8:50am (EST)

We knew before the market opened on Wednesday it was headed lower.  Although futures were holding up, the atmosphere felt bearish and the lack of follow through following Monday’s big pop at the open has been apparent all week.  Economic news has come in below the belt and tomorrow’s nonfarm payrolls report and unemployment numbers have Wall Street nervous.  Earnings have been coming in mixed and are winding down which leaves few catalysts for the bulls to break resistance as we head into the heart of May.

The Dow was down triple-digits, or 135 points, by midday and touched a low of 12,673.  The index danced between our 12,600-12,700 support areas before finishing with a loss of 84 points, or 0.7%, at 12,723. 

Caterpillar (CAT, $110.77, down $2.50), Chevron (CVX, $104.68, down $1.49) and International Business Machines (IBM, $170.62, down $2.25) accounted for over half of the Dow’s losses (-47 Dow points) as Energy and Tech stocks continue to struggle. 

The S&P 500 fell nearly 10 points, or 0.7%, and settled at 1,347.  The index closed below our 1,350 support target and its 10-day moving average after touching a low of 1,341. 

The Nasdaq dropped 13 points, or 0.5%, and closed at 2,828.  Tech traded to a low of 2,808 and we said to watch the 2,800 level for support.  However, there is still pressure down to 2,750 over the near-term and the chart gets uglier on a break below these levels.

The Intel (INTC, $23.50, up $0.45) news at lunchtime did help the Tech sector recover somewhat after the company introduced a new 3D chip to help keep pace with the rapidly growing mobile device market.  Shares set a new 52-week high of $23.56 in the process and seem to be rejuvenated after buyers rushed in.

In earnings news, Electronic Arts (ERTS, $19.92, down $0.24) reported their numbers after the close last night and they were impressive.  The company said profits were $83 million, or $0.25 a share, versus $30 million, or $0.09 a share, in the year ago period. 

Revenue was up to $1.1 billion from $979 million.  EA said its digital revenue business grew over 70%, to nearly $270 million, up from $144 million a year earlier.  We have been telling you about this story for a few quarters now and EA is starting to put the pieces towards a rock-solid, high margin business.

As far as Wall Street’s expectations, they had the company earning $0.22 a share on revenue of $923 million.

The stock went on a roller-coaster ride in extended trading as investors fretted their outlook.  Electronic Arts said it expects current quarter revenue of $460-$500 million which was below analysts’ forecast of $518 million, on average.  Also, EA expects revenue for the full fiscal year to come in at $3.75-$3.95 billion, versus estimates for $3.94 billion.  In other words, they sandbagged their numbers.

Shares were down 10% to under $19 shortly after the closing bell but recovered when the smart buyers rushed in to grab the discount.  The stock finished last night at $20.25 after reaching nearly $21 and is at $20.60+ this morning.

EA’s core titles are still doing well but their strength going forward is their switch to online gaming which is cheaper.  Here is what their CEO said about their digital revenue business:

“I’m particularly proud of EA’s rapid growth and scale in digital, and the growth rate almost doubled that of the digital sector overall.  We did it in a way no other competitor can.” 

That last sentence in bold is powerful, folks.

We have been a big fan of this stock since last November at $15 and our 12-month price target has been $30.  Electronic Arts will be “the” dominate online gaming company as we move into the mobile future and although shares will be volatile, we think they are attractive at current levels.

Futures are showing a lower this morning.  Dow futures are down 63 points to 12,609 while the S&P futures are lower by 8 points to 1,335.  Nasdaq 100 futures are off 12 points to 2,371.  Subscribers, check the Members Area for the updates.  

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