Alcoa and Japan Bring the Bears Back to the Market
The market reversed early gains yesterday
morning to close mostly lower. Volume was fairly light except in the
Nasdaq, which had heavier volume as a result of a technology sector
downgrade. SPX made its way down to 1320 before finding support, but 1301
remains the likely target to the downside during this pull back.
While the market consolidated ahead of Alcoa earnings, oil
collapsed after progress was made by the AU in Libya. Yesterday it was reported that Muammar Gaddafi had
agreed to stop his acts of violence and begin peace talks. While the
situation is far from over, and Libya’s rebels have not recognized the
deal with Muammar Gaddafi, the circumstances have improved. And since oil
went on a meteoric run due to tension in North Africa and the Middle
East, positive news like Libyan freedom, will likely bring oil
lower.
Of course, the improvement in North Africa is a great story, but
the market will be more concerned with the nuclear reactor in Japan and
Alcoa (NYSE: AA) earnings for today. Alcoa was the first major stock to
report first quarter earnings. Additionally, Alcoa is an important
company to monitor since its product, aluminum, is used as an input in
many areas of manufacturing. A strong showing from Alcoa is often a
positive sign that manufacturing (cars, planes, soda cans) will increase
in the upcoming quarters. And if manufacturing is increasing, then it’s
also likely consumer spending and employment will begin to improve soon
thereafter.
While Alcoa did not disappoint, the company did not shine in the
first quarter by any stretch. Alcoa matched analyst financial
expectations of $6 billion in sales and $0.27 EPS. Even though both were
a big improvement from the first quarter of last year, those results were
expected. Management confirmed guidance as well and cited “the world’s
growing population, increasing urbanization and aluminum’s advantages as
a light, strong and recyclable material,” which seemed like a vague
response from Alcoa's CEO. Shares are down 5.5% midday.
And the other big story today, which is part of an
ongoing calamity, is Japan’s nuclear crisis became grimmer last night.
Japanese officials upgraded the country's nuclear threat level from 5 to
7 (the maximum level) which puts it on par with Chernobyl. It remains
uncertain how this situation will play out, but investors despise
uncertainty and the Nikkei was down nearly 2% as a result.
Masked in earnings season this week is a heavy dose of economic
data. Yesterday was light, and so is today, but retail sales results and
the Fed Beige Book will be revealed on Wednesday. Then on Thursday we get
our first look at U.S. inflation with the March PPI release. Finally, on
Friday, the ever important CPI data for March will be announced along
with production numbers – so it’s actually a very important week.
Our trading will pick up as the week goes by, but we closed Joe’s
Jean’s (Nasdaq: JOEZ) yesterday. The trade was made in anticipation of a
negative earnings release after the market closed. We already had a 40%
gain and the infamous phrase “pigs are slaughtered” rang in my ears on
Monday. Whatever happens to JOEZ shares today, or in our future trades, I
never have a problem taking a gain and leaving money on the table in the
process.
The news, and weather, is rather gloomy this morning, but do not
let that change your attitude. The bulls own this market, and today is
likely another dip to be bought. 1301 remains both a target and area of
support, and I expect it will hold. If we get another low volume morning
drop, it is likely I will add more longs into that decline.
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