Friday’s Action and the Week Ahead

by Dan June 27, 2011 8:27 am • Commentary

Friday was more of the same, all day selling with barely an uptick.  Our equity markets have plenty of things to be worried about, but it now appears that investors are being a bit more cautious about how and they are willing to reward companies for merely meeting earnings expectations.  Last week saw some divergent signs as it relates to U.S. corporate earnings, with strong showings from FDX, BBBY and JBL and some less impressive results and outlook from tech names MU, ADBE and ORCL

ORCL’s reaction over the next few weeks could be telling for for how large cap tech may perform and the sort of guidance they may give as we head into Q3.  While ORCL did not blame a slightly murky outlook on weakening demand in Europe as ADBE did a few days earlier, it was apparent that certain weakness in their hardware division, (run by ex-HPQ CEO Mark Hurd) coupled with the potential for a broader slowdown, could cause the stock to remain under pressure as it breaks some key technical levels.  My thought heading into the quarter was that an inline qtr and guidance would probably send the stock up a bit as it had sold off about 15% in the weeks leading up to the event…..If growth is slowing at ORCL they will likely make a large acquisition in the coming year as this is one of the few ways that guys like Ellison and Hurd know how to maintain aggressive sales targets and to ring out costs to aid eps.  The last multi-billion dollar deal they did was of SUNW, completed early last yr (see full list here detailing an almost annual large deal) is clearly not helping sales and now could start to be a drag. A large and expensive cloud deal will not be a shareholder friendly event.

[caption id="attachment_2921" align="aligncenter" width="300" caption="1 Yr ORCL chart Provided by "][/caption]


While Thursday’s late afternoon rally was impressive, the fact that it didn’t stick more than 12 hours is a little troubling…..we are clearly on edge over the events to come in Greece this week, but affirmative votes are already baked in at this point and any rally may be short lived as the real focus will become corporate earnings… we head into quarter end I think it is important to remember that if we are going into a BEAR period, under most circumstances we won’t just go down 20% in a straight line…..there will be some fits and starts.  Sovereign debt issues in Europe, the pace of of economic slowdown and corporate guidance for 2H hold the keys and we should expect news on all in the coming weeks……

With Gold, Crude, Equities all going down, and the $ looking ready to make a move below 1.40 to the Euro, risk is definitely coming off and any acceleration in this trend could lead to an intermediate capitulation which has yet to be evident since the top on May 2.

As far as my positioning is concerned I am staying focused on events and the calendar….economic data, votes on Greek austerity/bailout and earnings announcements…..this week:

Mon: NKE reports earnings tonight, keep and eye on commentary regarding margins and how they were effected by input costs…this was an issue when they reported in March and will likely remain one until we get a sustained period of commodity price weakness.

Tue: Consumer Confidence June, Case Schiller Home Price Index Apr

Wed: Pending Home Sales May, Earnings: KBH reports pre-open and their outlook and commentary maybe helpful to get a read on housing.

Thurs: Initial and Continuing Jobless Claims June 28th and Chicago Purchasing Managers Survey

Fri: U. Of Michigan Consumer Confidence, Construction Spending, ISM Manufacturing.

GREECE AUSTERITY / BAILOUT DATES: Courtesy of The Telegraph.

June 29 – Greek MPs vote on €28.4bn austerity programme, the vote is described as a “gamble” and “close”. The vote is due to coincide with a general strike next week, which has been announced by the Greek unions.

If it is lost then the euro zone has threatened to withhold the next EU-IMF payment from Greece setting it on the path of default, potentially pushing Europe over the brink into a 1930s style crash.

July 3 – Emergency meeting of euro finance ministers, the next €12bn instalment only to be paid to Greece if EU satisfied with Greek vote.

At last meeting euro zone was deeply divided and there was anger at Greece trying to wriggle free of draconian austerity measures.

July 11 – EU finance ministers meet to negotiate detail of second bailout and possibly to give last sign off of fifth tranche.

July 15 – Greece will default unless the fifth tranche of the original bailout has been paid. Many Greeks are moving their money abroad and investing in gold ahead of the date.