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Richard Cox
US GDP and BlackBerry Earnings to Determine Next Direction

Broad-based market sentiment continues to favor the bearish direction as investors balance the possibility of sending the S&P 500 to new record highs in an environment still marked by external uncertainty.   In addition to the less-than-encouraging bailout agreements in Cyprus, investors are contending with negative announcements in the UK (which show bank shortfalls of $38 billion), disappointing auction results in Italy (10-year bond yields rising to 4.7%), and a worse than expected New Home Sales report in the US (showing declines in sales of previously owned homes).  The Euro has fallen to its lowest levels in 4 months, and the S&P continues to find active sellers into the upper 1550s.

Ahead this week, we will have a few event risks to watch, as US GDP is scheduled to be released before tomorrow’s open.  The current expectation is for a meager increase of 0.5% for the fourth quarter numbers, and this weaker estimate does leave some scope for a positive surprise.  In other areas, corporate earnings season is nearing its end but we will have results from Research in Motion (BBRY) after the Thursday close, and this is likely to give markets a sentiment headline to trade off of into Friday.

BBRY Expected to Post $0.39 EPS, 32% Rise in Sales

For the BBRY numbers, analyst estimates are showing an EPS increase to $0.39 (last year’s figure was $0.24).  Company revenues are expected to show a yearly rise of 32% (to $2.84 billion), and BBRY has beaten analyst estimates twice in the last four earnings releases.  But while these expectations are relatively encouraging, it should be remembered that BBRY has seen a 35% rally since the end of last year.

This leaves the stock open to some selling vulnerability if we see downside surprises in the lofty numbers.  Additionally, the headlines created by the figure will have an influence on sentiment, so those looking to trade the broader indices should note the figures shown in the results.

Chart Perspective

S&P 500:

The S&P 500 is showing a triple top (which bears resemblance to a Head and Shoulders pattern) in the 1560 region, just below the all-time highs at 1565.  Because of the proximity to the record resistance level, it is not surprising to see increases in volatility and sharp snaps back from the upper end of these ranges.  From a wider perspective, risk to reward clearly favors short positions but the higher lows seen since 3/18 suggest that an upside break is imminent.  Look to sell spikes above 1565  in anticipation of profit-taking as weak breakout longs are forced to exit.

S&P 500


BBRY will need to break above resistance at 14.80 in order to turn the short term bias positive after the recent drop.  But given the elevated historical levels we are seeing, there is much more risk to the downside, and a break below 13.90 should generate bearish momentum into the low 13s if we see a negative earnings result.


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