PowerTrend Brief: More Earnings Mean More Volatility and Long-Term Opportunity?

Last week was frenetic in terms of companies reporting their quarterly earnings, economic data for both the United States and abroad — and, of course, the second presidential debate. While there were some positives, the overall picture continues to be mixed with the manufacturing economy slowing and concerns rising about the technology sector following weak results from Intel Corp. (INTC), Advanced Micro Devices (AMD), Microsoft (MSFT) and Google Inc. (GOOG) to name a few. Other concerns were raised by Chipotle Mexican Grill (CMG) and McDonald’s (MCD), as well as missed revenues at both General Electric (GE) and Honeywell (HON). One positive surprise from last week was the stronger-than-expected September housing starts data, and that benefitted subscribers of PowerTrend Profits.

While the stock market started the week out favorably, the last two days of the trading week saw most of the gains given back in the S&P 500, while the tech-heavy Nasdaq Composite Index plummeted, falling 1.3% for the week. Quarter to date, all three major stock market indices are in the red, with the Nasdaq down the most with a fall of 3.5%, while the S&P 500 and Dow Jones Industrial Average are down 0.5% and 0.7%, respectively.

As I wrote in the recently released November issue of PowerTrend Profits, the combination of slowing growth for both the economy and corporate earnings left little room for additional upside in the stock market, given the near peak valuation on a price-to-earnings basis. If corporate earnings continue to miss, as I expect they generally will, that means more downside for the major market indices and pain for those investors who are not positioned properly. In recent weeks, I’ve recommended more conservative, long positions in ETF PowerTrader, combined with select inverse exchange-traded funds (ETFs) to capitalize on market weakness. The quarter-to-date performance of the market has generated positive returns for inverse exchange-traded funds (ETFs) and ETF PowerTrader subscribers.

As we head into the next five trading days, the pace of corporate earnings reports will only increase, with more than 1,200 companies slated to share their quarterly results. That’s up significantly from the 430 or so companies that reported results last week. A number of restaurant companies — Buffalo Wild Wings (BWLD), Cheesecake Factory (CAKE), Panera Bread (PNRA), and Pilgrim’s Pride (PPC) to name a few — will be sharing their results. I’ll be listening for commentary to confirm the food inflation forecast shared by Chipotle last week. Following weaker-than-expected revenues from both GE and Honeywell, not to mention its own recent long-term forecast reduction, many investors will be reacting to Caterpillar’s (CAT) near-term forecast that described weaker-than-expected global economic conditions when it reported its results this morning. Commentary from Hasbro (HAS), Coach (COH), Skechers (SKX), and Amazon.com (AMZN) should offer a glimpse into consumer spending for the upcoming holiday season.

Other high-flying companies that will garner traders’ attention this week will be Apple (AAPL). Not only will the company report its September quarter results, at which point we’ll know if the iPhone 5 is a blockbuster or a stand-up double, but Apple is holding an event this Tuesday, where speculation holds it will introduce several products. Of those expected, the one most people are waiting for is the iPad Mini. Other closely watched, if not highly shorted, companies reporting this week include Facebook (FB), Angie’s List (ANGI) and Netflix (NFLX).

Economic data will be rather light this week and what we do get will be closely watched. Several data points on housing will be scrutinized to see if last week’s strong September housing starts have legs. Given the Fed’s new round of stimulus announced in August, odds are this week’s Federal Open Market Committee (FOMC) rate decision is a non-event. Durable orders and 3Q 2012 gross domestic product (GDP) reading, on the other hand, will be closely watched and are likely to weigh in on the pending 2012 presidential election.

While the week is likely to be a bumpy one, given the sheer volume of data that will be thrown at us, the savvy investor will be using that data to look for long-term buying opportunities.

