Earning Season begin...time to buy or sell stock?

ML's take:

Earning season usually provide the volatility catalyst to market, and it is a period whereby as a trader..i love. Short term trading strategy, with a sell on news bias is my preferred execution method, with a technical stop in place.

However, this time round, I am a tad cautious, with the recent run up in stock prices. Somehow it means that the market (funds) have already started factoring in the earning upside, and the risk presented are more on the downside going forward. Banks stock for example has seen a good run of late, and this may present some vulnerability if results came in below expectation. Watch: Citibank and BoFA.

Most analysts are expecting a good set of numbers for 1Q, with some even think that the economy may have out-performed what the market is expecting. I agreed. However, note that if most upside has already been factor in, even a slightly better number is unlikely to push the market much further during this earning season. In contrast, if the number came in below expectation or on expectation, you can expect some selling to take place.

Hence for those of you, who have missed the boat of late....perhaps it is time that you take advantage of any weakness in price this earning seasons to pick up your lot.With retail participation largely missing and the economy firmly on track, this may be a good chance to jump on board before the rest of the skeptic.

So my take: Buy on weakness and sell on news this earning season.

Week Ahead: Earnings and Economic Reports Tell Tale of Recovery

Published: Friday, 9 Apr 2010 | 8:34 PM ET

Text Size

By: Patti Domm
CNBC Executive Editor

Corporate America should begin to see its first quarter of double-digit revenue growth in nearly two years, as earnings season gets underway in the week ahead.
Alcoa [AA  14.39    -0.48  (-3.23%)   ], Intel [INTC  22.55    0.24  (+1.08%)   ], JPMorgan Chase [JPM  45.98    0.22  (+0.48%)   ], Google [GOOG  566.22    -1.27  (-0.22%)   ], AMD [AMD  9.30    -0.12  (-1.27%)   ], and General Electric [GE  18.52    -0.04  (-0.22%)   ] are among the companies reporting first-quarter earnings this week.
"Last quarter we saw a lot of beats. I think we'll be in the same ball park. We're looking at growing evidence the economy is on better footing," said Ed Keon, portfolio manager at Quantitative Management Associates. Last quarter, 72 percent of the companies in the S&P 500 beat analysts' earnings estimates, according to Thomson Reuters.

Oliver P. Quilla for CNBC.com

"It's hard for analysts to build the macro picture into their earnings numbers. At the beginning of a recovery, they tend to be too conservative. At the beginning of a recession, they tend to be too optimistic," Keon said. He said the consensus view is for earnings growth of around 30 percent. "My guess is it'll be something better than that."
Citigroup chief U.S. equities strategist Tobias Levkovich also expects some knock out earnings reports. "I think earnings are going to look very strong...It's going to be a combination of cost cutting and top line revenue growth," he said. "The operating leverage in businesses is usually quite dramatic at turning points."
The coming week has a heavy calendar of economic data -- from international trade, to retail sales and industrial production . All of that should provide a better look at how the economy performed in the first quarter. Another highlight will be Fed Chairman Ben Bernanke's Congressional testimony on the economy Wednesday.
The Greek debt crisis will stay in focus, as speculation swirled in markets Friday that there could be a weekend bailout. China and its move to let its currency float is also dominating market chatter, as President Hu is expected to join other world leaders at a nuclear summit hosted by President Obama in Washington. China also releases GDP and other indicators on Thursday.

"I think the theme next week is further signs of recovery and a broadening out of those signs," said Deutsche Bank Joseph LaVorgna.
In the past week, there were a number of positives that suggest the economy may be a bit stronger than some economists expected. One of those was strength in the ISM nonmanufacturing survey, as well as wholesale inventories. Chain stores also reported better than forecast sales for March.
"I actually think the scope for the biggest surprise will be in international trade and inventories," said LaVorgna of the coming week's data. His current GDP forecast is 4.5 percent for the first quarter. "It just seems to me that the inventory numbers with the trade will be more important than some of these other figures in terms of how GDP plays out in Q1."
J.P. Morgan economist Bruce Kasman, in a note Friday, said for the first time since last summer, J.P. Morgan is raising its outlook for global growth. He noted that his first quarter U.S. GDP forecast of 4 percent is at risk of being too low. He expects March retail sales, reported Wednesday, to show that consumption is gaining momentum.
One report in the past week that was not encouraging was the weekly jobless claims data, which showed an unexpected increase of 18,000 to 460,000. Economists say there needs to be a real turn in the employment situation in order for the economy to heal, and the question is when will the stronger corporate profits result in hiring.

Major U.S. Indexes

	Last	Change	Today's % Change	1 Week % Change	YTD % Change
Dow	10997.35	70.28	0.64%	0.64%	5.46%
NASDAQ	2454.05	17.24	0.71%	2.14%	8.15%
S&P 500	1194.37	7.93	0.67%	1.38%	7.11%
Russell 2000	702.95	3.31	0.47%	2.77%	12.40%
CBOE VIX	16.18	-0.30	-1.82%	-7.38%	-25.37%
FTSE CNBC Global 300	4700.50	55.22	1.19%	1.05%	3.54%

Dow 11,000
The Dow in the past week crossed 11,000 for the first time since Sept. 29, 2008. It finished the week at 10,997, with a 70 point, or 0.6 percent gain. The S&P 500 was up 16, or 1.4 percent at 1194, and the Nasdaq gained more than 2.1 percent to 2454. The S&P energy sector was the best performer, gaining 1.1 percent, followed by the telecom and consumer discretionary sectors, both up 0.8.
Nymex crude for May delivery gained $0.05 per barrel this week, or 0.06 percent to $84.92.
Treasury prices rose on the week, pushing yields lower after the 10-year yield topped 4 percent on Monday. The 10-year finished the week with a yield of 3.890 percent, and the 2-year was unchanged, at 1.072 percent. The dollar lost 0.03 percent against the euro this past week, despite volatility around Greek debt worries.
Marc Chandler, chief foreign exchange strategist at Brown Brothers Harriman, said he thinks the speculation about a Greek bail out over the weekend will prove false, as Greece has enough financing in place for April. "I don't think we've reached the point where their feet are on the fire, and they've got to do something now," he said.

This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework.


ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com