AMZN, BIDU, and SBUX - Earnings Disappoint! What Now?
I'm reminded of the 70's Chiffon margarine commercial that carried the tag line "It's not nice to fool Mother Nature!" But in place of Mother Nature I am inserting "The Street." The hits just keep on coming with Amazon, Baidu, Expedia and Starbuck's all disappointing with second quarter guidance. It appears that most companies are reporting sizzling first quarter results, with most easily beating the street, but are flunking with F- when presenting guidance going forward.
Again, I'm struck with the public's awareness as reported last week that there is a growing concern that the recovery is stalling or worse turning negative. Might seem that the Street is the last to embrace the "who is fooling whom" concept.
Here's a quick look at today's more anticipated reports:
AMZN - reported better than expected 1st quarter earnings. AMZN posted earnings of $0.18 a share beating estimates that called for just $0.09 per share. Sales totaled $16.07 billion, which represents a 22% gain year over year, but that just wasn't enough - analysts were looking for $16.16 billion. Revenue rose 26% in the U.S. and Canada and 21% internationally. Now for the disappointing part - the company is expecting 2nd quarter revenue in the range of $14.5 billion to $16.2 billion and the street is expecting $15.92 billion - ok so where's the bad news - ah, AMZN is looking for a 2nd quarter loss of $340 million to a profit of $10 million. In after hours trade the stock traded as high as 290.88 and as low as 257.75. As I write the blog the stock is currently at 266.30 - Ouch!
BIDU - reported a 40% increase in revenue over what they reported for the 1st quarter 2012. Q1 2013 total revenue was $961 million, but that was short of the $967 million the Street was expecting. Q1 2013 EPS was $1.00 versus the $1.03 EPS expected by the Street. The result - a nearly 6% drop on the stock price after hours. - Ouch II
SBUX- here again, Starbuck's quarterly profit rose 26%, they logged stronger sales in the U.S. than most of its competitors and its loyalty program is credited for attracting more customers in the U.S. and - wait for it - China! Still, all that strong news and positive reinforcement fell short of the Street's expectations resulting in the stock falling 3% in after hours trade right off of almost achieving new five- year highs during the day session. Ok, in all fairness I need to add that the company also announced that it is taking additional debt for dividends - what? This after commenting that the company is committed to both dividends and share buybacks and will follow the trend of EPS growth and free cash flow - what? It's not nice to fool with the Street!
Maybe before second quarter earnings begin a crash course in managing expectations should be given to the Street. Those signs of exhaustion just keep on growing, and even getting pushed further on Thursday as the broader indexes climbed for most of the session didn't produce any renewed energy. Decreasing volumes, momentum oscillators in overbought territory, and a strong feeling of complacency in the air how stinks of a classic "trap", one that is about to be snapped. Yesterday's analogy gains in validity today in that the way the market plays this out is to press on until the rollercoaster crests the top of the incline and pauses slightly while the rest of the cars in the train push it over an into a vertical decline.
In a previous blog I discussed the markets putting in larger corrections off of April highs. This remains in the near-term picture and should new highs (DJIA, S&P 500 and maybe Russell 2000) come first it would suggest more of a rough ride down as the correction rolls through. Again, a 10 to 20% down draft is not out of the picture, in fact the signs are pointing to the next leg down ready to begin at any moment.
The Russell 2000 continued to lead the charge reaching led the charge on Wednesday and pushed towards 945 (basis the RUT). The intraday chart continues to suggest some type of a pull back will occur and at this point I wouldn't look for much more than an intraday move. As previously discussed some of the broader indexes (RUT, DJIA, S&P 500) seem more determined to push to new highs before the expected correction kicks in.
The DJIA play some catch up today and the possibility that new highs will be seen before a larger correction kicks in remain for now. The pattern in progress could go either way and be well defined. The DJIA may just push to new highs before sliding back into a correction or a continued breakdown could be in the works now. This would gain strong support on a break below 14550.
The S&P 500 came within firing range of new highs on Thursday pushing above 1590 before loosing steam and dropping back to 1585. Again, it would be a mistake to consider the S&P out of the running for new highs. As previously discussed due to the exhausted nature of the current rally and the severe decline in volume I would not expect much if any follow through if new highs are seen.
Restated Dynamics (Support levels) for the Correction
DJIA - support at 14550 has been reached this week. There remains support at the 14500 to 14450 area, but eventually downside momentum will prevail with stronger support coming in at 14400 to 13750.
S&P 500 - Resistance at 1574 was breached, and I now suspect a shot at new highs before a larger correction takes over. Support is now at 1573, 1566, 1559, and 1550, with stronger support below between 1525 and 1475.
Russell 2000 - Resistance at 935 was tested today, at this point look for this index to make a run for 960 before all is said and done. Support should be found at 926, 920, 916, 912, and 906. Ultimately, it remains highly likely that it could get very ugly for the Russell 2000 with stronger support seemingly far below at the 850 to 820 area.
There isn't anything new to include for Gold, as it appears determined to reach resistance at 1487. A break with follow through would begin to leave the 1321 low on more solid ground as being the low for the near to mid-term. The intraday momentum oscillators remain overbought and the pattern in progress remains more corrective than impulse suggesting another leg down is waiting in the wings to begin. The risk remains to the downside for gold with another "slap down" type move breaking below 1300 not out of the cards yet. Intraday support should be found at 1423 and 1383. Resistance remains at 1455 and 1486.
Silver finally broke above resistance at 23.35 and in after hours trading has pushed above next resistance at 24.26. Working against this new found upside momentum would be the intraday momentum oscillator has pushed into extreme overbought, which keeps another leg down in the picture for now. Support is at 24.25, and 23.36 before dropping back to 21.90 and then 20 with next resistance at 24.98.
The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in Gold and Silver futures, GLD and SLV - gold and silver ETF's and several mining stocks.
Repeated from previous blogs -
Day Trading vs. Position Trading
Recent discussions have revolved around the necessity to toss out most if not all of your old trading ideas and join the ranks of algorithmic trading.
I advocate the use of overbought/oversold indicators and momentum oscillators to indicate where money is flowing, where an imbalance of buyers or sellers occurs and a "bull trap" or "bear trap" forms.
I believe that it only gets more confusing going forward as the market ignores "the writing on the wall" and continues higher with a false sense of security built on negative input. Price volatility has increased with the broader averages easily moving 2 to 3 percent and as high as 10 percent intraday. Many stocks have seen daily trading ranges average between 10 and 15 points, with one day being 15 points higher and the next being 10 points lower.
This type of action is the primary motivation behind my advocating switching strategies if necessary and focusing on day trading and less on position trading. I do believe there are discernable longer-term positions investors should consider and implement, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk.
I continue to recommend the best trading platform available to a broader range of traders from novice to expert. The Diversified Trading System offers a cost effective product that allows a trader to enter into the "chaos" and trade more effectively.
Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility. Automated stop-loss management and position sizing eliminates most of the problems most individual traders have. Day trading and position trading both require (actually demand) good risk management. Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades.
Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:
· DJIA future (e-mini available)
· S&P-500 future (e-mini available
· US$/Euro futures (e-mini available)
· GS (Goldman Sachs)
· AAPL (Apple Computer)
· GOOG (Google)
· LNKD (LinkedIn)
· NFLX (Netflix)
· 30-yr Treasury Bond future
· 10-yr Treasury Note future
· TLT (Treasury Bond Long ETF)
· TBT (Treasury Bond Short ETF)
Additional disclosure: I am short IWM, DJX,CMG