After the close Google (NasdaqGS: GOOG) reported their first quarter earnings and the company once again grew at an impressive double digit rate with profits up over 17%. Unfortunately, that was not enough for the street as Google’s stock is currently down over $30 per share in the after hours trading session. This is another example of a widely followed  company not exceeding analysts expectations as was the case with Alcoa (NYSE: AA). Alcoa reported their earnings earlier this week and also did not meet analysts expectations. Alcoa’s stock has lost over 6% of its value since reporting and based on the after hours action, Google may follow suit.

So now what? A flood of earnings reports will be coming out over the next few weeks and what has happened to Alcoa’s and Google’s stock price proves out my earlier concern over the weekend (blog). It is clear now that if companies are not demonstrating significant top-line growth, the street will be unforgiving. Hopefully this is not the beginning of a bearish trend in equities but also make sure to protect your profits.

~George

Alcoa (NYSE: AA) reported their earnings after the close yesterday and the market punished it today (chart). In Sunday’s (blog) I eluded to the fact that companies cannot afford to miss their mark and even though Alcoa had a very strong quarter with revenue coming in at $6b, the revenue number came in below analysts expectations of $6.3b.

So what could this mean for the rest of the companies that have yet to report? Bluntly, stocks can and will get hammered when expectations are not met. In fact, I believe that if companies do not far exceed expectations or do not provide strong guidance, their stocks can also be taken out to the cleaners such as what happened to Alcoa today. This could of very well been an overreaction in today’s price action of Alcoa’s stock, for when you read the highlights of their earnings report, this company is seemingly knocking it out of the park.

One thing is for sure, this earnings reporting season will not be for the faint of heart. Stocks seemed to be priced to perfection and if Alcoa is any indication, companies better blow out their numbers if they want to be rewarded by the street.

Have a good evening.

~George

Now that the U.S. government has averted a shutdown, all eyes will be on the 1st quarter earnings reporting season which begins in earnest tomorrow. One of the companies that can provide a snapshot regarding the overall health of the global economy is aluminum producer Alcoa (NYSE: AA) which will report on Monday after the bell. Also from the banking sector both JP Morgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) are schedule to report this week. Finally, tech titan Google (NasdaqGS: GOOG) is scheduled to release its earnings results on Thursday after the close.

Needless to say, we have a very important week ahead that will most likely set the tone for the rest of the companies due to report in April. Analysts are expecting yet another quarter of better than expected earnings results and with the way the markets have elevated over the past several months, companies cannot afford to miss their mark or provide tepid guidance.

Good luck to all.

~George

Despite oil surging past $112.00 per barrel today and the United States government potentially shutting down, the Dow actually finished the week slightly up (chart), while the S&P 500 (chart) and Nasdaq (chart) both finished the week modestly lower. I know this sounds like a broken record but the markets simply refuse to go down. Between the ongoing geopolitical turmoil in the Middle East and North Africa, crude oil making new 52 week highs, the tragedy in Japan and now a pending U.S. government shutdown, one would think we would be in the middle of a significant correction, right? I don’t completely get this however I do know better than to fight the tape or to stand in front of a freight train! My friends this has to go down as one of the most resilient bull markets in history! Next week kicks off first quarter earnings reporting season so I am expecting volatility to come back into stocks over the next several weeks.

Have a wonderful weekend 🙂

~George

Since the beginning of this indomitable bull market run one of the quiet leaders has been small-cap stocks. Typically small-caps are at the forefront in the beginning stages of a bull market, however this class continues to surge. Small-caps also carry a much higher degree of risk, hence much greater potential returns. Let’s look at chart of the Russell 2000 chart. At the market depths in March 2009 the Russell traded below 350 before bottoming out. Since then this bellwether small-cap index has returned an astounding 142%.

Even the most speculative equities that trade on the bulletin board continue to see inflows of significant capital despite having the highest degrees of risk. So what does all this mean? Some market historians believe that too much speculation in the marketplace is a tell tale sign of equities overheating. From my perspective, no matter what the metrics or statistics are, prudent risk management is essential in any market and never invest with money you can’t afford to lose.

All the best.

~George

There is an interesting development going on right now with the Dow Jones Industrial Average, the S&P 500, the Nasdaq and their small-cap brethren the Russell 2000. When you look at the charts of the Dow chart, S&P 500 chart and the Nasdaq chart, these indexes are close to or at a double top formation pattern. In short, a double top from a technical analysis standpoint is two successive rises to the same price zone. If the double top pattern holds true to form, this could mean a reversal of the upward trend and a subsequent pullback.

