After a quick tease to the upside on Monday morning, U.S. markets dipped drastically as numerous factors converge this week to keep investors on edge, the most immediate of which - Italian elections - likely played a role in the afternoon drop. Initial indications from Italy were that the party of economic reform would hold a large percentage of the government after the results were known, but later reports hinted at an impasse, evidence that the potential is there for Burlusconi's party of "Bunga Bunga" could return to power. Given the already unstable stance of Europe's economic recovery, investors world wide are hesitant to entertain any event that could grow that instability moving forward. Regarding Italy, specifically, investors care because the economy there was not too far off from being as big a mess as Greece's before reforms were put into place, and a return to the ways of old could lead to even bigger concerns throughout Europe as a whole.
That said, it's unlikely that Italian elections alone sparked Monday's broad market sell-off, but they certainly played a part.
More likely it's the gridlock in Washington that had investors anxious at the week's open, and this week could be a volatile one if a budget deal is not reached. The prospects of drastic cutbacks and furloughs are real and investors - who are fully aware of the impact a slash in defense spending had on the fourth quarter GDP numbers - may be concerned over the impact another round of such cuts could have, especially given the ancillary signs that consumer spending may be on the decline, too. As described over the weekend, however, those signs could be proven or dispelled once the notable group of retailers slated to report earnings over the coming days offer their own guidance.
Investors will also be paying close attention today to Fed Chairman Ben Bernanke's two day date with Congress. Much of last week's mid-week drop was attributed to statements from the Fed that stimulus measures long in place since the depths of the recession may be pulled back earlier than previously indicated and Mr. Bernanke's confirmation - or not - of those notes can significantly impact the week's trading trends, especially given recent developments in Europe and the uncertainty of our own budget situation.
Definitely a lot to ponder right now, but conditions look to be more shaping up to support a bearish move rather than a bullish one, although pre-market trading indicated that a modest rebound could materialize on Tuesday morning. Bear in mind, though, that Monday's open looked bullish, too.
As the big news plays out, there are always a few individual stocks and stories to keep an eye on. Here are just a few of them for 26 February, 2013 ...
Retailer Reports Can Make Or Break Theories Of Slowing Consumer Spending
As mentioned during the open, this week's round of retailer reports can either confirm or dispel cautionary comments revealed by Wal-Mart (WMT) officials earlier in the month that consumer spending may be dropping off quickly. Two notable retailers report on Tuesday, with Home Depot (HD) already announcing a nice earnings beat, with a boost in its dividend rate and a share buyback also thrown in for good measure. Guidance for 2013 looked good, too, alleviating any concerns - at least for the time being - of a slowdown in consumer spending. Early indications also have it that Saks (SKS), too, will beat earnings, setting the tone for this week's report.
Although important to the retailer sector, neither report will provide a broad-base look at how retailers are carrying on. Home Depot, for instance, has a cliche clientele of the "do-it-yourselfers" while Saks targets more higher-end consumers who are not likely to be as effected as Wal-Mart shoppers who are more likely to feel the pain of lighter paychecks resulting from the tax hikes of 2013. That said, these two can set the tone for the sector, at least for the day.
Healthcare, Biotech, Pharmaceutical:
Amarin Files Supplemental NDA
Amarin Corporation's (AMRN) is already an earnings story to watch this week, but the announcement on Tuesday morning that the company had filed a supplemental NDA with the FDA for Vascepa in the anchor indications should also attract the interest of investors. This supplemental filing, while expected, confirms previous milestone and timeline expectations put forth by management and - assuming approval - should boost the overall sales potential of Vascepa, as its target market would significantly expand with the Anchor indication. The time frame for the Anchor approval is not immediate, however, even though the product is already approved. As noted in Tuesday's release, the company expects to hear back from the FDA as to whether or not the submission was accepted for review. Government agencies are not exactly known for their quick work, so it should always be assumed that given time frames are likely to be met at the last minute, so investors should not necessarily take the fact that the product is already approved for a similar indication as cause for an expedited result. That said, it always helps that the product is already on the market and there have been no safety concerns noted.
Later in the week, the company's earnings report and conference call will be worth paying attention to. Investors will be looking for comments relating to the never-ending saga of Vascepa's New Chemical Entity (NCE) status, while any insight into how the recent commercial launch is coming will also be welcomed. Expectations were tempered by both management and financial media pundits earlier in the year in regards to the launch, so unless very encouraging guidance is given, AMRN shares - which have traded for weeks in a range of eight to nine bucks - are likely to be un-moved as a result of the report. Still a hot story to watch, though.
