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

Stocks have shown declines in the early part of the week, with the Dow Jones posting its worst single-day performance in 5 months.  Early negatives were seen in disappointing GDP figures out of China and the terror attack in Boston, which contributed to general uncertainty and put investors on edge.   Growth rates in China slowed to 7.7%, putting pressure on energy and materials sectors (both of which dropped by nearly 4% after the release).  China needs to see GDP growth at 9% in order to accommodate the growing number of people moving to the industrialized eastern coast from the rural western parts of the country.  Weakness in these figures suggests declining demand for energy and commodities imports, and stocks exposed to these areas have been some of the biggest losers this week.

Looking ahead, investor attention will be forced to re-focus on the steady stream of earnings reports that will be released into the end of the week.  The first headlines came from Yahoo!, which fell in Tuesday’s afterhours trade on weaker sales forecasts and declines in display ads.  Most of this week’s reports, however, are centered in the financial sector.  Some of the bigger names include Bank of America, Citigroup and American Express.

BofA shares dropped 3% in Wednesday’s pre-market as the second largest US bank reported net income of $2.62 billion (20 cents per share) and total adjusted revenues of $23.85 billion (a drop of 8.4%).  Analysts estimates called for BofA earnings of 22 cents per share.  So far this earnings season, 45 companies have released results with 71% beating profit estimates and 56% surpassing sales forecasts. On Thursday, we will see earnings from Morgan Stanley, Google, Microsoft and IBM.  Friday will see results from McDonald’s and General Electric.

Chart Perspective

Yahoo! (YHOO):

YHOO is coming into some very critical support levels into the Wednesday open after failing at previous resistance just below 25.  A downside break here would be a very bearish event and call for a full retracement of the previous rally (targeting a fall back to 23).  On the short term charts, the latest drop has been forceful, so it would not be surprising to see a dead cat bounce at current levels.  But any break (and hourly close) below 23.75 turns the bias to sell on rallies.  We would need to see a break of resistance at 25 before changing to a bullish stance.

Bank of America (BAC):

BAC is starting to show some interesting formations on the 4H chart, with a clear Head and Shoulders pattern coming after the failure below 13.  A break of short term resistance at 12.40 will invalidate this pattern but, without this, the medium term bias is focused on the downside.  A test of support at 11.60 is the next bear target, a downside break here will open the way for a test of support at 11.



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