Markets Consolidate From Late June Lows

Stocks had another choppy day Wednesday as the indexes consolidate the big move from the late June lows. Yesterday was actually the weakest session since that bottoming day nearly a month ago. The one major economic report of the day was in the homebuilding sector where new home sales jumped 8.3% in June to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008.

Still, the reading was below economists' projections for a 482,000-unit rate. Homebuilders did not have a good session as higher interest rates pressured mortgage rates. The S&P 500 fell 0.38% while the NASDAQ added 0.01%, but the latter data point was due to a big surge in Apple (AAPL) due to earnings - in general weakness was widespread as shown by the Russell 2000 falling 0.80%.

With the S&P 500 we finally had a touch back to the 10 day moving average after departing from it for a few weeks. There is nothing inherently worrying about that, in fact the fact the index was so far apart from any support was an issue. However any meaningful drop from here could lead to more warning signs. For now the S&P 500 fell back below its intraday high of 1687 set on May 22. The index is now testing the top end of this "bull flag" we noted last week.

The NASDAQ was actually an outperformer yesterday due to the major influence of Apple but if you look away the from the index itself it was not a great day.

While the indexes have not retreated much as we continue to see a rotation under the surface each day, we can see via the NYSE McClellan Oscillator a correction has been happening as this number has retreated to sub 10. Reading of 10-40ish over a sustained period are fine so there is now room for a rally in this figure as the market has consolidated over the past week and a half.

One weak name yesterday was Caterpillar (CAT) which reported earnings that did not please the Street; there was a lot of weakness in China.

Caterpillar's earnings fell 43 percent in the second quarter as China's economy slowed and commodity prices sank. The company also warned of slowing revenue and profit. Caterpillar reported earnings of $960 million, or $1.45 per share, compared with $1.7 billion, or $2.54 per share a year ago. Revenue slid 15.8 percent to $14.63 billion. That was well short of Wall Street's expectations. Analysts surveyed by FactSet had expected a profit of $1.69 per share on revenue of $15.09 billion. The company said dealers cut inventories by $1 billion as the global mining industry slowed. Growth especially slowed in China.


After the close there were 2 high profile names that surged - we mentioned Chinese search engine name Baidu (BIDU) last week as it seemed to potentially starting a change in character. Well today after the bell it rallied nearly 20% on its earning report to near $130!

Baidu Inc posted slightly better-than-expected revenue of $1.23 billion in the second quarter, sending its shares up more than 13 percent. Analysts had on average expected the company to record revenue of $1.2 billion.

Likewise, Facebook (FB) had a strong day although before the report it was still in a major downtrend - perhaps this report will get it out of its doldrums. The big change here was a surge in mobile revenue.

Facebook (FB) late Wednesday reported a 75% jump in mobile ad sales last quarter vs. Q1, as Q2 earnings and revenue handily beat Wall Street expectations. The company reported per-share profit minus items of 19 cents, up 58% from the year-earlier quarter. Revenue rose 53% to $1.81 billion. Analysts polled by Thomson Reuters had expected 14 cents and $1.62 billion. The company said ad sales jumped 61% from the year-earlier quarter to $1.6 billion, accounting for 88% of total revenue. Ad sales had risen 43% in Q1. The Q2 mobile ad sales came in at $656 million. In Q1, the $375 million in mobile ad sales were up just 22.5% from Q4.


Here are a few charts of other notable names via MarketSmith:

Cloud company VMware (VMW) was the star of the day, up nearly 17% on earnings as it crossed back over its 200 day moving average:

VMware Inc. (VMW) rose the most in more than four years after the software maker reported second-quarter sales and profit that exceeded analysts’ projections, helped by customers’ renewal of multiyear licenses. Profit before certain items was 79 cents a share on sales of $1.24 billion, VMware said yesterday in a statement. That beat analysts’ average estimate of 77 cents on revenue of $1.23 billion, according to data compiled by Bloomberg.

Not so fortunate was Panera Bread (PNRA); there is some worry creeping into this space that higher gas prices could hurt sales.

Panera Bread missed Wall Street forecasts for the second quarter and cut its full-year outlook on declining sales growth at its company-owned cafes. Panera revised its target for fiscal 2013 earnings per diluted share to $6.75 to $6.85, citing lower than previously expected growth in company-owned same store sales. Company-owned same-store net sales were up 3.8 percent, while system-wide same store sales increased by 3.7 percent. For the second quarter, the company posted earnings excluding items of $1.74 per share, up from $1.50 a share in the year-earlier period. Revenue increased to $589 million from $531 million. Analysts had expected the bakery-cafe company to report earnings excluding items of $1.77 a share on $596 million in revenue, according to a consensus estimate from Thomson Reuters.

Of course we have Apple (AAPL) which is still in a major downtrend but there was some nice movement today.