CWS Market Review – August 16, 2013

August 16, 2013

“The voice of reason is small, but persistent.” – Sigmund Freud

Youch! Thursday was the worst day for the S&P 500 in nearly two months. By the time the closing bell rang, the index had dropped 1.43% for the day and is back to 1,661.32. Of course, we’re still higher than we were on July 4. If you take a step back and look at the larger picture, Thursday’s loss was small potatoes. In fact, the most prominent feature of the recent rally is how tame it’s been.

Let’s look at some facts: Morgan Housel notes that 2013 is on track to have the fewest daily swings of 1% or more since 1995. Going by that measure, this year could be the seventh-least-volatile year since 1928.

What’s also interesting is that the stock market rally has been remarkably consistent. The S&P 500 has traded above its 150-day moving average every day for the last eight months. This is the ninth-longest such streak since 1980. In plainer terms, the market has climbed slowly upward almost nonstop since the election. It’s been so placid that this recent break appears more dramatic than the numbers say.

In this issue of CWS Market Review, we’ll take a look at what caused Thursday’s market headache. We’re only five weeks away from the Fed’s September meeting, and more folks on Wall Street think the guardians of the temple will start pulling back on their bond-buying program. We’ll also focus on the upcoming earnings reports from Medtronic (MDT) and Ross Stores (ROST). But first, let’s look at why good news for the jobs market is apparently bad news for investors.

Initial Jobless Claims Lowest since 2007

I’m always suspicious of any pat explanation for why the market does this or that on a given day. Just because some market activity coincides with some bit of news doesn’t mean the news is the cause. Oftentimes, traders are looking for an excuse to do something, and if some event in the larger world vaguely resembles a reason, they’ll take it.

On Thursday morning, we actually got a piece of very good news. The government reported that initial claims for unemployment had dropped to 320,000. This is significant because that’s the lowest reading since October 2007, which was the top of the market.

Any news about the labor market has to be viewed in the context of the Federal Reserve’s plans for later this year. The Fed has already told us that they’re looking to taper their bond purchases at some point, and that will largely be determined by how strong the jobs market is. So traders probably took the good news about yesterday’s jobless claims as evidence that the Fed will begin paring back on their bond purchases.

I’ve said before that I disagree with the view that the stock market will be stranded without the Fed’s help. The Fed is merely discussing pulling back on the level of support they’re giving investors. No one is pulling the rug out from under the market. As a general rule of thumb, investors place far too much emphasis on what the Fed does (I know, this is a screaming heresy to a lot of folks on Wall Street).

I’m also a doubter that the Fed will make any tapering decision at its September 17-18 meeting. I appear to be in the minority on this point. I should also add that my views on what the Fed will do have been pretty off the mark this year. The good news for us is that forecasting what government eggheads will do isn’t a prerequisite for being a good investor.

This leads to an odd situation where good news on the jobs market leads to bad news for investors, because it signals that the end of QE is within sight. The more dramatic response to any shift in Fed policy hasn’t been in the stock market, but in the bond market. On Thursday, the yield on the 10-year Treasury bond topped 2.8% for the first time in two years. The yield has nearly doubled in the last year. More broadly, last summer may have marked the peak of an astonishing 31-year rally for bonds.

The importance of long-term bond yields is that they usually (though not always) coincide with outperformance of cyclical stocks. They’re called cyclical for a reason, and if the cycle is in their favor, they can do very well. Two summers ago, the bond market gave the stock market a world-class beat down, and the cyclicals got hammered hardest of all.

If there’s any evidence against the Fed making a move next month, we got it with two reports this week. The first was a rather lackluster report on retail sales. This is usually a good clue on how strong consumer spending is. It also tells us how well some of our Buy List stocks, like Bed Bath & Beyond (BBBY) or Ross Stores (ROST), are doing.

I was also disappointed by this week’s report on industrial production. This is a key data series watched by the people who decide whether there’s a recession or not. Industrial production has been noticeably flat for the past five months. If there’s going to be a second-half pickup, we should see it soon.

As impressive as the market’s rally has been, a lot of it has been based on earnings growth ramping up later this year. As I’ve said, if that’s the case, then the stock market is still quite cheap. But if that thesis doesn’t play out, stocks could take a tumble. The Street’s earnings estimates for Q3 have dropped from $30.27 in March 2012 to $27.17 today. The Q4 estimate is down, but not as much, falling from $31.18 in March 2012 to $29.13 today. Analysts now expect the S&P 500 to earn $108.51 this year, and $122.37 next year. As always, I caution against putting too much faith in estimates beyond a few months out.

What to do now: Our strategy is to be focused on high-quality stocks. Our Buy List has had a very good run since April, so we can expect it to catch its breath. Right now, I think Cognizant Technology Solutions (CTSH) is a solid value. I also think Oracle (ORLC) looks good below $33 per share. Please don’t get too worried about what the Fed may or may not do. Good companies can do well in any environment. Now let’s look at our Buy List earnings coming next week.

