnings are here in the city of critters!
The fundamental circus has come to town and Ma Bell is doing back flips as investors line up for conference calls. These are pretty important numbers, after all, and traders will be listening intently on two fronts. First, they will seek validation that the Minx, as a leading indicator, was cleverly ahead of the earning curve. Perhaps more important, they'll want some hand holding as we peer across the valley and assess the future. Granted, guidance is conjecture at best (and corporate America never saw the first pin prick) but for purposes of immediate gratification, that's how we play the game.
This juncture is all the more intriguing when we factor in the technical landscape. S&P 1150-1160 has been tested more than Barry Bonds but has yet to balk. Hoofy made a pass in January, repeatedly flirted in February and tried once more in March to mount that hump. Still, the 50% retracement (of the initial bear slide) has been a line in the sand for the Red Dye clan. We know that the resolve of these big levels weaken with each incremental attempt (as supply is chewed through). The zillion dollar question is whether this fundamental nudge will overcome the technical grudge.
You'll have numbers coming out of your nose by the time the avalanche ends but please remember a few basic guidelines for "the season." First, this is a market of stocks (and not a stock market) so please be careful in your extrapolation of individual earnings. Yes, a solid bellwether report will initially impact the entire tape but try to use those "herd" movements as an opportunity (rather than blindly climbing aboard). That's a two-sided assertion yet, unfailingly, traders are more reactive than proactive once the screens are all the same color.
Also remember that stocks ARE a leading indicator and, as such, expectations are more important than results (perception is reality). We saw it when business was "booming" at the peak of the bubble and felt it when dangling in the abyss on more than one occasion. My point, Yoda, is that no metric, no matter how good or how bad, offers absolute power. We must continually assess what we often can't see in an ever-changing world. That's much easier said than done, as we know, but it is what it is. And I'll say it again because it's the crux of successful trading: the best we can do is assimilate our various metrics, assign probabilities of outcomes and allow for a margin of error.
The bulls are focused on earnings momentum, continued liquidity, tight corporate spreads (important) and a coordinated agenda. Boo argues that input prices have risen through the roof (from chocolate to gas to metals to buttah) and stimuli, no matter how coordinated, is a Band-Aid on a broken bone. It's stagflation-in-waiting, he'll tell anyone who still listens, and when juxtaposed against sky high expectations, geopolitical uncertainty and widespread complacency, it's downright spooky!
We power up this minxy pup to find Europe playing some ketchup, a lil' heavy metal, the dollar gettin' some greenback and traders glued to their screens. Watch the semis (Novellus (NVLS:NASD), financials (Merrill (MER:NYSE) and Citigroup (C:NYSE), the cyclicals (General Electric (GE:NYSE) and the all-important internals. And take a deep breath and think before committing your hard earned coin--the fun has only just begun.
Good luck today.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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