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The Truth Behind Tech Revenues

Up, down, up down. To say that the stock market has been volatile over the last week is like saying King Kong was big monkey. It's true, but it doesn't really give the complete picture.

Investors and traders really don't seem to know what's coming next. I've tuned into CNBC a few times during the trading day recently, and you can see the frustration on the commentators' faces. It's as if they know that, no matter what they say, they will be wrong.

This market is experiencing indecision in its purest form.

Is a Double Dip of Recession Coming?

What a difference a day makes. Yesterday morning, the situation looked dire for stocks. Headline revenue misses from IBM (NYSE:IBM) and Goldman Sachs (NYSE:GS) took the Dow Industrials Average down well over 100 points at the open.

But that initial decline marked the lows for the day, and stock prices rallied the entire day and finished with some impressive gains.

I discussed the apparent disconnect between earnings and valuations yesterday. Sure, some big companies have missed revenue estimates while still meeting or beating earnings estimates. But at the same time, valuations already reflected a good amount of pessimism about 2Q earnings.

Irrational Market?

The latest round of earnings reports are taking stock prices lower. 2Q earnings started off good with a glowing report from Intel (Nasdaq:INTC), but have taken a turn for the worst.

The issue is revenues. IBM (NYSE:IBM), Texas Instruments (NYSE:TXI) and Goldman Sachs (NYSE:GS) all came in a little light on revenues. Companies are meeting or exceeding earnings estimates, overall S&P 500 earnings have been 17% above expectations, according to Bloomberg.

But revenues have beaten expectations by only 3.5% so far, and some big names like IBM have come in below revenue estimates.

What China’s Slowing Growth Means for You

It's hard to be disappointed with JP Morgan's (NYSE:JPM) $1.09 a share earnings for the second quarter. After all, analysts were looking for just $0.74 a share. But still, JP Morgan's 47% earnings beat isn't being called a "blowout."

If this has you scratching your head a little, don't worry, I suspect you're not alone.

One of the big reasons that JP Morgan beat earnings expectations so handily is that it had to set aside less loss reserves for bad loans. That's a good indication that the company is working its way out of the problems created by the housing bubble

What Intel’s Earnings Mean for You

Intel's blowout earnings report last night is certainly making it look as though earnings estimates were revised too low for corporations. And so the overwhelmingly pessimism that drove stocks lower since early May seems to be shifting to optimism that maybe things aren't that bad after all.

Intel's second quarter EPS were $0.51 on revenue of $10.8 billion. Those numbers crushed the analyst expectations. Analysts wanted $0.43 with $10.3 billion in sales. Guidance was also way above expectations. Intel's management expects third quarter revenue of $11.6 billion from $11 billion.

CEO Paul Otellini made sure to let analyst know during the conference call that this quarter was the best quarter in the company's 42 year corporate history.

Is China an Afterthought?

Could slowing growth spark a stock market rally? Usually, we tend think of slowing growth as a main reason for stock prices to head lower. But I can’t help but think, in the case of China, that the strong growth numbers it’s put up have convinced investors that China’s economy is a bubble and that Chinese stocks are fundamentally unsound.

There have been plenty of headlines out there from big name hedge fund managers calling for the imminent crash of China’s export economy. And in a demand-challenged world, this message has certainly resonated. Chinese stocks are down across the board.

Shell-shocked investors are worried enough about U.S. stocks. Chinese stocks are currently an afterthought.

What? BP’s not American?

That was an excellent rally yesterday! The S&P 500 broke through important resistance at 1085. For more insight, I will turn to my trusted sidekick, technical analyst for TradeMaster Daily Stock Alerts Jason Cimpl…   

 

After the weakness on Tuesday, I was beginning to doubt the bulls ability to take the market higher. The group came through yesterday and took back 1085, which needs to become support. Volume was low again, but internals were commendable as buyers out numbered the sellers by 5 to 1. Today the big resistance to watch will be 1103 and 1115. SPX 1103 stopped the market dead in its tracks last week. Stronger lateral resistance exists at 1115 which dates back to December 2009 and is also the 20 DMA and gap resistance.   

Bakken Oil Profits

To call the explosion of the Deepwater Horizon oil rig and the subsequent well damage that’s allowed millions of gallons of oil spill into the Gulf of Mexico a tragedy is an understatement.   

 

Eleven men died when that rig exploded on April 20th. And now, critical fisheries along the coasts of Louisiana, Alabama and Mississippi are being destroyed. The commercial fishing industry in these states is threatened and a way of life for these fishermen may be coming to an end.   

 

An oil slick is reportedly nine miles off the coast of Pensacola  

 

BP itself is under siege, too. The stock is in a virtual freefall as repeated efforts to cap the leak have failed. It could be months before the leak is stopped. Costs to the company could hit $22 billion. And that’s if BP didn’t do anything wrong. 

China Plays Ball

On Tuesday, I discussed in Daily Profit how cooperation between the U.S. and China was critical to helping investors get past the fears of the Euro debt problem, and keep the world focused on growth.   

 

I don’t think it’s any coincidence that last night, Chinese officials came out and said they were long-term investors in China, just as Treasury Secretary Geithner finished a round of meetings in China.  

 

This is exactly the type of cooperation I was talking about. China’s massive currency reserve and trade surplus are meaningless if the global economy goes back in the tank. So it’s in China’s interest to support the euro.   

Profiting from the Crisis in Europe

There’s no ignoring the European debt problems today. Real estate loan defaults are crippling a few Spanish banks, and the IMF has advised that Spain’s banking sector needs to consolidate quickly to provide a more solid backstop against defaults.   

 

If this reminds you of the scramble here in the U.S. to have weak financial institutions like Merrill Lynch and Countrywide be absorbed by stronger companies, it should.  

 

And we should also recall that while consolidation helped mitigate some of the potential effects of the financial crisis, it wasn’t a smooth road. Even the strong banks eventually required billion in bailout money to keep them afloat

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