1:10pm (EST)
The market got a huge bounce this morning after ECB (European Central Bank) President, Mario Draghi, vowed to do “whatever it takes” to preserve the euro which immediately sent expectations sky-high. We mentioned this morning the bulls are expecting Ben Bernanke to pull the trigger on some type of Quantitative Easing (QE) program here at home next week but some of the bloom has come off the rose as the market is off its highs.
Economic news has came in better-than-expected as jobless claims fell and Durable Goods Orders rose. Initial Claims fell 35,000 to 353,000 and represented the biggest one-week drop of the year. Expectations were for a decline of 10,000 to 378,000. Meanwhile, DG orders rose 1.6% in June versus estimates for a rise of 0.6%.
Zynga (ZNGA, $3.10, down $1.98) was down nearly 40% in extended trading last night and shares were just north of $3 after reporting earnings. Those losses have held up as shares have pushed a low of $2.97.
The company reported earnings of $0.01 a share on revenue of $332.5 million versus expectations for $0.06 a share on sales of $344 million. Zynga also lowered their outlook for the rest of the year, saying they expect earnings of $0.04-$0.09 a share compared to estimates for $0.27 a share.
This was a terrible miss for Zynga which saw its top games lose 20% of its users while delays in new launches were also a factor for the miss and lowered guidance. They also said the FaceBook (FB, $27.36, down $1.98) platform is becoming more “challenging” which is a real concern as users login less frequently. Shares of FaceBook were down over 7% to $27 in extended trading last night and those losses have also held.
The video game industry, in general, is suffering so the miss wasn’t really a surprise to us. FaceBook will be announcing their results after the close so it will be interesting to see what they have to say.
There is a chance Wall Street gives them a kitchen-pass since this will be their first report as a publicly traded company, but the bears might not. If FaceBook bombs on earnings and Zuckerburg remains quite or is a no show, we would expect a big pullback.
If by chance, FaceBook surprises everyone, shares could rebound but remember their post IPO lock-period is coming up which will release even more shares on the market. In other words, no matter how well the company may or may not do, earnings face more dilution once the millions of extra shares hit the market.
We expected some of this morning’s fluff to wear off just like Monday’s big push to support. The nearly 3-month trading range is coming to a head with bigger price swings and more volatility which is usually a good indicator of a new trend beginning.
As we head into the second half of trading, the Dow is up 168 points to 12,844 while the S&P 500 is higher by 17 points to 1,355. The Nasdaq is advancing 29 points to 2,882.
We have updated our current trades along with the Watch List as we see some low hanging fruit. We also have a special notice for those of you who can’t stand the volatility. Subscribers, check the Members Area for our latest comments and for the aggressive traders, take a look at some of the earnings plays for tomorrow on the Watch List.