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Cody Willard:
Setting Up for Earnings Season
7/1/05 8:38 AM ETDog days of summer indeed, at least for the markets. After that 11%-plus rally off the lows, the Nasdaq has been gyrating between 2040 and 2100 for about the last month and a half. The DJIA and S&P 500 have been trading in similar ranges.
That said, the volatility in the markets has picked up in the past week or two. When the spring rally first started topping out, the indices quit moving with any velocity. On several days in late May and early June, the markets closed within less than a quarter of 1% of their previous close. But last Thursday's big reversal off a strong opening really got things shaken back up, as momentum longs started bailing and shorts started coming back in, shaking the complacency of both bulls and bears.
An escalation in emotions and a drop in complacency likely sets the stage for this market to make its next meaningful move. Now that we've got the much ballyhooed Fed meeting out of the way, earnings season, which will be upon us in two weeks, will likely be the next catalyst. We haven't had many warnings this quarter, and a good many tech companies are going to report Oracle-type strong numbers (which were quite impressive across the board, though not in any sort of remarkable way). Valuations of many tech stocks indicate that the market doesn't think the second-half estimates are anywhere close to how reality will turn out, and a dose of strong quarterly results in July would likely cause skeptics to reverse course. That would get stocks headed higher into the heat of August.
Such a setup would really be ideal if the markets were to continue to flounder and/or fall further into earnings season. A run-up in the next couple of weeks might very well set us up for a sell-the-news dynamic into earnings season. We'll have to see what pitches get thrown our way and swing accordingly.
After taking a good bit off the table and putting on short hedges as the spring rally got long in the tooth, I haven't been trading too actively. I maintain a long stance overall, and after the market shellacking late last week, I have covered some of my short hedges and gotten a little longer again. But I'm keeping some powder dry too.
The folks trading the futures have us pointing to a slightly higher open. I'm going to get a latte and will be back soon.
Gary B. Smith:
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Gapping Up
SHLD +2.6% (started with a Buy at Deutsche Bank; tgt $185), PANL +12% (announces fundamental breakthrough in blue phosphorescent OLEDs), NTMD +3.6% (announces launch of BiDil for treatment of heart failure), IIJI +2.6%, TASR +2% (files suit against USA Today), RHAT +1.8% (reports MayQ, CSFB upgrade), NVDA +1.1% (DigiTimes: delay of ATI R520 to boost Nvidia Q4 sales).... Under $3: CHRD +20% (JMP Sec upgrade), IPIX +13% (secures a $2.4 mln research contract), SPAB +10% (trades higher ahead of NASA's Deep Impact mission on July 4 to crash into a comet, SPAB provided pre-launch services).
Gapping Down
PIXR -12% (lowers Q2 guidance, Thomas Weisel downgrade), RDWR -17% (guides Q2 significantly lower), IONA -11% (lowers Q2 guidance), ICAD -11% (Q2 guidance), LPMA -7.4% (guides below consensus for Q2). -
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