Now let’s take a look at the Russell 2000 index chart of small-cap stocks. Here the Russell 2000 established a double top pattern and then broke through it and has continued to move higher. It will be interesting to see if  the “Big 3” bellwether indexes can follow suit? What probably will be the deciding factor in whether or not the Dow, S&P and Nasdaq will breakout or for that matter breakdown, is the upcoming first quarter corporate earnings reporting season which is about to begin.

Have a safe and prosperous week.

~George

Despite worldwide turbulence ranging from the Middle East to the Far East, equities in the first quarter demonstrated how resilient they truly are. The Dow Jones Industrial Average chart had a whopping gain of 6.4%, the S&P 500 chart lifted 5.4% and the Nasdaq chart advanced 4.8%.

Is there a Q2 encore performance? Well so far so good! This morning the March jobs report was released and the economy added 216,000 jobs with the unemployment rate falling to 8.8%, a 2-year low. What’s more is that the hiring all came from the private sector which is a very encouraging sign. For the second straight month the private sector is responsible for the majority of new jobs. The pace of job growth is still relatively slow in comparison to the 450,000 jobs or so needed per month to make a real dent in the unemployment rate. Nonetheless, a much welcomed sight.

All eyes now are on the upcoming Q2 earnings reporting season. The pundits are expecting corporate earnings as a whole to contract a bit, however with the private sector showing signs of life, just maybe corporate earnings are continuing to grow and hopefully from the top-line. Earnings reporting season is most always a very volatile period and if you are long this market one way to protect your holdings is by initiating a protective put a.k.a. a married put on your holdings or on the indexes. Protective puts act like an insurance policy on your long position(s) and defends against a drop in the share price of an underlying stock or index. This strategy is something to consider especially during times of uncertainity and volatilty.

Have a great weekend 🙂

~George

Don’t look now but the end of the first quarter is upon us which also means first quarter earnings reporting season is right around the corner. This could be the next significant market catalyst in determining whether or not equities can make new 52 week highs? As impressive as this 2-year bull run has been, at some point and time market valuations will have to align with what corporate America can earn rather than relying on the extraordinary support of the federal reserve.

In this type of environment it is essential to identify companies with top-line growth as well as avoiding companies that are experiencing operating margin contractions. This will not only be quite the balancing act for the federal reserve as to when to let the markets fend for themselves, but also for investors and how diligent they are when making investment decisions.

Good luck to all.

~George

Dow chart up 3.05%, Nasdaq chart up 3.8%, S&P 500 chart up 2.7%. For market technicians another highlight is that all three indexes are trading above their 50 day moving averages. The short sellers must be asking how is this possible considering all of the headwinds here and abroad? I don’t even think the bulls expected this type of market rally considering the economy and the recent geopolitical conditions. This indeed must be one of the most teflon markets in memory as investors keep riding this seemingly unstoppable bull.

Next week there will be no shortage of economic news with personal income and spending released on Monday, followed by consumer confidence on Tuesday and all eyes will be on the non-farm payroll report on Friday. In addition, the first quarter is ending this upcoming week and the markets could be affected by the end of quarter window dressing. Window dressing is a strategy used by some mutual funds and portfolio managers to improve the appearance of their funds performance. This occurs when fund managers sell stocks with large losses and purchase momentum stocks near the end of the quarter.

Needless to say we should be in for a very interesting and potentially volatile week ahead.

Have a great weekend 🙂

~George

Over the weekend we covered the Volatility Index (Chicago Options: $VIX chart) and how this index has almost doubled in price over the past month due to the ongoing tumult in the world. This metric is best known for investor sentiment as it pertains to fear and market expectations. Seemingly the markets are becoming more confident as the nuclear risks in Japan appear to be abating, hence the VIX chart is now below 20 once again. Over the past four trading days the three leading indexes have all rebounded respectfully with the Dow actually moving above its 50 day moving average. Dow chart, S&P 500 chart, Nasdaq chart.

Equities continue to demonstrate remarkable resiliency despite the geopolitical climate we are in and the unfortunate tragedy in Japan. Having said this, I expect to continue to see markets very volatile as almost everyone is paying close attention to the headlines and outcomes. As investors and especially in times like these, patience and discipline is always one of the best policies.

~George