The bears did a little damage on Monday as the circus in Congress continued on after the Republicans and Democrats failed to come to any sort of agreement on how to fix America’s debt crisis. The market plunged 1% on yesterday’s open but the bulls battled back throughout the trading session to cut the losses in half while holding support at the same time.
The Republicans tried a “two-step” approach, which caught market wind and helped with the bounce, that would provide another $1 trillion increase on top of the growing $14.3 trillion debt ceiling in exchange for $1.2 trillion in cuts in federal spending. Another round of spending cuts would come next year of about $2 trillion which would trigger an additional $1.6 trillion in increased borrowing authority.
The Democrats want to cut $2.7 trillion in federal spending and raise the debt limit by $2.4 trillion in one shot which would be enough to get us into 2013.
It is clear both sides are using this battle to sway public opinion on which side is the evil empire to win votes for the elections year-after-next. However, if something doesn’t get done, America should wipe its slate clean with all of them and start over. Let the Tea Parties begin.
Although we hate talking politics, this is an important subject that the boys on the Hill aren’t meeting with urgency. However, we aren’t so sure why there is a big fuss, after all, Reagan raised the nation’s debt limit 18 times and something will get done. For all he has, or hasn’t done, Obama will not let America default.
The Dow dropped 88 points, or 0.7%, to finish at 12,592. The index traded to a low of 12,536 but managed to close just below or 12,600 downside target. Further risk is down to 12,400-12,350 while resistance remains 12,800.
The S&P 500 dipped 8 points, or 0.6%, to settle at 1,337. The index fell to 1,331 and easily held the 1,325 level at the open which is what we were hoping for. There is further support at 1,300 but the S&P also held 1,334 which was a good sign. The 1,345-1,350 area still represent headwinds before 1,375 can be reached.
The Nasdaq slipped 16 points, or 0.6%, and closed at 2,842. Tech traded to a low of 2,828 and held 2,825 which we wanted to see. There is still danger down to 2,800-2,775 but the bulls are just 45 points away, or 2%, from kissing new highs.
Turnings to earnings, Netflix (NFLX, $281.53, up $4.95) beat Wall Street’s earnings expectations after the close on Monday but fell short on their revenue number and warned of slower growth. Shares got spanked in after-hours trading, falling 10%, to nearly $250.
The company reported a profit of $68 million, or $1.26 a share, on revenue of $789 million. Analysts were looking for earnings of $1.11 on sales of $792 million.
Netflix shares will be interesting to watch, especially if consumers balk at the recent price increases. It seems we have seen this picture play out too many times and if the company isn’t careful, they could start losing market share faster than they think.
This week is the heart of 2Q earnings season and there are plenty of names we will be talking about. Remember, a 5% stock move usually means a 100% return with the right option and we plan on ringing the register for triple-digit profits this week with a few of our option trades.
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