Medtronic Is a Buy up to $57 per Share

Medtronic (MDT) is due to report its earnings next Tuesday, August 20. The Street currently expects 88 cents per share. That sounds about right to me. I was very impressed by MDT’s last earnings report in May. The medical-device company topped consensus by seven cents per share.

The big surprise last quarter was that sales of pacemakers and defibrillators rose. Pretty much everyone was expecting more declines. Sales of defibrillators rose by 1.5%, and pacemakers were up by 2.6%. Company-wide, revenues were up by 3.8%. Medtronic’s CEO said that for the first time in four and a half years, sales of defibrillators and spinal products rose in the U.S. in the same quarter.

For their last fiscal year, which ended in April, Medtronic made $3.75 per share, which is up from $3.46 per share for the year before. In May, the company said it sees FY 2014 earnings ranging between $3.80 and $3.85 per share. Last week, MDT came within two cents of hitting $56 per share. The shares have pulled back with the market’s recent slide, but nothing too severe. Remember that a few weeks ago, Medtronic raised its quarterly dividend for the 36th year in a row. Not many companies can say they’ve done that. Medtronic remains a very good buy up to $57 per share.

Ross Stores Is a Buy below $70 per Share

Ross Stores (ROST) is due to report earnings next Thursday, August 22. Unfortunately, the discount retailer has gotten punished over the last few days. At the beginning of August, ROST was closing in on $70 and threatening to make a new 52-week high. But some bad news for the retail sector, including disappointing earnings from Walmart and a tepid retail-sales report, brought shares of ROST down to $64.89 by the closing bell on Thursday.

Make no mistake, Ross is a very well-run outfit, and I’m not at all worried about its prospects. In May, the company reported fiscal Q1 earnings of $1.07 per share, which matched forecasts. Quarterly sales rose 8% to 2.54 billion, and same-store sales were up 3%.

Ross said that it sees Q2 earnings coming in between 89 and 93 cents per share. The Street’s foresees 93 cents per share, which may be a penny or two too high. But bear in mind, that’s still a pretty nice increase over the 81 cents Ross earned in last year’s Q2. For the entire year, Ross projects earnings between $3.70 and $3.81 per share. Ross Stores is a very good buy up to $70 per share, and especially good if you can get it below $65.

Nicholas Financial Announces Dividend of 12 Cents per Share

On Tuesday, Nicholas Financial (NICK) said they’d be paying out another 12-cent quarterly dividend. I thought there was a chance they might increase their dividend. I think we may see a two- or three-cent-per-share increase this December, at the time of their shareholder meeting. Going by Thursday’s close, NICK now yields 3.16%.

That’s all for now. Next week will probably be another quiet week on Wall Street. All the big money guys are chillaxing at their cribs in the Hamptons. On Wednesday, the Fed will release the minutes from their last meeting. This might contain clues to what they have planned for their September meeting. Expect folks to read too much into it. We also have earnings reports from Medtronic and Ross Stores. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 for the last six years in a row. This email was sent by Eddy Elfenbein through Crossing Wall Street.

CWS Market Review – August 2, 2013

August 2, 2013

“More money has been lost reaching for yield
than at the point of a gun.” – Raymond DeVoe

This has been one of our best earnings seasons in memory. In the last 27 trading days, our Buy List has soared 10.43%. Not bad! For the year, we’re up 24.25%, which means we currently lead the S&P 500 by more than 4.5%. This should be our seventh market-beating year in a row!

On Thursday, the S&P 500 broke 1,700 for the first time ever. For the day, the index closed at 1,706.87. This has been an amazing time for equity investors, and it has a very chance of lasting. The Fed this week gave investors more encouraging signals on monetary policy. Not only that, but we had a very strong ISM report, and initial jobless claims reached a five-year low.

In this week’s CWS Market Review, we’ll review the recent slate of outstanding earnings reports. Stocks like Fiserv and Harris continued the trend of Buy List stocks smashing estimates and gapping up to new highs. Fiserv stock rallied 4% after its report and nearly hit $100 this week. Harris beat its estimates by an amazing 26 cents per share, and the stock surged 8% on Tuesday. Both AFLAC and WEX Inc. rallied to new highs on earnings beats as well.

We had one disappointment this week with DirecTV, but it’s been a very good stock for us. I also want to preview the remaining earnings that are due next week. But first, let’s look at this week’s earnings news.

Moog Is a Buy up to $57

We have a lot of earnings to run through, so let’s start with last Friday, when quiet little Moog (MOG-A), the maker of flight-control systems, reported earnings of 90 cents per share. That topped Wall Street’s view by six cents per share. Quarterly sales rose 10% to $671 million.

I was pleased with Moog’s forward guidance. For the full year, Moog sees earnings coming in at $3.25 per share, but that includes two 15-cent charges. Note that Moog’s fiscal year ends in September, so the June quarter was their fiscal third. For next year (September 2013 to September 2014), Moog sees earnings ranging between $3.90 and $4.10 per share.

