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.
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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Life appears to be grand for the bulls the past couple of days. Yesterday’s action appears to be strong in terms of closing prices, but was it as strong as everyone thinks? A year ago, I would have been excited to see such a rally. Today, I’d like to analyze it just a bit before waiving the all clear flag.
From a simple resistance/support view, it does appear by a healthy margin that the S&P 500 has broken above the 1330 level and is making a march potentially to 1400. The markets gapped open yesterday and never looked back.
Let’s take a look at a daily SPY chart since it typically follows the S&P.
On face value, it appears that the SPY too has broken above resistance and is headed toward the 139 – 140 level. But I’d expect a pullback, and potentially a sharp one at that. Take a look at yesterday’s volume for the SPY. A couple of things to note. First, yesterday’s volume was lower than the 20 day moving average volume. Next, look at the past three trading days. There appears to be a steady decrease in volume which may signal some tired out traders. The lack of volume might be a cause for concern. In any event, before the all clear is sounded, I’d like to see if this rally does indeed have legs. The first step in seeing if this rally is valid I think is to have a retest of that 1330 level and having it hold. If it fails, it may just be one of these two to three day sharp rallies nested in a bear market. Then again these markets have been very news driven the past couple of weeks it may be that no one has much of a clue about what’s going on.
Futures are marginally higher this morning. Let’s see if they can hold through the opening.
It looks as if the shareholders may have a small victory on their hands as JPMorgan (JPM) was in talks with Bear Stearns (BSC) on Sunday to raise their bid from a symbolic $2 per share to a somewhat more reasonable $10 per share, valuing the merger at around $1 billion. Some will still argue that the BSC building is valued anywhere from $8 – $12 per share leaving the core of the BSC business worthless, which may or may not be the case. JPM and BSC are also discussing the purchase of approximately 35% of BSC’s shares in an attempt to fend off any battle between JPM and BSC’s shareholders.
So much for Sundays being a day of rest, eh?
Yes, that’s two dollars per share. This is not a typo.
Source: CNBC
this case, with GE being the 4th largest, multi-faceted company, any reduction in estimates can be described as a general weakening of the economy. With their miss and revised forecast, analysts are now confirming that the US is in a recession.
Over on the Option Addict, some traders were signaling GE as the company to watch in order to push the markets higher, and with good reason. Here’s a graph of GE again; however, notice the blue line overlaying the black. The blue line is the Dow ($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.