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Morning Watch, July 22

By Jeff Neal, Optionetics.com | Thu July 22, 2010 6:30AM PT


Earnings results push stocks higher despite concerns about the economy following comments from Chairman Bernanke. Wednesday’s session got off to a bullish start, but the Dow (DJI) ultimately saw triple digit decline. Earnings were positive yesterday and this has continued with reports since Wednesday’s close. However, Mr. Bernanke made comments yesterday that were viewed as hawkish and this is a problem for the bulls.

After a rough start to earnings earlier in the week, the most recent results have been mostly positive. Caterpillar (CAT), AT&T (T) and 3M (MMM) are just a few of the companies that reported strong results. The Dow has erased Wednesday’s losses in early trading, but this doesn’t necessarily mean the gains will hold. Jobless claims were worse than expected and if traders turn their attention to the economy, selling might be the result.

Jobless claims rose sharply for the week ending July 17 to a level of 464,000. This jump of 37,000 claims putting the four-week moving average at 456,000. This is slightly better than the month ago reading, a positive for payrolls in July, but claims remains a definite concern. At least continuing claims did fall, down 223,000. This puts the four-week moving average at 4.567 million, which is also a bit better than the month ago period. Economists have noted that data on jobless claims can be a bit erratic during the summer months as manufacturers go through retooling.

Caterpillar has provided a definite boost for stocks Thursday after announcing very strong earnings results. The heavy equipment maker beat earnings estimates by 24-cents a share while revenues rose 30.5 percent to $10.41 billion, which also surpassed expectations. The company also raised its guidance for 2010 and CAT stated that the increase in sales from the first to the second quarter was one of the most significant quarter-to-quarter increases in the company’s history. CAT shares are up more than one percent, but are right at resistance near $68.

AT&T shares are on the rise, up more than two percent after reporting quarterly results. The Dow component beat earnings estimates by 4-cents a share with revenues roughly in line with estimates. The company did raise its full year estimates and expects strong earnings per share growth in 2010. AT&T’s partnership with Apple (AAPL) continues to be a benefit with record quarter for iPhone activations.  

Fed Chairman Bernanke will testify once again today, this time before the House Committee on Financial Services. Traders will be listening closely to see if he further explains his comments about “unusual uncertainty” in the economy. Traders took the Chairman’s comments on the economy as hawkish yesterday, something we might see Mr. Bernanke address in today’s meeting.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site


Visit Jody's Forum

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