That’s a very optimistic outlook. The Street’s consensus for next year had been for $3.90 per share. With a 38.31% gain, Moog is our number-one performer this year. Moog continues to be a very good buy up to $57 per share.

Harris Crushes Earnings and Soars

Then on Tuesday, Harris Corp. (HRS) absolutely demolished Wall Street’s forecast. For their fiscal fourth quarter, the communications-equipment company pulled in $1.41 per share, which was 26 cents better than consensus! The stock surged 8% on Tuesday and continued to close higher on Wednesday and Thursday as well.

Harris also had very good guidance for next year. For fiscal 2014, which ends next June, Harris sees earnings ranging between $4.65 and $4.85 per share on revenue of $4.95 to $5.05 billion. The Street had been expecting earnings of $4.62 per share on revenue of $5.03 billion.

The success we’re seeing now at Harris is the result of restructuring efforts undertaken earlier this year. Harris had actually been one of our poorer-performing stocks this year, but as is often the case, high-quality stocks eventually deliver the goods. I’m raising my Buy Below on Harris to $62 per share. This is a very solid stock.

I’m Raising my Buy Below on Fiserv to $103

After the bell on Tuesday, Fiserv (FISV), which had been rallying pretty well going into earnings, had a great earnings report. For the second quarter, Fiserv earned $1.50 per share, which was six cents better than Wall Street’s estimate. Quarterly revenues rose 11.8% to $1.14 billion, which was a bit short of consensus.

Fiserv reiterated its full-year guidance of earnings ranging between $5.84 and $6.03 per share. Always take notice when a good company reiterates guidance. Too many investors see that as being “no news.” Not me. I like to hear that our stocks are still on track for the year. Looking at the numbers, I don’t think Fiserv will have any trouble hitting that range. For the first six months of 2013, Fiserv has earned $2.83 per share. Earnings are up 16% so far this year, and cash flow is up 22%.

Shares of FISV jumped 4% on Wednesday. At one point, the stock came within 12 cents of hitting $100 per share. I’m raising my Buy Below to $103 per share. Fiserv is an excellent buy.

AFLAC Surges past $63 on Strong Earnings

Our beloved AFLAC (AFL) reported Q2 operating earnings of $1.62 per share, which was 11 cents better than estimates. I liked that, and so did traders. AFLAC rallied 4.3% over the following two days and reached a new 52-week high.

Let’s dig into the details. Remember that with insurance companies, it’s more important to focus on their operating earnings. Three months ago, AFLAC gave us a range for Q2 of $1.41 to $1.56 per share, so business is going much better than expected. The problem, of course, is the yen/dollar exchange rate, which wound up knocking 22 cents per share off earnings last quarter. Ouch, that stings. But adjusting for that, AFL’s operating earnings rose 14.3%.

For Q3, AFLAC sees operating earnings ranging between $1.41 and $1.51 per share. That’s less than the $1.56 per share Wall Street had been expecting. For the full-year guidance, AFLAC lowered the low end of their range. The previous range was $5.99 to $6.37 per share. Now it’s $5.83 to $6.37 per share. That seems very conservative to me. Even after the rally, AFL is still going for less than 10 times the high end of their forecast.

Can you believe AFLAC was going for $43 a year ago? This has been such an impressive stock. This week, I’m raising my Buy Below on AFLAC to $67 per share. Excellent stock.

WEX Inc. Is a Buy up to $93

On Wednesday, WEX Inc. (WEX) reported Q2 earnings of $1.05 per share, which was one penny better than expectations. For Q3, they see earnings between $1.16 and $1.23 per share. Wall Street had been expecting $1.18 per share. For all of 2013, WEX now sees earnings ranging between $4.27 and $4.37. The Street’s consensus was at $4.31 per share.

Traders liked the earnings news a lot. On Thursday, WEX got as high as $91.84. That’s nearly a 40% run in three months. In fact, my Buy Below prices are having trouble keeping up. This week, I’m raising WEX to $93 per share. Let’s hope I have to raise it again soon.

DirecTV Was Our Big Miss This Week

We had one disappointment this week with DirecTV (DTV). For the second quarter, DTV earned $1.18 per share, which was 16 cents below expectations. Revenues rose 6.6% to $7.7 billion, which was slightly below forecasts. It’s actually not as bad as it sounds.

The big problem for the satellite-TV company was Latin America. Analysts were expecting Latam subscriber count to rise by more than 420,000. Instead, it rose by just 165,000. To put this into context, last year, DTV added 645,000 new subscribers in the region. DirecTV said that macroeconomic conditions were partly to blame, especially in Brazil. In the U.S., subscriber count fell by 84,000.

The stock pulled back 3% after the earnings report, which isn’t so bad. While the Q2 report wasn’t what I was expecting, I still like DirecTV. DTV is a good buy up to $67 per share.

Earnings Next Week from NICK and Cognizant Technology

I still don’t know when Nicholas Financial (NICK) will report, but it will probably be soon. I’m expecting earnings around 40 cents per share. To me, what’s more important will be any dividend increase announced at their annual meeting later this month. I said last week that I think NICK can raise their quarterly payout to 15 cents per share, which is a 25% increase. Nicholas Financial remains a very good buy up to $16 per share.

