No trades taken yesterday due to other commitments.  I was around in the morning and could have traded a perfect short on Visa but was unable to pull the trigger.  I’ve noticed that happening more and more as of late which reminds me of my trading fears about 3 months ago after the markets crashed about 20%.  But today’s another day and my account continues to grow from deposits.  Need to work on fear… must reread Trading in the Zone…

Crude is now over $125 this morning.  Be very careful.  As oil goes higher, there’s very little chance the markets can follow.  AIG also missed earnings last night which has helped put a damper on the markets this morning.  Futures are down about 90 points with fair value around positive 40, for a net difference at the open of about -130.  I don’t forsee this being a pretty day.

This morning, PPI and PPI Core numbers were released for the month of March. PPI came in at 1.1%, about 0.5% higher than estimates. PPI Core came in line with estimates at 0.2%. For a quick recap of PPI and PPI Core, here’s a link to the PPI homepage at the Department of Labor. Remember that PPI is a measure of inflation and PPI Core is a measure of inflation sans food and energy. What does this mean? From my point of view, food and energy costs are rising somewhat rapidly since core rates remained the same from February to March.

Crude futures earlier in the day rose to $113.90 and settled near that level today.

Perhaps it’s a lack of experience, but if two of the most basic needs for the US population, food and energy, are increasing as a pretty good rate, as well as crude and gasoline (closed near $3.35 per gallon today) are rising as well, why is the market taking it as good news? If people are forced to spend more on food and energy, shouldn’t that result in less money available for spending, resulting in a further slowing of the economy?

Earnings Report

Washington Mutual (WM) reported a loss of $1.40 per share while Intel (INTC) came in at $0.25 per share. WM’s earnings report was in line with estimates from last week and as a result are up about $0.20 in after hours trading. INTC, while reporting earnings in line with estimates, reported margins higher than expected. It also appears that INTC is reporting earnings for the rest of the year to remain unchanged which is helping to offset any ideas of a slowdown with the chip maker. INTC’s currently up about $1.75 in after hours trading as a result.

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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EMC Corp. (EMC) reported another outstanding quarter, reporting $0.23 / diluted share vs. $0.17 by analyst estimates.  The quarter includes a $0.06 / share gain on the sale of shares of VMWare to Cisco.  Adjusting for the sale brings EMC’s quarter in line with expectations.  EMC has authorized an increase in their buyback program from $1B to $2B, or roughly 100 million shares at the current price.  The following is their press release:
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