Sincerely,

Chris Versace
Editor, PowerTrend Brief

The Week Ahead

Here’s a more detailed look at what data we’ll be getting this week:

Monday, Oct. 22
Peabody Energy (BTU)
Caterpillar Inc. (CAT)
Hasbro Inc. (HAS)
Nielsen Holdings N.V. (NLSN)
PetMed Express, Inc. (PETS)
SunTrust Banks Inc. (STI)
Texas Instruments (TXN)
Veeco Instruments (VECO)
VF Corp. (VFC)
Yahoo! Inc. (YHOO)

Tuesday, Oct. 23
AK Steel Holding (AKS)
Amgen (AMGN)
ARM Holdings PLC (ARMH)
B/E Aerospace, Inc. (BEAV)
Broadcom Corp. (BRCM)
Buffalo Wild Wings Inc. (BWLD)
Coach Inc. (COH)
Crane Co. (CR)
E.I, du Pont de Nemours and Company (DD)
Facebook (FB)
Hanesbrands Inc. (HBI)
Harley Davidson, Inc. (HOG)
Idex Corp. (IEX)
Illinois Tool Works (ITW)
Juniper Networks (JNPR)
3M Corp. (MMM)
Netflix Corp. (NFLX)
Norfolk Southern Corp. (NSC)
United Parcel Service (UPS)

Wednesday, Oct. 24
MBA Mortgage Index (Weekly)
New Home Sales (September)
FHFA Housing Price Index (August)
FOMC Rate Decision (October)
Akamai Technologies (AKAM)
Angie’s List (ANGI)
Boeing Co. (BA)
Cheesecake Factory Inc. (CAKE)
Citrix Systems Inc. (CTXS)
Delta Airlines (DAL)
Dr Pepper Snapple Group (DPS)
F5 Networks (FFIV)
Fusion-io Inc. (FIO)
Corning Inc. (GLW)
Kimberly-Clark Corp. (KMB)
Eli Lilly & Co. (LLY)
Lockheed Martin Corp. (LMT)
Northrop Grumman (NOC)
Panera Bread Co. (PNRA)
Skechers USA (SKX)
Symantec Corp. (SYMC)
AT&T (T)
Tractor Supply Co. (TSCO)
Tupperware Brands (TUP)

Thursday, Oct. 25
Initial & Continuing Jobless Claims (Weekly)
Durable Orders (September)
Pending Home Sales (September)
Apple Inc. (AAPL)
Amazon.com (AMZN)
AutoNation Inc. (AN)
ASM International (ASMI)
Bunge Limited (BG)
Ball Corp. (BLL)
Coca-Cola Enterprises (CCE)
Columbia Sportswear Co. (COLM)
Coinstar, Inc. (CSTR)
Deckers Outdoor Corp.. (DECK)
Dunkin’ Brands Group (DNKN)
Dow Chemical (DOW)
DeVry Inc. (DV)
Callaway Golf Co. (ELY)
Expedia, Inc. (EXPE)
Starwood Hotels & Resorts (HOT)
The Hershey Company (HSY)
Libbey Inc. (LBY)
MICROS Systems (MCRS)
M/I Homes (MHO)
Altria Group (MO)
Meritage Homes (MTH)
NXP Semiconductors (NXPI)
Paccar Inc. (PCAR)
Proctor & Gamble Co. (PG)
Pulte Homes (PHM)
Potash Corp. (POT)
Revlon Inc. (REV)
Regis Corp. (RGS)
Sprint-Nextel (S)
Sherwin Williams Co. (SHW)
The Timkin Company (TKR)
Trinity Industries (TRN)
Under Armour INc. (UA)
VistaPrint Ltd. (VPRT)
VeriSign (VRSN)

Friday, Oct. 26
GDP (3Q 2012)
Michigan Sentiment Index – Final (October)
Arch Coal, Inc. (ARCH)
Comcast Corp. (CMCSA)
Digital Realty Trust (DLR)
Goodyear Tire & Rubber (GT)
Lear Corp. (LEA)
Merck & Co. (MRK)
Newell Rubbermaid (NWL)
Pilgrim’s Pride Corp. (PPC)
Quality Systems (QSII)
Weyerhaeuser Co. (WY)