Earnings Are Still at the Forefront of This Move Higher

Investors continue to watch cautiously as the broad markets inch slowly higher. After the bell last night Apple may have provided an upside catalyst for stocks. They beat earnings handily and jumped more than 7% in after hours trading. The impact to the NASDAQ 100 index will be positive and the upside is pricing in about a 1% gain for the index. This solidifies the leadership coming from the technology sector with the indication of an open above the July high and near the February high. This is all part of the plan for the broad market indexes to continue the current uptrend.

Earnings remain the front runner for market stimulus as the week progresses forward. I wanted to look at some data points today that I found interesting relative to earnings and the current trend. McDonald’s announced better earnings and revenue than estimated. The stock opened down and closed off 2.1%. The move impacted the sector on the downside as it tests near term support. Volume was above average on the selling and shows the forward looking expectations are for McDonald’s to face challenges maintaining their upside growth. The restaurant and leisure sector chart shows a similar picture of testing the move higher. This a sector on my watch list relative to a test of the trend.

Verizon announced earnings on Tuesday and they were disappointing. The iPhone sales pushed cost higher as Verizon subsidizes the cost of the phones. The hope is to make it back on higher fees under the two year contract. AT&T has never realized those gains since the launch in 2007. Thus, the telecom sector was hit by the downside move in Verizon and AT&T today. Throw in RIMM and other challenges facing the sector and the question looms relative to the upside potential. On January 12th the sector broke from the three month trading range to the upside. On Tuesday it retraced back into the trading range and invalidating the breakout. The uptrend line off the November low is still in play for now, but a break of this line would create a potential trend change short term. Tight stops if you own the sector and short scans if you want to trade the sector.

Kimberly Clark missed earnings by two cents per share as rising cost cut into margins. There guidance for the year was lower as well stating again the higher cost projections. The company falls in the consumer durables sector and looking at a chart of the sector it has been trading sideways to slightly lower. The question as it relates to Kimberly Clark, does the problem exist sector wide relative to risng cost cutting into earnings. This is something to watch as well moving forward.

Apple beat expectations as everyone read and benefitted from who believed in the companies montra. They beat big on both the revenue and earnings per share. The outlook remains positive and the stock is trading up more than 7% heading into trading. Is this specific to Apple or is the technology/consumer electronics sector participating overall? The sector has moved up more than 17% since the December low. Thus, the upside in the sector has been one of the leaders for technology. The upside remains and at the current level the sector will breakout and challenge the February high. Technology has been one of the key leaders in the move higher.

Earnings have shown the struggles remain in some sectors while others are support the move higher. For now the trend remains to the upside, but there are warning signs throughout the broad markets. Take what the market gives, but manage your risk.