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Minyanville's T3 Morning Market Call: Market Shrugs Off Moody's Warning, JPM Beats Estimates


Investors are curious about how new regulation will affect bank earnings, but today's report from JPM should go some way toward allaying those fears.

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US stock futures point to a higher open Thursday, a much different picture than we thought we would see after the close yesterday. Moody's came out with a warning that the United States could very well lose its sterling AAA credit rating, and the futures initially sold off sharply on the news. However, overnight traders bought weakness in the futures and we are now set for a higher open.

Helping the bulls' cause were solid earnings from JPMorgan Chase & Co (JPM). The banking sector has been a huge drag on the market, and it's a wonder we have been able to bounce with its participation in most rallies. Investors are curious about how new regulation will affect bank earnings, but today's report from JPM should go some way toward allaying those fears. Even more important than the numbers themselves, though, will be the reaction to those numbers. While JPM is set for a higher open, it is not a huge pre-market move. If smart money sells JPM on this pop, it would be an ominous sign for the banks.

Debt-ceiling talks are also dominating the airwaves, with the debate between Republicans and Democratic leaders becoming more contentious. By all accounts, failing to raise the limit would have a catastrophic impact on the future of the American economy, and both sides of the aisle are attempting to play the blame game. Republicans are claiming the president walked out of a negotiating session, which Democrats are denying. Either way, the back and forth talks should create range-bound volatility, but I fully expect a compromise to be reached. Nobody wants that blood on their hands.

Gold is once again making new all-time highs this morning. There are several catalysts for gold and reasons to own the precious metal, including fear, safety, and inflation -- and all of those factors are aligning right now. With Fed Chairman Bernanke hinting at the possibility of more quantitative easing, investors are bracing for more inflationary pressures. Couple that with a still-deteriorating situation in Europe, where Italy and Spain appear to be the next PIIGS to succumb, and you have a recipe for higher gold prices.

Right now we are seeing some picturesque cup and handle patterns in the market that should forecast higher prices over the next few months. Retailers are looking good, with Abercrombie & Fitch (ANF) and Under Armour, Inc. (UA) perhaps the best setups at this stage. Both is hovering below all-time highs in a cup and handle, and should ignite sometime in the next one to two weeks. It might have to wait until after options expiration on Friday. Lululemon Athletica, Inc. (LULU) has made a monster run to all-time highs and now undergone its 2-for-1 stock split, but it could still run higher it seems after more digestion.

While the market gave back much of its early gains yesterday, most leading stocks held up better than the indices. Netflix, Inc. (NFLX) announced earlier in the week a more than 50% price increase for its streaming+by mail subscription package, and while many customers are upset about the change, it could in the long-run have a very positive effect on the financial health of the company. With a 20% float short, if the stock can continue to hold higher and get a push and hold above all-time highs, you should see another round of short covering send the stock on a strong move.

Apple Inc
. (AAPL) is making new all-time highs this morning as the company approaches earnings. Piper Jaffray recommended buying AAPL into earnings, which are expected to be blockbuster. The company also announce a China Telecom (CHA) deal that could net it as much as $9B.

This has been a difficult day trading environment and with all of the headlines flying around, it is a somewhat difficult time to feel confident throwing money long-term into momentum stocks in the market. Especially over the next two days ahead of options expiration, take it slow and don't take undue risk.

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Scott Redler is long AAPL, SPY, SLV
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