9:00am (EST)
“The market was flat on Friday with a little weakness to the downside heading into the second half of trading. This was normal behavior following the pop past resistance but there was a big development midday that gave the bulls a second wind.
There are reports the Red zombies could propose a bill to raise the Debt Ceiling as early as this week, temporarily, for 90 days, as they want to tackle the sequester cuts by the March 1 deadline. The one requirement would be the Senate passing a budget by mid-April.
President Obama might not go for this as the blue zombies have said they won’t vote for a Debt Ceiling Deal that has strings attached. We aren’t sure how this plays out this week but it is a very bullish sign if something gets done. The news helped the market rebound off its lows on Friday and the bulls stayed strong into the close.
If a bill gets passed this week to raise the roof on the government’s tab, the next hurdle isn’t until March which could give the bulls another month or more to run. There could a pullback from a failed attempt to get a Debt Ceiling deal done which would weigh on the indexes but earnings will once again be the main focus.
We were a little disappointed with how the Financial stocks performed but the Financial Select Spiders (XLF, $17.15, up $0.02) is at 52-week peaks so the reaction was somewhat muted. Now that many of the heavy-hitters have reported their numbers, it will be important for the Financial stocks to hold support and push new highs along with the XLF.
Intel’s (INTC, 21.25, down $1.43) price action on Friday held Tech back as investors were expecting a solid quarter. The company reported numbers after the bell on Thursday which beat Wall Street’s expectations but shares got spanked after they lowered their current quarter revenue estimates.
Intel is investing a boatload of money to upgrade their facilities and product offerings by building new plants with shiny new toys. The $13 billion price tag for improvements was $4 billion more than analysts had penciled-in.
The 6% spanking was a little excessive in our opinion and may have provided a great entry point for a short-term call option trade for the Daily. Longer-term, it could be a candidate for the Weekly Wrap as the stock pays a 90 cent dividend and yields 4.2% at current levels.
International Business Machines (IBM, $194.47, down $0.82) will report earnings after the close on Tuesday. The suit-and-ties are expecting earnings of $5.25 a share on revenue of $29.1 billion. The high estimate is $5.32 a share with revenue of $29.7 billion while the low is $5.15 a share/ $28.3 billion.
The company had been cruising by Wall Street’s forecasts for much of 2012 as the first 3 quarters averaged 9-13 cent beats. However, their last report back in October was only a penny above forecasts which caused a 5% pullback as shares fell from a 52-week peak of $211 to $200.
IBM fell just below $185 by mid-November and recovered the $190 level by the first week of December. Since then, shares have traded in a tight 6-point range of $190-$196 and could be ready to make a move.
If IBM can score numbers above the high estimate of $5.32 a share and revenues come in north of $30 billion, shares could reclaim the $200 level and challenge the 52-week high. This would require an 8%-10% move in the stock which might be asking a bit much from Big Blue, but not impossible.
IBM is a huge Dow component and makes up a whopping 11% of the index. Chevron is next as it makes up 6.5% of the Dow’s weight. If IBM can beat current estimates with higher revenue AND ups their outlook then we could easily see the Dow challenging our 13,777 fluff target Wednesday morning.
Google (GOOG, $704.51, down $6.81) will also report after the close on Tuesday. Google shares account for 5% of the Nasdaq’s weight and makes up 1.4% of the S&P 500 component weights. The company is expected to report earnings of $10.54 a share on revenue of $12.3 billion.
Apple (AAPL, $500.00, down $2.68) will report earnings on Wednesday after the closing bell and ended Friday’s session right on $500. The number of downgrades and price target cuts has been astounding and shares have been in a downtrend for months. Apple’s earnings have been erratic in recent quarters and they have missed estimates the last 2 quarters.
We won’t go out on a limb and predict if Apple will beat expectations for $13.41 a share on sales of $54.7 billion but we do expect one of its biggest quarters ever. Will it be good enough for Wall Street is the question. There is a good way Apple can “surprise” the suit-and-ties and here’s how.
We have clamored for an Apple stock-split for a few years now and at current levels, a 10-for-1 split would knock shares down to $50. A 5-to-1 split would put shares at $100. If Apple shares traded in between $50-$100 on a split-adjusted basis there would a flood of buying as it would become much “cheaper” for investors to buy, trade, or hold the stock.
Of course, splits mean nothing to your bottom line if you already own the stock but Apple has done stock-splits 3 times in the past with the last one coming in 2005 at the end of February. Shares were just under $89 and closed at $44.86 on 2/28/05. This would allow us to play options again on the stock. Timmy, it’s time to split the stock.
This will be a huge report and Apple’s shares account for 10% of the Nasdaq’s weight and make up nearly 4% of the S&P 500. Shares are still holding their long-term 10-year uptrend line and are in the middle of an extended price channel. Shares could easily move 10%, or $50 on this week’s results.
Microsoft (MSFT, $27.25, flat) reports their numbers on Thursday but is a smaller Blue-Chip that accounts for only 1.5% of the Dow. We wish the company had more wow products besides the xBox but that is getting old as well. Windows8 may be an upgrade but Microsoft waited too long, as usual, to get in the game (again) and the jury is still out on their Surface tablet.
We aren’t too worried about Microsoft’s numbers but anything better-than-expected would be a bonus. If there is a disappointment, shares could test $24 down the road.
With some of our fluff targets being triggered, we must now focus on the extended targets we gave you last week: Dow 14,000; S&P (500) 1,500-1,525; Nasdaq 3,200-3,250; and Russell (2000) 900-925. There could be a pullback to support or prior resistance levels if Apple, Google and IBM come up lame but we are expecting higher prices for the market through the end of January and possibly into February if we get some more can kicking by the zombies.” (from 1/21/2013 Weekly Wrap Update)…
The bulls hit the last 2 of our 4 mid-December fluff targets for the major indexes the market held up well following Apple’s (AAPL, $439.88, down $10.62) big earnings miss midweek. Tech is the last of the major indexes that hasn’t hit fresh 52-week highs but there is still a possibility of this happening.
The suit-and-ties were hoping Apple would at least match or beat expectations but Wall Street blew it off anyway and chugged higher as all of the major indexes finished the week in the green. January has been a sweet month and we could see the bulls run into February at the top-end of our extended targets with another week to go. However, there are a lot of “overbought” technical signals flashing as the pros continue to call for a correction and sooner or later one is coming, but for now, the trend is your friend until it ends. (continued…)
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