StockDesk Friday Update: Markets St...
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Richard Cox
StockDesk Friday Update: Markets Start Lower in Heavy Week of Earnings

Stocks are attempting a bounce into the end of the week after hitting its lowest levels in 6 weeks.  Most of the positive sentiment is being generated by the latest set of earnings reports, which have shown areas in diverse sectors of the business economy.  The latest results came from Google and Microsoft, which both posted first quarter earnings that were higher than the consensus analyst estimate.  Both stocks gained by more than 2.5% after the releases but some of the upside momentum was slowed by the latest results from IBM, which saw its first negative earnings surprise since 2005.

IBM saw a large drop (-6.5%) after the release and this negative story is keeping a lid on the prospects for a wider rally into the end of the week.  McDonald’s was another slight negative (dropping -1.9%), after its earnings report showed continued declining demand from international customers.  The broader S&P is higher by about 0.5% but is still holding below the 1550 level after the -0.7% drop seen yesterday.  The main question going forward is whether or not the current pullback has run its course, or is likely to extend further.   Clearly, the next round of earnings reports will be the main indication of this and with expectations already low, upside surprises probably will not be overly difficult to achieve.

Google and Microsoft Support the Indices

So far, 102 companies have reported earnings, and 73% of those companies have beaten the consensus estimates.  Those estimates showed expectations of a -1.4% drop in earnings from the previous year, which is the first year-on-year decline since 2009.  Google hit highs just below $785 after the company showed first quarter profits of $11.58 per share, a strong beat on the $10.68 per share that was expected by analysts.  Microsoft rose nearly 4% to trade just under $30 after its earnings report showed that third quarter net income was higher by 19% ($6.06 billion, or 72 cents per share).  Analysts were looking for incomes at 68 cents per share.  These reports were by no means all that was seen on the earnings calendar (with GE, Intel, Yahoo!, and Pepsi some of the other major names reporting this week).  This scheduled will slow next week, so we might see some comparative reductions in volatility in the next few trading sessions.

Chart Perspective

Google (GOOG):

Google continues to trade in its medium term downtrend channel but the price action in the previous day has pushed prices into resistance at 795, and if this is ultimately broken, the downtrend channel will become invalid.  To the downside, support has moved up to 762, so we would need to see a break here in order to expect a build up in bearish momentum.

Microsoft (MSFT):

MSFT has seen some extreme price gaps in recent sessions, and the positive moves are supported the rising uptrend channel.  Initial resistance is seen at 30.25 with support now coming in at 28.50.  Overall bias is bullish as long as 28.50 holds.



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