Tough Market Sustaining Earnings Disappointments

by Sam Collins | October 19, 2012 2:18 am

On Thursday, U.S. initial employment claims rose more than expected and stocks sagged. But by noon, the indices had recovered, only to hit a brick wall when worse-than-expected Google (NASDAQ:GOOG[1]) earnings were prematurely reported, and the stock fell over $60, taking the Nasdaq down with it. American Express (NYSE:AXP[2]) also fell short of analysts’ estimates, but Travelers Companies (NYSE:TRV[3]) and Verizon Communications (NYSE:VZ[4]) beat estimates.

At Thursday’s closing bell, the Dow Jones Industrial Average made up most of its losses at 13,549, down 8 points, the S&P 500 fell 4 points to 1,457, and the Nasdaq was down 31 points at 3,073. The NYSE traded 718 million shares and the Nasdaq crossed 453 million. Decliners were slightly ahead of advancers on the Big Board, but on the Nasdaq, decliners led by 2.1-to-1.

Nasdaq Chart
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Trade of the Day Chart Key

As covered in Monday’s Daily Market Outlook[5], the Nasdaq is not faring quite so well as the other indices. And it’s no wonder. This week, the index has been hit with earnings disappointments by some of its key players, namely Microsoft (NASDAQ:MSFT[6]), Intel (NASDAQ:INTC[7]) and Google. 

On Thursday, the Google miss contributed to the failure of the Nasdaq to punch through resistance at the 50-day moving average at 3,097. A close above that barrier would have partially overcome the downward momentum generated by the head-and-shoulders break at 3,100. 

Instead, the next support is at 3,040, which matches the September and October lows. The near-term trend for the Nasdaq is down, and the target of the neckline breakdown at 3,100 is 3,000.

SPX Chart
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Despite the nasty earnings from several big names in the tech sector, the S&P 500 has handled it well. The bull channel has been slightly broadened, but the formation is holding above the 50-day moving average at 1,433. Resistance is at the closing high of 1,466 and the absolute high of 1,474.51, both made on Sept. 14.

Conclusion: So far, the broad market has been able to sustain the shocks of earnings disappointments from key blue-chip tech stocks. Only the Nasdaq has felt the impact of selling, but even it shows remarkable strength. 

Europe has been relatively quiet, except for the rioting in Athens, as German attempts to hold the union together. Spain is expected to ask for help (a positive), and Italy sold a record amount of bonds. If no sleeping giants awake before the end of October, our own markets could break to new highs.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[8].

For a list of this week’s economic reports due out, click here[9].

  1. GOOG:
  2. AXP:
  3. TRV:
  4. VZ:
  5. Monday’s Daily Market Outlook:
  6. MSFT:
  7. INTC:
  8. click here:
  9. click here:

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