Earnings season continues with a flurry of titans reporting this week. Thus far we’ve heard from AAPL, AMZN, FB, GOOG, IBM, INTC, MSFT, and NFLX. Some big names but not within the titans list would be Pandora, Starbuck’s, Qualcomm, Puma Biotechnology, and Decker’s. The airlines have as a whole fared well thus far with American, United, Delta, Southwest, and JetBlue all reporting better than expected with American and United announcing buyback plans. There was also some hints that Virgin America could go public before the end of the year. The financial giants have all reported with JPM, WFC, GS, and C being well received and BAC taking one for the team.
Tuesday’s report from AAPL and MSFT did not create the fireworks that many were expecting and anticipating. AAPL waited until Wednesday to strut higher to new all time highs, but sustainability will be key and once the shine wears off, the sellers will jump in and profit taking will begin in earnest. MSFT on the other hand just keeps chugging along and while the company still holds the number one spot as the largest software producer – 2nd quarter earnings did little to motivate further buying to bring the stock above $45.
Wednesday was wrapped around FB, which initially didn’t seem that it was going to impress many. That, however, was short lived with the buyers (including short covering) swarmed in and drove the stock to an overnight high at $78. The stock finished on Thursday just below $75, which was still a 5% move on the day. The bad news would be the bearish candlestick pattern left on the daily chart suggests the gap created after Wednesday’s earnings report will likely be filled before the stock were resume the advance.
AMZN on the other hand doesn’t seem to be able to get out of its own way – at least that seems to be the perception from the street. The company reported a net loss for the 2nd quarter of $126 million compared to a $7 million loss for the same period last year. Revenue though has continued to rise and was reported up 23% year over year reaching $19.34 billion, which matched the streets estimates. Forward guidance from the company is for AMZN to end the 3rd quarter with a 15% to 26% year over year growth or somewhere between $19.7 billion to $21.5 billion.
Managing expectations though is always a tough job for any company and when those expectations get caught up in a computer driven all out drive to the upside – it becomes even harder for reality to sink in. I don’t think that AMZN is doing anything wrong – the company continues to spend via investing hefty sums into new products, which has put somewhat of a drag on operating expenses. Personally, I think Mr. Bezos and company are preparing for the future of AMZN and will ultimately reign supreme over the competition. I’m a huge fan of AMZN and believe the current string of quarter losses despite increased sales is indicative of a company in the process of restructuring itself to continue to be the number one in it’s sector. Having said that the price of the stock will suffer and will continue to be driven by trader’s expectations over the near-term versus those with a longer-term view. Heck I get that – and was out there shorting the stock after hours to make a quick profit with the best of them.
Wednesday’s gigantic move in Puma Biotechnology (PBYI) was a short sellers nightmare to say the least. Biotech stocks are not for the faint of heart and there is no pun intended there. Serious if you didn’t catch the move yesterday it was ‘eye-popping’. The stock was up just over 288% – wait for it – or $170 dollars reaching $229.20 at the close. After rising from $18 to $120 in 2013, PBYI suffered what many biotech firms suffer – a loss of investor confidence that a promising new drug will actually make through trials and receive FDA approval. Many biotech companies are made or broken on the success or failure of a new drug to treat the ever growing list of cancers that kill millions worldwide. Short selling may have gotten somewhat of a boost after Pfizer made a decision to amend its licensing agreement with Puma’s new breast cancer drug, based on the drug’s commercial potential was being overblown. Pfizer just this week amended the licensing agreement pushing the bulk of clinical trial expenses back onto Puma and in the process gave up a huge piece of any potential royalty payments. OUCH! Such is life in the biotech sector. Puma on Tuesday released data from a late-stage study for its new breast cancer drug showing patients receiving the drug saw a 33% increase in disease-free survival. Stay tuned to see how this all plays out as Puma gets ready to file for regulatory approval in early 2015 and enter a market that is heavily controlled by Roche’s Herceptin.
If nothing else folks, our markets do continue to be interesting – slow at times, crazy at others – but always interesting.
Speaking of the markets – another corrective phase may have been kicked into gear after Thursday’s disappointing round of earnings. The NQ reached another new recovery high overnight at 3991.25 and finished the US session down at 3965. The market remains overbought with the stochastic oscillator (daily) giving a sell signal after the close. The ES also pushed to a new all time high over night reaching 1985.75 before closing down at 1979.25. Here as well the daily stochastic oscillator has given a sell signal within the extreme overbought readings. The YM (DJIA) has not been able to follow the SPX or NDX to set new highs after reaching 17,085 (17,151 for the DJIA) last Friday. The Dow does appear to be in the initial stages of a correction with the daily stochastic following through to the downside after peaking last Friday. With the bulk of earnings now out, any remaining surprises may have little affect on the broader indexes. With the geopolitical situations around the globe still “hot” the markets may once again turn to selling as the world turns.
Trading opportunities have been limited thus far this week and seem to occur within the first couple of hours of trading. The long periods of “lull” end up leaving some good moves on the table since many turn to other things to fill the void. Gold continues to provide solid opportunities and I suspect that will continue at the battles rage on in Gaza, and the Ukraine – plus the never-ending battle of the US dollar versus the Euro.
The treasuries seem to have expanded their intraday ranges which keeps my attention there somewhat – the moves are welcomed and do provide a respite from the summer doldrums over in the equity markets. The 30-year bond continues to carry potential for an eventual move to the 140 area and that would remain in place unless a solid break below 135 occurs. Keep an eye of volumes – when this market gets thin it tends to appear “stuck” making sudden leaps and falls as volume moves in or out of the market.
Steer the course and don’t compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don’t be swallowed up by the chaos and false emotions swirling around. Remember it’s just a number.
Trading the number remains key to being able to reduce and separate the “noise” from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.
Opportunity continues to knock on our doors. While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.