Next Tuesday, Cognizant Technology Solutions (CTSH) is due to report its second-quarter earnings. CTSH beat impressively for Q1 and guided higher for Q2. The company projected earnings of $1.06 per share for Q2. For all of 2013, they foresee earnings of $4.31 per share. CTSH is a good buy up to $76 per share.

That’s all for now. We’re finally heading into the back end of earnings season. Except for earnings, next week should be a fairly light week for news. I suspect traders will be digesting the news from Friday’s big jobs report. With the dearth of news, I wouldn’t be surprised to see the Volatility Index (VIX) drop to a multi-year low next week. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 for the last six years in a row. This email was sent by Eddy Elfenbein through Crossing Wall Street.

Best headline of 2013: “The Bears Get Smoked as the S&P 500 Hits a New Record High”

Equity markets rallied on some positive economic data and ongoing activity from central banks.

The S&P 500 broke the 1,700 mark for the first time to hit a new all-time high. We also saw record levels in the Dow Jones Industrial Average) and Russell 2000 indices today.

China’s PMI topped estimates, while stateside, the ISM manufacturing index came in at 55.4 vs. the 53.1 consensus. On the negative side, US construction spending fell short of the 0.4% expected by economists, coming in at -0.6%.

Initial jobless claims were much better than expected at 326K, 19K below consensus.

And on the central bank front, the ECB kept its target rate at 0.5% and said it expects rates to stay low, or go even lower, for the foreseeable future.

Yelp Inc (YELP) jumped 25% after reporting better-than-expected earnings and receiving three analyst upgrades.

The Energy Select Sector SPDR ETF (XLE) outperformed on the day, pushing 1.6% higher as crude oil prices spiked.

The ProShares UltraShort 20 Year Treasury ETF (TBT) pushed 4% higher on the day as US Treasury prices reversed yesterday’s gains.
The unemployment report will be released at 8:30 a.m. EDT. Nonfarm payrolls are expected to come in at 175K, while the unemployment rate is expected to fall from 7.6% to 7.5%. Personal income and outlays will also be released at 8:30 a.m. Both are expected to increase by 0.4%. Factory orders will be reported at 10:00 a.m.

Stocks Make New All-Time Closing Highs

 

 

The S&P 500 created a new intraday high of $1,693.12 during today’s trading. The previous peak was $1,687.18 on May 22 of this year. The index closed the day up 0.4% led by the financial and energy sectors. Tech and telecom were the lagging sectors, affected by the earnings miss from Verizon (VZ). The strength in the financial sector was due to strong earnings from Morgan Stanley (MS), BlackRock (BLK), and Blackstone (BX). The index finished the day up 1.2%, and Morgan Stanley closed up 4%.

Initial jobless claims fell to a two-month low of 334K versus the 344K consensus. The Bloomberg consumer comfort index fell slightly short of the -27.3 expected, with a reading of -28.4. The Philadelphia regional manufacturing survey showed very strong growth in July with a better-than-expected reading of 19.8 versus the 9.0 consensus. Gains came from upticks in shipments and employment. Ben Bernanke testified in front of the Senate Banking Committee today and did not make any drastically different comments on monetary policy from the prior day’s testimony.

Shares of eBay (EBAY) and Intel (INTC) fell on the day after releasing disappointing earnings after the close yesterday.

The 10-year yield climbed 5 bps to 2.54%. Crude oil continued to push higher, finishing up 1.6% to $108.16 per barrel. Gold rose 0.6% to $1,286 per ounce. Natural gas pushed up more than 5% after an inventory reading from EIA showed a much smaller-than-expected growth in stockpiles.

Google (GOOG) and Microsoft (MSFT) both got whacked on a pair of atrocious earnings reports. Google fell $45 from its closing price in post-market trading and Microsoft was down more than 5%. Microsoft blamed its decline in profitability to the PC business and suffered writedowns related to its Surface tablets.

 

There is no major US or international financial data due out today.

General Electric (GE), Kansas City Southern (KSU), Schlumberger Limited (SLB), and State Street (STT) are due to release earnings tomorrow.

Quartz Daily Brief—Central bank action, Yum! loses appetite, regrown memories

Good morning, Quartz readers!

What to watch for today

Will the US jobs cheer continue? Initial jobless claims will offer clues into the strength of the US labor market recovery.

Big shakeup at Microsoft. CEO Steve Ballmer is reportedly looking to reorganize the company into software and devices divisions, a move that may involve moving a lot of high-ranking executives around. Ballmer may also change the way the company reports its earnings.

Paging Larry at Sun Valley. The annual Allen & Company media and technology conference is filled with the usual A-List names—including a “beaming,” newly single Rupert Murdoch—but not Google CEO Larry Page, who has a chronic illness that affects his vocal cords and breathing.

