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The earnings reports are flooding in. And while this season got off to a pretty good start with Goldman (NYSE:GS) and Intel (Nasdaq:INTC), we’ve seen a few companies come in with not-so-great numbers. Google (Nasdaq:GOOG), General Electric (NYSE:GE) and Nokia (NYSE:NOK) have seen their stock prices drop after they reported.
Google is the most significant. It sits between the corporate and consumer level and can thus be considered a proxy for both business and consumer spending.
Most of the metrics analysts looked for were basically in line. Consumers are still clicking their mouse on Google’s paid-far ad links. Revenues and earnings were essentially as expected. The negative: companies are paying Google less for those links. The positive: Google’s cut costs well, which probably means no more free breakfast and lunch for employees.
*****Wall Street loves a good mystery. Like at the start of the "recovery rally" back in March. Nobody knew how high stocks could go, or how quickly the economy could turn around. Pessimism was high, but the "what if" scenario was enough to send prices soaring. It wasn’t until the Fed, the IMF and other economists started to say that, yes, the U.S. could actually grow a little in the second half did the pesky detail of valuations put a ceiling on the rally.
The same thing is happening to Google right now. When Google IPO’d it was a black box cash machine. Nobody really knew how it was making so much money. But Google blew away expectations quarter after quarter.
Now, the cat is out of the bag. Google’s founders are brilliant, and the business model they created is, too. But analysts know how the company makes money now, to the point that they can come up with accurate estimates. And that takes all the fun out if it.
Any analyst with something to say about Google just raised his or her target price. So far, it’s not helping Google’s stock price.
*****I can imagine another good Wall Street whodunit is brewing in the housing sector. Housing starts in June were up 3.8% from May to 582,000. That’s still 46% lower than a year ago.
Building permits also rose 8.7% in June. The combination has analysts talking about stabilization and even – gasp – a rebound for the housing industry.
Talk of a rebound might sound ludicrous considering the fact that foreclosure and unemployment rates are still on the rise. But then, not many were expecting a recovery rally for stock prices back in March, either.
One thing you need for a good mystery rally is plenty of uncertainty and plenty of doubters. The doubters will take short positions which must be covered as prices are forced higher. Of course, covering a short will send prices still higher.
We can all agree that there’s plenty of uncertainty on the outlook for the builders. And ironically, it’s the good news from the housing industry that’s causing the uncertainty. Before, everyone was certain – certain that housing stocks were flea-bitten dogs.
Now we’ll see if this new uncertainty is enough to move the builders higher.
*****OK, I’m done for the day, now you can get what you really came for – TradeMaster Jason Cimpl and his weekly video chart analysis and forecast.
One thing I should remind you about – Jason’s forecasts are always subject to change. Jason is very good at showing us what is possible, even probable. And more often than not, he’s right on the money. But successful trading is also about adapting ones’ forecast to account for new information. And since we’re in the midst of earnings season, there’s new information coming out every day. That’s why Jason offers his latest observations to his TradeMaster Daily Stock Alerts readers every day before the market opens. So the best way to make the most of Jason’s forecasting and trading skills is to join him at TradeMaster Daily Stock Alerts.
That’s it for this week. Have a great weekend and I’ll talk to you on Monday.