General Electric (GE) reported earnings this morning, missing analysts estimates by 7 cents (44 v. 51 estimate). While an estimate miss is never great, lowering yearly estimates can be a sign of slower times. In
this case, with GE being the 4th largest, multi-faceted company, any reduction in estimates can be described as a general weakening of the economy. With their miss and revised forecast, analysts are now confirming that the US is in a recession.
GE’s drop this afternoon was the largest it had ever seen since the crash of 1987. But what’s even more shocking isn’t necessarily the price drop but the volume. On average, GE trades around 60 million shares per day. Today? 366.1 million. How many shares were traded on the NYSE at the end of the day today? 1.26 billion shares. 25% of all share transactions involved GE today (thanks to the Shadowtrader for pointing this out). This miss is not to be taken lightly.
Over on the Option Addict, some traders were signaling GE as the company to watch in order to push the markets higher, and with good reason. Here’s a graph of GE again; however, notice the blue line overlaying the black. The blue line is the Dow ($INDU on Prophet charts). Note the similar movements by both lines. Time and time again, the Dow will eventually diverge on GE. In this case, if the same situation were to hold true, it would be expected that the Dow has at least another 300-400 points of downside before settling down. With the good correlation between the two, it’s not unlikely to see a retest of recent lows.
Need another potential reason to see that the bottom has yet to form in the markets?
Take a look at the VIX over the past year. Notice the upward trending line. You should see approximately 4 retests of that line over the past year. In each case, the VIX has managed to test the 30-32 levels before retesting that trending line. If the same pattern hold true this time around, today’s bounce off that line could signal a bullish (and therefore potentially bearish) move in the VIX back to the 30-32 level near the end of May.
Does all of this information mean we’re headed back down to the lows of January? Of course not. Any number of items can occur at any time. These markets are very news driven right now so it’s almost impossible to predict what’s going on. I will say that I don’t believe we’ve seen the bottom just yet. I’d like to see that retest of the January lows first.
Our new design is now live! It’s a bit more functional than the previous design and the addition of the video section is nice for those lazy days when one needs to kill some time. In the future, it’s definitely a nice section to place videos created specifically for the blog but for now we’ll have some fun with it. Please note that while the design is live, it isn’t fully operational. There will be a few bugs here and there and some of the color scheme will be changing slightly for ease of readability and such. In time, I’m hoping to have a real professional come in and tailor the site to my exact needs, but for now I think this’ll get us by. Any comments, suggestions, questions, etc. are always welcome so feel free to contact me via this thread or the contact page. Have a great evening!
Oil inventories reported a draw down of 3.2 million barrels versus an estimated 2.2 million barrel increase in crude inventories for last week. The result has been oil racing upwards, briefly touching $112 a barrel and retreating near $111.70. The unexpected draw down, in connection with the higher than expected inventories reported earlier this morning, has driven the markets down about 80 points. Market breadth is decidedly negative so far with the NYSE and Nasdaq volume declining at a 3 to 1 rate.
Today’s action started off strong but slowly weakened throughout the day as earnings season was on the horizon. Alcoa reported a few minutes ago at 44 cents per share vs. a consensus estimate of 48 cents per share. Currently, Alcoa’s halted pending further news regarding their earnings report.
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This weekend’s theme is all about the birthdays and wishes. Well, maybe not. It’s actually very difficult to relate a birthday theme to the world of finance. Then again, I’m also up early in the morning as the dog’s ready to romp around the dog park.
What do I want to be when I grow up?
- I’d like to be as technically advanced as Slope of Hope. Look at this week’s video.
What do I want for my birthday?
- I wouldn’t mind taking in some financial shares. Citigroup may be at the point of reversal, but it might take a bit more time to figure it out.
- I want the housing market to stay relatively weak for another year. It’d be nice to purchase a house after graduation, especially seeing as how Florida’s one of the worst for subprime foreclosures. Cheap homes anyone?
- Stock as a kid. I wish my parents were more financially responsible, but I guess that’s the mission of their offspring. Retain the good ideas, break the bad ones.
If I had one wish…
- I’d like to see some big returns this week. Need a solid win to be quite honest.
That about does it for this weekend’s reading folks. Couple of things to note. First, I’m still taking requests for blog and other product reviews. Currently, there are two folks in the queue so hurry and sign up now. Second, in an attempt to drive as much traffic to my site as possible, I will now be posting cute pictures of furry animals. Yes, this is an evil and underhanded thing to do, but it must be done.
this case, with GE being the 4th largest, multi-faceted company, any reduction in estimates can be described as a general weakening of the economy. With their miss and revised forecast, analysts are now confirming that the US is in a recession.
Over on the Option Addict, some traders were signaling GE as the company to watch in order to push the markets higher, and with good reason. Here’s a graph of GE again; however, notice the blue line overlaying the black. The blue line is the Dow ($INDU on Prophet charts). Note the similar movements by both lines. Time and time again, the Dow will eventually diverge on GE. In this case, if the same situation were to hold true, it would be expected that the Dow has at least another 300-400 points of downside before settling down. With the good correlation between the two, it’s not unlikely to see a retest of recent lows.
Take a look at the VIX over the past year. Notice the upward trending line. You should see approximately 4 retests of that line over the past year. In each case, the VIX has managed to test the 30-32 levels before retesting that trending line. If the same pattern hold true this time around, today’s bounce off that line could signal a bullish (and therefore potentially bearish) move in the VIX back to the 30-32 level near the end of May.