Longs Beware Going Into Earnings This Week
Inflation and earnings will be on the mind of investors in the coming days after stocks took a step deeper into Bear territory last week on anticipation of more write-downs for financial companies and fears that the government will be forced to rescue Fannie Mae
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PowerRating) and Freddie Mac
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PowerRating). Earnings for General Electric Co.
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Earnings get into full swing this week with investors closely awaiting results from financial heavy-hitters including Citigroup Inc.
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PowerRating), JPMorgan Chase
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PowerRating). A number of technology companies will also report including Google Inc.
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The economic calendar is not as quiet as last week. Inflation will be the focus as the Producer Price Index and the Consumer Price Index for June are released on Tuesday and Wednesday. A larger-than-expected jump in consumer prices could set the markets in motion to price in a rate cut before the end of the year. The implied market probability for a rate hike by the end of the year has been decreasing recently as economic reports continue to show weakness.
On Monday, Genentech, Inc.
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PowerRating) releases second quarter results after the close and it may be a good stock for longs as shares favor a wider post-earnings share performance. Analysts polled by Thomson First Call are expecting the company to come in with a profit of $0.86 per share on revenue of $3.23 billion. It has extended its after-hours share change during regular trading following an evening earnings report ten times while narrowing seven times. In the near-term, the stock is consistent with that pattern, widening three times out of the past four quarters.
On Tuesday, Intel Corp. will be the one to watch when it reports its second quarter results after the bell. Analysts are expecting the company to report a 13.6% increase in earnings to $0.25 per share on revenue of $9.32 billion. Intel is a stock for longs be wary of in the off-hours, and perhaps an issue for shorts to line up if it should post an earnings-driven after-hours upside or downside move. Intel favors a narrowing pattern following after-hours earnings events, cutting back its evening trade in next-day action in ten of its last 16 earnings events. In the near-term, the stock has narrowed its move in three of four quarters. On April 15, Intel jumped 8.8% during evening trading after first quarter earnings met expectations and revenue beat. The gain was reined in the next day and Intel closed higher by 5.8%.
Google releases its results on Thursday after the close and movement has been mixed recently. Analysts polled by Thomson Financial are expecting Google to report a second quarter earnings jump of 33% to $4.73 per share with a 42% increase in revenue of $3.86 billion. Shares favor a narrowing pattern between the sessions in its long-term performance, cutting back its evening direction in next-day trade in nine of the last 15 quarterly reports. In the near-term, the stock is mixed with two widening and two narrowing patterns in the last four quarters. On April 17, 2008, Google jumped 16.9% in after-hours after the company reported first quarter results that beat the Street. The stock extended its gains the following day, rising 19.9%.
Also Thursday, look out for Advanced Micro Devices Inc.
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PowerRating). AMD is another issue that shorts may want to hammer at. The stock has recorded an earnings-driven upside move in the after-hours in 11 of the last 17 quarters we’ve tracked. In nine of those quarters, it has seen its after-hours gain reverse or narrow the following regular session. In the six quarters where AMD has recorded an evening decline, it added to that downside the following day five times.
Microsoft Corp. is another stock to watch on Thursday when it releases its results after the bell. It is not a stock that benefits longs. In fact, it generally favors cutting back its after-hours gains in the following day’s regular session and adding to its downside evening moves. Shares have recorded ten earnings-driven after-hours gains in 17 quarters MidnightTrader.com has tracked. In seven of those upside evening moves the stock has narrowed or reversed course the following day. Microsoft has declined seven times in the after-hours following earnings, and in five of those quarters it has added to its downside move the following day.
Finally, Nokia Corp.
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PowerRating) reports earnings in the U.S. pre-market Thursday, and although it consistently reacts to the upside within MidnightTrader.com’s database, it has lots of trouble holding those pre-bell gains through the following regular session. In nine of the last 14 earnings-driven pre-market moves we’ve tracked, Nokia has posted a gain in the pre-market, only to see that advance narrow or reverse in the following regular session in six of those quarters. It has declined five times in earnings-driven pre-market trade, and widened that downside in three quarters.
Cassie Guglielmo is a Senior Editor at www.MidnightTrader.com.