Had the company failed to meet this milestone within the previously-expected time frame, shares may have suffered a bit as investors may have started to doubt management a bit as some sideline pundits - whose predictions about a delay in the commercial launch were wrong - would most likely have pounced on the opportunity to question management's tardiness. Tuesday's report keeps such events at bay.
TrovaGene Pullback Could Turn Into Entry Point
Chasing a fast-moving stock rarely translates into the percentage gains that can be had by finding a particular story before it becomes a rally, but waiting for an opportune pullback can offer investors who liked the story and potential, but missed the earlier run, a second chance to take a look. TrovaGene Inc (TROV) may fit that scenario right now as shares closed the day Monday down by nearly fourteen percent after having traded even lower earlier in the day. Volume, although well over twice the daily norm, was not at levels that would indicate a broad sell-off. In fact, given the swift triple in price that the stock has experienced since last fall, some profit-taking should still be expected, especially given the bearish economic indicators and news developments that are embracing the market as a whole right now.
TrovaGene recently announced its updated plans and milestones for 2013 and investors considering jumping into the story may find this week's drop as a potential entry point, especially if shares drop lower still. It's rare when a bottom can be predicted, especially when trading stocks speculative in nature that are susceptible to large percentage moves based on little or no news flow, so it's important to emphasize that going 'all in' on the first trade may not be the best idea. Investors looking for entry points often like to 'average down' - which could otherwise be known as 'buying the dips,' although if news and events has already taken a stock higher, 'buying the dips' sometimes results in 'averaging up.' Profits are the name of the game, so pre-planned entry and exit points are important and - as always - any large spikes should be used to bank at least some profits, because unexpected bearish factors can influence broad trading at any given time - Italian elections, case in point.
TrovaGene has developed a pipeline of diagnostics that are able to detect certain cancer types through simple urine samples and as reported earlier in the month, the company indicated that validation of certain of these tests is progressing smoothly. The first commercial availability of its products is, in fact, expected as soon as within the current quarter. Validation for the urine-based HPV carrier test, specifically, is expected to wrap-up soon, while other clinical trials continue at points around the globe.
As discussed in a previous write-up, additional commercial launches are slated for the coming quarters, potentially including diagnostics resulting from collaboration with the University of Texas MD Anderson Cancer Center, a highly regarded entity in the field of cancer research and treatment.
No news has been released in conjunction with the drop. One to keep an eye on.
Yum! Brands Slips As Suppliers Cut
Yum! Brands (YUM) shares slipped again on Monday, in line with broad market movement, as reports started to surface that the company was cutting ties with retailers related to the Chinese Chicken scare of late 2012 that has had a significant ripple effect on KFC sales both last quarter and this. YUM had already guided lower, even before the effect of the tainted chicken fully hit earnings and the supplier re-organization should be viewed as a relative non-factor in the overall picture as the company looks to streamline its processes and rebound its KFC sales. YUM has also launched a campaign in China to reinvigorate interest in its brand and - given the easily-forgotten nature of consumers - it's likely that Chinese Chicken concerns will be as much a thing of the past as the "Bare Naked Ladies."
Given the fact that YUM's brands are among the strongest in the fast food industry and are still entering emerging markets worldwide, any dip resulting from the chicken scare or from a broad market downturn could provide investors looking at the long term or retirement portfolio an opportunity to accumulate at a discount.
McDonald's (MCD) is another one to keep an eye on in the sector, although for a different reason. Investors have liked what they've seen from the company in terms of earnings, guidance and plans and shares responded accordingly, even bucking Monday's bearish trend with a price rise of nearly a percentage point. It helps, too, that UBS initiated coverage of the company with a "Buy" rating and a price target of $100 last month and MCD shares have inched closer to that mark of late. MCD shares could be susceptible to any market retreat, but as is the case with YUM, any pullback could provide an opportunity for investors looking for safer, long term or IRA picks, to obtain a few shares at a relative discount. Worth watching.
Roundup: Although most of the major international markets traded lower on the day Tuesday, indications are that US markets could see some green at the open. As mentioned above, though, the same scenario played out on Monday before stocks took an afternoon swan dive and closed two hundred points lower. It's unlikely that we'll see a whole lot of sustained buying leading into the budget cuts and Mr. Bernanke's words before Congress over the next couple of days could hold heavy weight. The Italian elections, too, are creating fears again and the situation should be watched. It's not that investors are afraid of good times and the "bunga" atmosphere, but it's a sign that voters have quickly forgotten the events of the past that for a time sparked predictions that the eurozone was on the verge of disintegrating. With overall growth on that side of the pond not predicted for about as long as it'll take for the words "Mets" and "possible contention" to be used again, we don't need any more reinvigorated eurozone fears to stunt any ongoing recovery.