MorningWord 11/16/12: Soon after the market closed I hopped on a plane to Dallas and missed all of the overnight earnings action, particularly in Tech. Funny thing is, financial reporters didn’t have to work to hard writing up their summaries this morning, here is Bloomberg’s TMT Pre-Market wrap:
U.S. TMT Pre-Market: Dell, Sina Rev. Views Miss, Aruba Beats 7:50
• Dell Reiterates FY13 EPS View, Sees 4Q Rev. Below Est.
• Applied Materials Sees 1Q Adj. EPS, Rev. Below Ests.; 4Q Beats
• Aruba Networks 1Q Adj. EPS, Rev. Beat Ests.
• Sina Sees 4Q Rev. Below Est; Shrs Fall 11% Post-Mkt
• Intuit 1Q Adj. Loss Per Shr Narrower Than Est.
• Marvell 3Q Adj. EPS In-Line; Sees 4Q EPS, Rev. Below Ests.
• Autodesk 3Q Adj. EPS Beats, Rev. Misses; Sees 4Q Missing Ests.
OK you get my point, this has generally been a theme throughout Q3 earnings season, meet or slight beat/ miss in Q3 and guide down for Q4, while earnings growth has been scarce. I guess there are 2 ways to look at this, first managements are being overly cautious and the lowered expectations set up for upside surprises during Q4 reporting season in Jan/Feb, or second the earnings picture is deteriorating based on a whole host of factors after a fairly long economic recovery since early 2009. I am not an analyst and I don’t model companies, but as usual it appears that most Wall Street analysts got caught off-sides on the second half of the year’s slowdown in earnings growth, showing a marked decline year over year from last year in Q3. Quoting Factset’s Earnings Insight report from Nov 9th:
The blended earnings growth rate for Q3 2012 is -0.1%. If -0.1% is the final growth rate for the quarter, it will mark the end of the eleven-quarter streak of earnings growth for the index.
I guess one reason that we have become less bearish of late is that the odds are not exactly in our favor for an all out meltdown as we head into an increasingly short balance of 2012. After today, we have about 25 real trading days in the year left, while many will be marked with “Holiday-like” trading, of low volume, and next week will be the start of it. So when you consider that most major indices just lost about a half of their ytd gains in the last 6 weeks, large investors will be massively incentivized to hold things together, do their best to meet or beat their benchmarks and get PAID$$.
I would also add that this is not exactly and attractive period to be long a lot of short dated premium, as the decay will likely offset gains earned on direction. This is one large reason that we have used this past weeks weakness to close most of our Nov and Dec long premium trades.
At this point, we want to let things shake-out a bit, see if 1350 is the nice round number and support that many bulls hope it is. I will add one more point, it seems like the whole investment world is waiting for some sign from AAPL, and frankly we are too. I don’t believe that the broad market can have a meaningful comeback without some leadership, and AAPL seems like just the stock to get back on its horse, even if just for a little while. Readers know where we stand on this, we are making some very low risk bets that AAPL can rally in the next couple weeks, possibly back to $600, but we think the days of parabolic gains are over and that long term investors who have fabulous gains should use any near term strength into year end as an opportunity to take profits.
So we are cautiously optimistic for a near-term rally based on the technical set up of the calendar, and the possible event that the news flow and the sentiment that shifted very quickly in the last few weeks gets a bit better as investors cheer the upcoming Holiday season.