While you were sleeping

The Bank of Japan stood firm. It announced no new changes to its monetary easing policy and reiterated its view that prices will rise 1.9% in the year starting April 2015. It trimmed some other forecasts, projecting inflation 0.6% this year and 1.3% in the following 12 months. South Korea also kept rates steady at 2.5%.

Bernanke isn’t ready to taper quite yet. He said after a speech in Massachusetts that “highly accommodative” monetary policy was necessary in the immediate future. The dovish comments sent Asian markets higher, but minutes released from the most recent Fed meeting showed that around half the committee advocated cutting off the bank’s $85 billion monthly stimulus spending by the end of the year.

Some answers on the Quebec rail disaster. The head of a company that operated a runaway train filled with oil that killed up to 50 people in an explosion apologized for the incident and said the most likely cause was an improper use of handbrakes. The engineer who set the brakes has been suspended without pay.

American retailers’ watered-down proposal for Bangladesh factories. 17 North American retailers including Walmart and Gap unveiled a five-year worker safety plan that included annual factory inspections and a $42 million fund. They had deemed a European plan, announced on Monday, too binding.

Smithfield’s CEO tried to set the record straight. Larry Pope appeared in front of a senate committee to answer questions about the US pork producer’s takeover by China’s Shuanghui International. Some lawmakers are concerned that the largest Chinese takeover of a US company would set a precedent, threatening US jobs and food security.

Yum! Brands wasn’t so tasty in China. The owner of KFC, Taco Bell and Pizza Hut reported a 15% drop in second quarter earnings (paywall) as food scares in its large Chinese market took a toll on sales, making the promise of other markets like India look ever more alluring.

Australian jobs stats weren’t great. Unemployment climbed to 5.7% in June, above analyst expectations. The number of full-time jobs decreased, as more people found part-time work instead.

Quartz obsession interlude

Gwynn Guilford on why China’s slowdown could be great for the US. “It’s unlikely any global player will emerge with the voracious appetite for US Treasurys that China has had. But that might be fine. Why? Because America might need to borrow less. And that means it will need fewer borrowers of its debt.” Read more here.

Matters of debate

US immigration reform can still get past the opposition. But only by removing the crucial path to citizenship.

Energy prices shouldn’t be rising so fast. It’s traders who are pushing them up.

Minimum wages should be tied to average hourly wages. It’ll help the lowest earners reap the benefits of rising productivity.

Fighting terror will get trickier. As the US scales back in the “war on terror,” al-Qaeda and its mutations have decentralized and spread.

Round tables are the best way to boost collaboration at work. Those who sit in angular arrangements are likely to be more self-centered.

Surprising discoveries

90 is the new 80. A new study shows that those born in 1915 are more likely to live longer and have better mental faculties than those born a decade earlier.

ADHD drugs don’t boost grades. The drugs improve attention, focus and self-control, but don’t translate to academic success.

Our solar system has a tail. It’s 8 billion miles long and looks like this.

A Polish startup claims to predict soccer games with 90% accuracy. Next goal: predicting the scoreline.

These worms can regrow their decapitated heads.  And stranger still, their memories too.

Our best wishes for a productive day. Please send any news, comments, collaboration-boosting furniture and regrown memories to hi@qz.com. You can follow us on Twitter here for updates during the day.

You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.

Important data for the coming week

Monday – None.

Tuesday – Durable Goods Orders; Durable Goods Orders ex Transportation; Consumer Confidence; New Home Sales (MoM) in USA.

Wednesday – Inflation Report Hearings in UK; GDP Annualized in USA.

Thursday – European Council Meeting; Unemplyment Change and Rate in Germany; GDP (QoQ); GDP (YoY), Initial Jobless Claims in USA; National Consumer Price Index (YoY) and National PCI ex Food , Energy, both in Japan.

Friday – CPI and Harmonised Index of Consumer Prices (YoY) In Germany; Reuters/Michigan CPI in USA.

 

Quartz Daily Brief—Asian markets plunge, Greeks on the street, defending Big Surveillance

Good Morning, Quartz readers!

What to watch for today

Asian market rout. Japan’s Nikkei opened down 3.6% and continued falling into bear territory. Chinese stocks fell to a five-month low.

BoJ explains itself. The Bank of Japan will release the minutes from its controversial May policy meeting, where it declined to take further action to stimulate the economy.

Talking Turkey. The European parliament will vote on a non-binding resolution to call on Turkey to build a “truly democratic, free and pluralist society.” Meanwhile, Prime Minister Recep Tayyip Erdoğan ordered an end to the protests in 24 hours, which hundreds of protesters ignored.

Greeks back on the streets. A 24-hour general strike began on Wednesday night in opposition to the closure of Greece’s state broadcaster and the subsequent loss of 2,700 jobs.

Data-heavy day in the US. Market-moving economic data points include retail sales, initial jobless claims, and business inventories. Economists expect a modest rebound (paywall) in retail sales for May.

While you were asleep

Drug wars. GlaxoSmithKline, still recovering from a recent marketing scandal, has begun investigating claims that its Chinese salesmen bribed doctors to prescribe its drugs. Meanwhile, Pfizer and Takeda are to receive $2.15 billion from generic drugs companies over patent infringement.

