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The Pendulum is Moving... Slowly By: Charles Payne

|Includes: AA, AMD, INTC, WDC, YRC Worldwide, Inc. (YRCW)
Okay, it's a lazy Monday session in the middle of summer so all is well, right? Actually, the knots are tightening as we await earnings from Alcoa (NYSE:AA), which is expected to lay an egg and offer guidance chock full of doom and gloom. The good news is that we expect disaster from AA; the bad news is they have a habit of going beyond expectations, because they're good like that. Still, we've seen already today the market climb out of the red column as a sense of urgency is increasing to be in the game rather than watching from afar.

Panic swings both ways, and if we get some early earnings winners the pendulum swings back toward an urgency to buy stocks.

One thing the market needs is fresh leadership. Apple (NASDAQ:AAPL) just looks like its on cruise control and other big household names haven't been great leaders. There was an upgrade this morning on Microsoft (NASDAQ:MSFT) but does anyone see this old horseman as a leader anymore? Google (NASDAQ:GOOG) acts pretty well, and is oversold since they blinked now that the China saga is behind them. There are many great stocks oversold; however, they are not household names or so-called "bellwether" stocks. Also, right now there seems to be hot money floating around picking spots, but picking different spots, so one day metals are hot and the next day tech stocks are hot and the next day agriculture stocks are hot.

But these hot sectors come at the expense of the rest of the market. Part of that is a function of so many would-be buyers sitting this out from the sidelines. The Dow and other indices are right on the cusp of major moves through key moving averages the kind of breakouts that trigger much buying.

Let the Talk Begin
By: Brian Sozzi, Equity Research Analyst

The newspapers are rife with commentary regarding second quarter earnings season, which unofficially begins with Alcoa (AA) this evening. The overarching theme in everything I am reading is that second quarter earnings matter little to the debate as to whether the sell-off in stocks will continue. As usual, it's all about the forward outlooks, and in that regard, I have to admit I am not expecting much positive news. By positive, I mean I wouldn't expect a host of upward earnings guidance revisions to the full year given the numerous internal (executing in an uncertain environment) and external (international demand) risks that exist. What is the benefit to a management team that raises full year guidance only to miss expectations in the back half of the year? There is no true benefit, if anything maybe a short-term bounce in the stock.

Earnings for S&P 500 companies are projected to increase 25% to 30% for the second quarter, a much slower rate of profit growth than 1Q10 when corporate America was cycling quite the easy comparisons of 1Q09. Take for example consumer discretionary, where earnings are expected to increase a robust 50% year over year. I do not anticipate, for example, major upward revisions for retailers. Why? Well, many companies got ahead of themselves and invested in inventory for back to school and holidays, and there has been a pause in discretionary consumption from 1Q10. Now, retailers will be sitting on a ton of inventory pre holidays, forcing them to mark down the items to keep cash coming into the business. I believe discounting will be rampant for the back to school shopping season, and am interested to see how long initial prices hold on the first flows of merchandise at specialty apparel retailers. The first back to school flows arrive this week for many companies, and if discounting picks up in earnest next week, I would have to say brace for earnings warnings for the second quarter and soft initial third quarter outlooks when July sales are report in early August.

Risks for consumer discretionary companies:
* Pullback in equities catches up to consumption
* Inventory investment creates margin risk
* Overall expenses will be higher than 2009 (employee perks coming back, higher costs in supply chain, investments to fund future growth etc.)
* Currency risk

YRC Worldwide Gets a Jump
By: David Silver, Research Analyst

One of the most beleaguered truckers, YRC Worldwide (NASDAQ:YRCW), which was on the brink of bankruptcy at the end of 2009, announced its expectations for the second quarter today. Management indicated that the company would swing from a Q1 pre-tax loss of $53 million to a Q2 pre-tax profit of as much as $45 million. Earnings before interest, taxes depreciation and amortization (EBITDA), the company said, would be in a range of $35 million to $45 million. However, that excludes the operations of the Logistics segment that was sold to a private equity firm. Including the Logistics business (which will not be accounted for as a discontinued operation) EBITDA is expected to be in the range of $24 million to $36 million.

The company, which was hemorrhaging clients in the fourth quarter of 2009 and the first quarter of this year, agreed to sell its Logistics arm to Austin Ventures for $37 million. The entity will operate as a separate entity owned by Austin Ventures but due to the strategic partnership with YRC, clients will have access to the Chinese arm of the business. Tonnage trends have softened in recent months, but still continue to log year over year gains. Data for the month of May (the latest month with data available) showed that tonnage decreased 0.6% compared to April, which marked the first month to month drop since February. Compared with May 2009, SA tonnage increased 7.2%, which was the sixth consecutive year over year gain. In April, the year over year increase was 9.5%. Year-to-date, tonnage is up 6.2% compared with the same period in 2009.

The stock is up a whopping 70% on the positive news, however, in absolute figures, the stock is only up $0.08. The quarter was much better than we were expecting from the company, and is a sign that it's on the right track. However, it is not out of the woods just yet and could be hurt if the rebound in the trucking industry reverses course or even slows down.

Crude Awakenings
By: Conley Turner, Research Analyst
The price of crude oil is trading lower in early afternoon trading, very in tandem with the broader equity indexes. Oil traders and investors are now focusing on the start of second quarter earnings season as a way to gauge any progress being made in the broader economy. Should the earnings results prove to be strong, it would suggest economic improvement and by extension, an upbeat outlook for the future demand for oil. As such, there is a prevailing sense of anticipation by the oil bulls for the numbers to be supportive of a positive outlook.

Over the past few weeks the price of benchmark crude has declined markedly as numerous concerns emanating from Europe and China put market participants in selling mode. However, there is now a sense of relative calm with the next shoe to drop being from corporate earnings. Also adding some buoyancy to crude prices is the fact the most recent report from the Energy and Information Agency (NYSEMKT:EIA) indicates a draw on crude to be about twice as what was forecasted. Furthermore, while predictions have been that the hurricane season will likely be an active one, the immediate forecasts is for relative calm.
Techs Gain Momentum
By: Carlos Guillen, Research Analyst

Overall tech shares are performing well in today's trading session. The chip sector, as measured by the Philadelphia Semiconductor Index (SOX), has increased to 354, representing approximately a 1.0% rise from Friday's closing price. Some of the companies that are driving the index into the green today are SanDisk (SNDK) and Marvell (NASDAQ:MRVL).

Shares of SanDisk are trading nicely in the green, up over 6% after a UBS analyst upgraded his rating of the company to a Buy from Neutral, also increasing his price target to $55 from $46. According to the analyst, his checks indicate the company is obtaining new design wins related to mobile phones, and in general, he expects strong second half demand that combined with tight market supply should result in better than expected average selling price trends. Moreover, a deal with Samsung should provide for higher royalty income. Marvell was also upgraded to Outperform from Sector Perform at FBN.

This week should be very interesting since Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD) both report their results for the June quarter on Tuesday and Thursday, respectively. Results and comments from Intel should shed some light on tech business activity in some rather apparently shaky regions such as Europe and China. So far I believe the European weakness has been blown out of proportion, and fears of a steep slowdown in China have also been overplayed, but we'll see how the business is progressing from Intel's perspective. Inventories will also be of great interest as many are predicting an upcoming inventory glut, which so far I have not seen strong evidence of as management teams have been laser focused on keeping lean.

Disclosure: none