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Daily Blog -01/27/09- 3:06 P.M.

Upside Bias in the Churn

Stocks are still churning sideways but there appears to be an upside bias of higher lows. It is encouraging to see buyers coming out to play in spite of negative earnings news and a new record low in consumer confidence. The U.S. government's bond sale today was a big success and treasury bill prices are rising, pushing yields lower.

Consumer confidence was the big story today since we won't hear much from the two-day FOMC meeting until it ends tomorrow. Consumers are growing more concerned. The confidence survey fell to a new record, all-time forty-year low in January with a reading at 37.7 versus 38.6 in December. Almost 48% of consumers believe that business conditions are "bad". Weighing on consumers is the constant decline in the value of their homes. Standard & Poor's just came out with data showing an astonishing 18.2% decline in home prices for the 12 months ending last November.

Earnings season is chugging along and the results from today's headliners were mixed. Chemical company Ashland (ASH) reported this morning and missed estimates by four cents. Management said they continue to see challenges due to the global recession but declining raw material costs could help their profit margins in the second quarter. Shares of ASH were off 1% and still flirting with a breakdown under short-term support near $9.00.

Rival chemical company DuPont (DD), a Dow-component, reported earnings and also missed estimates by four cents. The company lost 28 cents a share versus estimates for a loss of 24 cents. The company issued an earnings warning for the first quarter of 2009 and guided forecasts toward the $0.50-0.70 cent range versus analysts' estimates of $0.72. Shares of DD temporarily fell under support near $23.00 but they have bounced back to almost unchanged.

Technology firm EMC reported earnings this morning and bested estimates by one cent. Management expects that IT spending will continue to slow down but are hopeful that conditions will improve the second half of 2009. The stock is off 2.3% at $10.75.

Lexmark International (LXK) reported earnings results that were inline with expectations. The printing and imaging solutions provider actually guided earnings estimates higher for the first quarter, which is really surprising. LXK now expects profits in the 65-67 cent range versus estimates of 62 cents. The stock is still not moving and remains stuck in the $24-26 trading range.

One of the best performing industry groups today is coal thanks to an impressive earnings report from Peabody Energy (BTU). The company beat estimates by 37 cents. Wall Street was looking for a profit of 74 cents a share. Revenues were up more than 60% to $1.88 billion. BTU said that in spite of the short-term difficulties the long-term prospect for their company and coal use is strong. Shares of BTU are up 11.5% at $26.60 and breaking out from a three-week consolidation. Meanwhile shares of the KOL coal ETF is up 4.2% and look poised to breakout over short-term resistance at $14.00.

The earnings parade continues after the bell. Some of the companies reporting tonight are transport company CHRW, biotech firm GILD, railroad giant NSC, semiconductor company RFMD, medical-device maker SYK, financial services, bank and broker E*Trade (ETFC), and troubled Internet firm Yahoo! Inc. (YHOO). YHOO will probably get most of the press as Wall Street is unsure what to make of the company's new management.

At the moment the DJIA is up 54 points (0.6%) to 8171. The S&P 500 is up 8 points (0.9%) at 844. The NASDAQ composite is up 15.7 points (+1%) to 1505. The small cap Russell 2000 is up 4.8 points (1%) near 455.

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