Oops… Sorry Google! The early release of the earnings data sent investors scrambling on Thursday. The fact that they missed on both the top and bottom line didn’t help the outcome of the mistake. They halted trading in the stock to finish the release and fill in the missing parts, but the damage was done. Google dropped more than 8% in trading and took the NASDAQ 100 lower with it. What does this change short term? The sentiment towards earnings is the biggest issue. If we add the Microsoft and Chipotle earnings after the close it could shift how investors are seeing the earnings for Q3. Without getting into all the details on the released earnings we will summarize it in one word… GROWTH. The common theme among all the announcements has been slower to no growth in revenue. In fact, the numbers have been weak on the top-line and better on the bottom line. Revenue does matter for growth!
Does this shift in earnings bring to light the warnings relative to a slower earnings period for Q3? This was the concern heading into earnings and it will become a bigger concern if the current trend in the NASDAQ 100 stocks continues. Thus, look for this to become more of a stock pickers market short term. Watch how the earnings from Thursday impacts the indexes today. The downside plays are picking up some momentum again.
Crude oil has been holding steady near the $90-92 mark, but the supply data continues to show a build up in supply. That could push the price of crude lower short term. Goldman Sachs cut the 2013 price forecast for Brent crude oil. Speculation is alive and well with the issues in the Middle East still simmering. The consolidation pattern is setting up for a break lower and test of the October 3rd low.
Small caps are another sector to watch for clues short term relative to the trend. The downtrend is still in play off the September high. If IJR, iShares S&P 600 Small Cap Index can break the downtrend line at $77.70 with some volume it would be positive. However, if the move back below $75.80 develops look for a negative catalyst for the broad market indexes. A rise in small cap stocks show investors are willing to take on risk in their portfolio.
The yield on Treasury bonds rose back above the 3% level on the thirty-year bond. This invites the short plays back into the picture. However, if negative sentiment is building towards earnings and ownership of stocks… shouldn’t money flow towards bonds? Short play on the bonds are a high risk trade and if you are trading this use caution and stops on any positions.
Utilities followed through on the break higher from Wednesday as XLU climbed above $36.90. Pepco Holding was the leader on the upside break above resistance at the $19.50 level. Exelon, First Energy, PPL Corp, Entergy and others have made solid moves higher off support and look to test the previous highs from the summer.
Insurance (KIE) broke to a new high and has continued to climb on solid earnings from the stocks. Travelers was the latest to post good earnings on Thursday gaining 3.6% and breaking to a new high. This is a sector worth scanning and digging for the leaders.
Technology moved lower on the Google news and the after hours announcement from Microsoft is likely to push the sector even lower on Friday. Watch the support at $29.90 on XLK, SPDR Technology ETF. If it breaks below this level the downside could accelerate to the next level of support at $29. The semiconductor stocks are in a similar position with SMH, HOLDRs Semiconductors ETF in a confirmed downtrend. Software and networking sectors are in a downtrend as well. Watch the downside risk in the technology sector overall.
This remains a questionable market and one to protect your assets on the downside. Trades are developing on both sides based on the strength or weakness of earnings.