Q3 Earnings Jolt Market - Ugly Until After Elections

George Brooks |

Futures trading indicate a sharp plunge at the open. Market reeling from Tech-sector earnings. Add the uncertainty of the election and fiscal cliff and you get “opportunity,” but at lower prices. This can get ugly, depending on “news,” but at some point present a great opportunity, this month or next. Stay tuned!

This is the 8th correction since the June 6 low that preceded a 16% rally in the S&P 500 until it ran into resistance first in mid-September, then on October 5 and again on October 18.

The weakness today reinforces my belief that we have entered a correction of greater magnitude than what we have seen heretofore.
As demonstrated by the rally at the close yesterday, money managers and traders will use lower prices to buy, but will back away if the selling is persistent enough to drive prices lower.

Both DJIA and S&P 500 bounced off support yesterday, the penetration of which I said would lead to lower prices. That support (DJIA 13,300 and S&P 500: 1425) will be broken today.

I see a choppy, volatile market through November 6, most likely a sideways-to-down trend.

Next support is DJIA 13, 090 (S&P 500: 1410)

Investor’s first read - an edge before the market opens
DJIA: 13,345.89
S&P 500: 1433.81
Nasdaq Comp.: 3016.96
Russell 2000: 820.52
(Tuesday, October 23, 2012 (9:09 a.m.)
Q3 EARNINGS: ( Discrepancy!)

Yesterday Bloomberg.com reported Q3 corporate earnings for 81 of 117 of the S&P 500 companies reporting beat estimates, 33 fell short. Today they report something different that of 127 S&P 500 companies reporting, 55 exceeded estimates and 72 “missed.” Look for 33 more to report today.

Friday’s plunge in prices was triggered by disappointing earnings in the “tech” sector, Google (GOOG), IBM, Microsoft (MSFT), and Advanced Micro Devices (AMD) led the pack. That is all it took for the Street to run for the hills.

The bear market in home prices savaged homeowners’ “wealth effect,” and consequently spending, a major contributor to the Great Recession (2007 – 2009)

Now home prices are rebounding, which will lead to an improvement in their perception of net worth, resulting in more aggressive spending as the economy gains traction.
According to property-data researcher, Zillow Inc., home values jumped 1.3% in Q3 from Q2 with 24 of 41 markets showing increases. Increases were the greatest in the 30 largest U.S. markets.*

FACEBOOK (FB - $19.00): (Earnings announcement after market closes)
Today: Trying to stabilize after last week’s jolt. Expect slow going in coming months, as more than a billion shares become eligible for sale from “lock-up.”

A break below $18.80 would indicate a further drop to $15 - $16. Based on FB’s price action and volume, it appears there are serious buyers in there, but not serious enough to move the stock higher at this time. Why buy when you can wait and buy at a lower price.
There is no way to know how much stock will be sold when it comes out of lock-up. Maybe the sellers will agree to limit sales at this level, maybe institutional buyers will come in to pick up a large block that comes on the market, the advantage being their large purchase wouldn’t move the stock.

I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21, I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38.

George Brooks
The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

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Symbol Name Price Change % Volume
STRM Streamline Health Solutions Inc. 1.91 0.03 1.33 8,077


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