A small victory for Dish. Wireless service provider Clearwire urged its shareholders to accept Dish Network’s bid for the company over Sprint Nextel’s rival offer to acquire the 51% of Clearwire it doesn’t already own.

Defending the surveillance state. The head of the National Security Agency told Congress that extensive internet and telephone surveillance helped thwart dozens of terror attacks. Leaker Edward Snowden vowed to fight efforts to extradite him from Hong Kong.

Indian rubber meets the US road. Apollo Tyres announced a deal to buy US-based Cooper Tire for $2.5 billion. It’s the latest instance of emerging-market companies making high-profile acquisitions in the US.

Changing of the Scots guard. Royal Bank of Scotland announced that Stephen Hester would step down as CEO in December.

Quartz obsession interlude

Lily Kuo on whether building more cities is the answer to China’s economic problems. “Chinese officials are calling for a kind of populist urbanization… According to premier Li Keqiang, city dwellers spend more than rural residents on services like schools, healthcare, leisure and financial advice—all things that would boost the country’s services sector and decrease its export dependence.” Read more here.

Matters of debate

Retirement will kill you. Work may be a chore, but you’ll live longer.

End compulsory paternity. There’s a feminist argument for getting rid of “forced fatherhood.”

What’s the biggest threat to the global economy? You’ll never guess: Space weather.

Internet companies should take a stand on surveillance. And not be like the telcos. 

America’s worst charities. A billion-dollar business.

Surprising discoveries

Crowdsourcing China. In the absence of government pollution data, user-generated Danger Maps comes to the rescue.

Your personal information is worth less than a dollar. Skeptical? Try the calculator.

New human body part discovered. A layer in the cornea is just 15 microns thick but could make eye surgery safer.

Psyche, Popeye, Cookie, and Twelve. Why Chinese choose weird English names for themselves.  [no change]

India’s best shot at population control. A study finds women who watch cable TV have fewer kids.

A sea change for the US Navy. It’s going to STOP USING ALL-CAPS IN ITS COMMUNICATIONS.

Our best wishes for a productive day. Please send any news, comments, and REQUIEMS FOR ALL-CAPS to hi@qz.com. You can follow us on Twitter here for updates during the day.

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Benzinga Market Primer for January 17, 2013

Futures Flat Ahead of Jobless Claims, Earnings

•U.S. equity futures were flat in early Thursday trade ahead of lots of economic data, including Initial Jobless Claims and lots of earnings.
•The earnings data will truly set the tone before the open with many big banks set to report fourth quarter earnings following the positive reports from J.P. Morgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS).

Top News

In other news around the markets:

•The FAA has grounded all Boeing (NYSE: BA) 787 Dreamliners, following moves from regulators in Japan and alongside those in Europe, until the battery issue is resolved.
•The latest tranche of the Greek bailout, some 3.25 billion euros, was finally disbursed to Greece.
•Analysts at Societe Generale have raised their forecasts fro Chinese growth in 2012 and 2013. Ahead of the fourth quarter GDP report, Soc Gen raised its forecast for fourth quarter GDP to 7.9 percent annualized growth vs. 7.8 percent before and also raised its full-year 2013 forecast to 7.8 percent from 7.4 percent annualized growth.
•S&P 500 futures were flat at 1,465.50.
•The EUR/USD was higher at 1.3362.
•Spanish 10-year government bond yields fell to 5.02 percent following a strong debt auction.
•Italian 10-year government bond yields fell to 4.14 percent.
•Gold futures fell 0.03 percent to $1,682.20 per ounce.

Click here for more of Benzinga’s Top News stories.

Asian Markets

•Asian shares were mixed overnight with Australian shares leading and Chinese shares lagging ahead of the GDP report late Thursday.
•The Japanese Nikkei Index rose 0.09 percent and the Shanghai Composite Index fell 1.06 percent while the Hang Seng Index declined 0.07 percent.
•Also, the Korean Kospi fell 0.16 percent and Australian shares rose 0.38 percent.

European Markets

•European shares were mixed overnight as peripheral shares led on the back of the strong debt auction in Spain and weakness was seen in the core.
•The Spanish Ibex Index rose 0.35 percent and the Italian MIB Index rose 0.4 percent.
•Meanwhile, the German DAX fell 0.34 percent and the French CAC rose 0.41 percent while U.K. shares fell 0.1 percent.

Commodities

•Commodities were mixed overnight with oil leading and natural gas futures lagging.
•WTI Crude futures rose 0.17 percent to $94.40 per barrel and Brent Crude futures rose 0.33 percent to $110.61 per barrel as Natural Gas futures declined 0.82 percent to $3.41 per million BTU.
•Copper futures rose 0.26 percent to $361.60 per pound despite the weakness seen in China.
•Gold was lower and silver futures fell 0.16 percent to $31.49 per ounce.

