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Old 07-18-2011, 09:58 PM   Nav to Top  #1
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Money What did the IBM Earnings Tell Us

The market got whacked again today with major debt concerns swimming all over the world. I talked over the weekend that I felt the debt issues would take the front seat this week even during the biggest week of the earnings season. The market was down over a full percentage point most of the day only to slightly rally towards the end of the day ending down roughly .8% on the averages. I have been recommending VIX calls as a hedge since it was in the 15's and today it almost got to 22. I see the VIX still going higher.

A couple suggestions I made over the weekend already started to work well. I said we could short the airlines. Delta which was my number one airline to short this week was down 5% most of the day, and American Airlines was down 2%. I talked about banks being a short target especially European names. Deutsche Bank and Credit Suisse were both down nearly 5%. Bank of America, Wells Fargo, HSBC, and even the XLF were all down nearly 2% or more after Tim Geitner talked very negatively of the sector; I feel they are going to be Obama's scapegoat. I said TravelZoo was reporting later in the week, but to buy out of the money calls and puts because it was going to have a big move in one direction or the other. It opened at $76 a share this morning and ended almost $10 higher for some easy quick money. If you did play that strategy I would have taken the profit on the calls today and now wait for the move in the other direction. Might even have bought some more cheap puts today on such a big move higher and worse case scenario break even on the trade. Nothing wrong with being agressive if you are playing with the houses money.

After the close of the rough day, we got some rays of sunshine from earnings from IBM and Wynn Resorts. Wynn said Macau in China made a lot of money. That is a really good signal that China is still running on all cylinders and that my thesis of a strong China combine with a weakening US dollar due to debt issues made the perfect storm for materials and commodities. I love names like metallurgical coal names Walter Energy which had rumors of a buyout today; and copper names such as Freeport McMorran or Southern Peru which pays a hefty dividend. Because of this look for Nucor to have a good earnings release later in the week also. This should also pose a good foreshadow to Las Vegas Sands quarterly earnings since they have a bigger percentage of their overall sales coming from Macau than Wynn. But the true great quarter came from IBM. IBM already had lofty expectations but they still beat on both the top and bottom lines. Not only that but they raised their guidance. Their numbers really showed that the enterprise space is spending IT money. This should bode well for Microsoft later in the week with the refresh of computers and the need of Microsoft Office, and for cloud companies that focus on the enterprise client such as for the customer relationship managment tool and companies like Taleo that sell enterprise HR Talent Management software.

Even with the great quarter and earnings, the stock initially sold off after hours but ended up about 1.4%. In a normal market even just a few months ago, this type of earnings release would have moved the needle 5% or more. That tells me that it will take a lot to move a company higher after releasing their earnings. Because of this, I think the better risk/reward is on the short side and think there are many names you can play that way. I mentioned quite a few over the weekend with European banks, airlines, and OpenTable being my favorites.

Be cautious and happy investing!


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