Monday, October 22, 2007
HOTS Weekly Options Commentary
Peter Stolcers
With the exception of financial stocks, most sectors have been beating expectations. Financials are not some small little part of the overall market; they comprise 20% of the S&P 500. Last week was laden with earnings releases from national/regional banks, mortgage lenders and brokerage firms. This week, we will see a much greater mix of earnings.
SLB posted nice earnings and it was down by more than $12. In fact, all of the oil stocks were hit hard Friday. Oil is near $90 and that might become an issue for the market. I still believe that energy is one of the best investments and once this pullback stabilizes it will present a great buying opportunity.
CAT posted a 21% increase in earnings; however, they lowered guidance for the next quarter. They painted a very weak picture for domestic construction. Last week housing starts fell to a new 14-year low and the Beige Book indicated weaker economic conditions across the nation.
The dollar continues to drift lower and it is making new 30-year lows against most major currencies. This will eventually translate into inflation and that will put upward pressure on interest rates.
After a day like Friday, it is easy to focus on the negative issues. I believe we could see continued weakness for the next week or two that tests some of the major support levels. The last few days of October mark the beginning of the strongest bullish seasonal pattern of the year. I believe we will work off the worries and rally into year-end.
The economic numbers are very light this week. Durable goods orders, new home sales and Michigan sentiment are the only scheduled releases. Obviously, durable goods orders are the most significant release since they reveal our appetite for big-ticket items.
This is a list of some of the upcoming releases: ECL, ZBRA, NFLX, TXN, AKS, AXE, ARW, COH, CBE, JCI, LMT, PCAR, PCP, POOL, SHW, SII, AMTD, UPS, WHR, AMZN, BRCM, HOKU, JNPR, NVLS, PNRA, TRMD, STM, XL, ATI, BA, CME, GLW, FCX, LM, MER, NOV, NSC, NOC, PFCB, R, SLAB, TASR, WLP, AKAM, ACL, CLB, FFIV, MNST, STR, SYMNC, TEX, TSCO, ZMH, AET, BDK, CELG, CMI, GO, DOW, HET, MOT, PENN, POT, ROK, SO, SU, AMGN, AVID, BIDU, CENX, CLF, CYTC, KLAC, MSFT, WFR, SWIR, ABFS, CFC, CVH, FO, IR, ITT, LZ, TDW, WMI
They are in chronological order so that you can follow along as the week progresses. The current estimates are for flat earnings growth. I believe that will be an easy hurdle to clear. Corporate guidance is the key as traders look to the future. By the end of next week we will have a much clearer picture.
Corporate earnings have been strong, the unemployment rate is low, interest rates are low, tax rates are low, inflation is in check and global expansion is helping us through this rough patch. All of these conditions might be on the brink of changing; however, I don't believe that they will deteriorate before year-end.
I am patiently going to wait for support to be established and then I will buy this dip. I do not want to try and short this market for fear that I will get caught in a whipsaw. I got caught short last March and I learned from my mistake. In August, I bought into the weakness and took profits during the snap back rally.
During the last 3 quarters, the first week of earnings season has started off poorly. I expect a better week ahead.