Currencies

•Currency markets were back to their old ways with the euro gaining and the yen declining, the combination sending the EUR/JPY cross higher by a massive 1.7 percent to 119.45.
•The EUR/USD was 0.55 percent higher at 1.3362 and the dollar rose against the yen by 1.12 percent to 89.37.
•Overall, the Dollar Index fell 0.18 percent as the strength against the yen was off-set against weakness euro, the pound and the Swiss franc.
•In addition, the EUR/CHF gained 0.6 percent to 1.2446, the highest since March 2011, and the Aussie dollar weakened against the greenback following weak employment data in Australia.

Pre-Market Movers

Stocks moving in the pre-market included:

•Boeing (NYSE: BA) shares fell 3.15 percent pre-market as the 787 Dreamliner has been grounded by regulators globally.
•Bank of America (NYSE: BAC) shares rose 2.46 percent pre-market ahead of its earnings report this morning.
•Intel (NASDAQ: INTC) shares rose 0.54 percent pre-market ahead of its earnings report and also after disclosing a new agreement with Facebook (NASDAQ: FB) to collaborate on a new data center.
•Goldman Sachs (NYSE: GS) shares fell 0.12 percent pre-market after rising over 4 percent Wednesday on a strong earnings release.

Earnings

Notable companies expected to report earnings Thursday include:

•Bank of America (NYSE: BAC) is expected to report fourth quarter EPS of $0.02 vs. $0.15 a year ago.
•Citigroup (NYSE: C) is expected to report fourth quarter EPS of $0.96 vs. $0.31 a year ago.
•UnitedHealth Group (NYSE: UNH) is expected to report fourth quarter EPS of $1.19 vs. $1.17 a year ago.
•Intel (NASDAQ: INTC) is expected to report fourth quarter EPS of $0.45 vs. $0.64 a year ago.
•Blackrock (NYSE: BLK) is expected to report fourth quarter EPS of $3.69 vs. $3.06 a year ago.

Click here for more of Benzinga’s earnings news.

Economics

•On the economics calendar Thursday, the calendar is rather full beginning with housing starts and jobless claims at 8:30 am eastern.
•Later, the Philly Fed survey is due out and the EIA Natural Gas report is set to be released.
•Lastly, Dennis Lockhart of the Atlanta Fed is set to speak.

•Overnight, the big data comes from China in its fourth quarter GDP release.
•The National Bureau of Statistics is expected to report that the economy grew at an annual rate of 7.8 percent in the fourth quarter vs. a 7.4 percent rate in the third quarter.
•Also, they are set to release fixed asset investment data, retail sales data, and industrial production data.
•Also, Spanish and Italian industrial new orders data are expected.

Good luck and good trading.

Whisper Report #424

Current Trading Strategy

Trading both long and short around earnings while taking profits early and at key resistance/support areas for all after-the-news trades.

This is the delayed, free version of the Whisper Report, read by 165,000 investors and traders worldwide. The full version is available here.

Top-Down One of our favorite charts over the past several years has been the S&P 500 against the inverted four-week moving average of the weekly initial jobless claims (so the gold line on the chart below moves lower when jobless claims rise). The two lines have been highly correlated and it has shown to be a shorting opportunity when the black line of the S&P 500 has moved away from the gold line of the jobless claims, especially when the claims data worsened …and vice-versa. For most of 2012, the initial jobless claims data has been flat, which meant rallies in the S&P 500 were to be sold. The buying opportunities over the past few years have been when the black line fell below the gold line and then initial jobless claims improved. We prefer to look at the moving average of claims because the numbers can be volatile from week to week, and that has certainly been the case lately. Several weeks ago, California failed to report all of its claims data, which skewed the numbers to their best level in years as circled on the next chart on the below, which does not smooth the claims data with a moving average. The next week the missing data was included and the claims data quickly reversed to around its worst level of the year. On average, the claims data has worsened modestly since California’s error even with last week’s improvement. The problem is last week’s improvement seems certain to be another error – this time on the other coast. Many offices in New Jersey were closed due to Hurricane Sandy and even others were without internet access and phone lines. The claims data from these areas were not included in last week’s report. So, on Thursday, when we get the latest numbers, it is going to see an increase in new jobless claims just by including the missing data from the previous week. That is in addition to the risk of new jobless claims from the hurricane because of the business disruptions. Since the black line remains above the gold line on the chart, and the gold line is most likely going lower this week, we see little reason to believe the S&P 500 has stopped dropping from its mid-September high. There is evidence that we are still weeks away from a buying opportunity too in our chart of the S&P 500 below. Over the past several years we’ve seen an increase in option and derivative products and this has distorted what was a very good buy and sell signal in our put/call oscillator on the chart. As a result, we’ve not relied on the data as we have in previous years. Still, the objective of the indicator is to identify when too many investors are betting too heavily in one direction, which tells us it is time to begin trading in the opposite direction. Over the past 12 months, it seems we’ve found a spot where the number of put options relative to calls places just such a floor in the stock market. Our put/call oscillator is currently a long way from reaching that level. Of course, the biggest risk to shorting the market right now is the Federal Reserve and November is not a month where the Fed is sitting around leaving the market to its own devices. The Fed pumped a lot of money into the system at the beginning of the month and is going to continue supporting the market for the rest of the month, but most of it is going to come at the end of the month following the Thanksgiving holiday. So if prices are going to continue falling, there is a better chance ahead of the holiday weekend than afterwards – and that is consistent with the seasonality we mentioned last week. Still, the Fed is not alone and other central banks are doing the part to support the markets and eventually market participants are at risk of becoming too reliant on the Fed liquidity and fail to see the fundamentals. Over the past couple of weeks, we’ve been pointing out this with the Japanese Yen, especially against the Euro, British Pound, and the Canadian Dollar – with all at points that have marked tops in the S&P 500 over the past several years. The one important currency that we’ve left out of this discussion is the Australian Dollar. The basic strength of Australia is selling minerals to China, so to see where the fundamental trends within Australia are heading, we like to look at copper and the Chinese stock market. The chart below shows the past five years of the Australian Dollar, the copper ETF (JJC), and the Dow Jones Shanghai Index (DJSH). What we don�t show at the bottom of this chart is the fact that the Shanghai put in a double top with the first top coming in 2007. The second top is shown on the chart with a “1” next to it. It wasn’t long after the Shanghai index rolled over that copper topped. A couple of more months and the Australian Dollar topped. All three bottomed in 2008 at least two months before the S&P 500 bottomed in early 2009. Since then, we saw the Shanghai flat line and eventually rollover. Then in early 2011 copper topped and that was followed by a top in the Australian Dollar. Since then, the Shanghai index has continued to put in new lows, copper has yet to put in a higher-high and is at risk of rolling over even more with a potential head and shoulders pattern, and now the Australian Dollar, after making a series of lower-highs, is nearing a trend line from its 2011 top.   Bottom-Up Hibbett Sports – trade on Dick’s So far, we’ve not seen any checks that tell us retail sporting goods stores such as Dick’s Sporting Goods (DKS) and Hibbett Sports (HIBB) are going to disappoint. We tend to look at data from the company’s providing the items sold by Dick’s and Hibbett such as Nike (NKE) and Under Armour (UA) as well as CPI data, and all show positive trends within the U.S. (though Nike has had weakness outside of the U.S. and Under Armour failed to beat the Earnings Whisper ® number). The analysts have much better checks, with actual store walks across the country, supplier checks, etc. Sean McGowan at Needham & Company said their checks indicate strong results for the quarter and Michael Lasser at UBS said he expects an upside surprise for the quarter that he expects to carry over into the next quarter. That’s good news because both stocks are trading below their average forward PE multiple, so if estimates move higher, it supports even more upside in the stock. Hibbett, for example, has historically traded at 19.3 times forward estimates, which suggests there is upside room for the stock to move above $58 using current estimates. Meanwhile, though, when we look at the chart for Hibbett, we see a downward trend line that puts resistance just above $58. Therefore, after-the-news, we have to see evidence that the checks are right and estimates are going higher and we need the stock to get to $59, for a trade to new highs. Still, Hibbett is scheduled to report earnings before the market opens on Friday, November 16, 2012 while Dick’s is scheduled to report before the market opens on Tuesday, November 13, 2012. One trade that has worked historically when Dick’s closes higher on earnings and it reports before Hibbett, is to buy Hibbett ahead of the news and hold until the close following its own report for an average gain of 9.53%. Much of this came off the March 2009 lows when the trade in Hibbett gained 29%, but even excluding this one trade, the trade still averaged 7.75% and was successful eleven out of 13 times (12 out of 14 if you include March 2009). For more of our bottom-up coverage, as well as other trading strategies and sector charts, please go to http://www.earningswhispers.com/subwr.asp?artno=424&adv=WR424f.

Markets Await Bernanke’s Jackson Hole Speech

Despite the excellent retail sales numbers in the morning, the market gave back some recent gains due to caution ahead of speeches from central bankers at Jackson Hole. Initial jobless claims rose to 374,000 from 372,000, slightly ahead of estimates. Personal spending was a little light, only rising 0.4% compared to 0.5% estimates..

Pre-market, Ciena (CIEN) reported an earnings-per-share loss of $.04, missing estimates of a loss of $.02 per share. However, the company noted weakness for the coming quarter, citing “macro uncertainties.” The stock fell by nearly 20%.

Facebook (FB), after a very positive research note from Piper Jaffrey, remained flat on the day.

Federal Reserve Chairman Ben Bernanke will give his speech on monetary policy at 10:00 a.m. EDT. The Bank of England’s Adam Posen will give his speech at 1:15 p.m. and the head of the IMF, Christine Lagarde, will give her speech at 2:30 p.m.

In the morning, the Chicago Fed will announce the latest manufacturing numbers. Economists are expecting the index to fall to 53.5 from 53.7 last month. The University of Michigan and Reuters will release the second revision of the consumer confidence numbers, with no change expected from two weeks ago.

In Europe, Germany will report retail sales, and the eurozone will release unemployment numbers for the prior month.