THE INTEL/YUM/DELL CONUNDRUM
On a day when the S&P is ripping almost 3% higher on the back of Intel’s results it’s curious to note that Yum Brands is slipping 4% on disappointing earnings. Intel saw phenomenal strength in Asia and sees continued strength going forward. But Yum Brands disappointed despite a massive move into Asia over the last few years. Meanwhile, earnings from Dell two days ago were largely ignored even though the PC maker sees no better than low single digit growth in the PC world in the coming 5 years.
All of this has to make you wonder if this isn’t just a case of the analysts being too bearish in one case and too bullish in another case? Is Intel seeing real strength or were the estimates simply slashed too far? Is Dell seeing real weakness or were the analysts overly optimistic? And is China seeing a continued rebound or were the analysts simply too optimistic about Yum’s earnings? More importantly, does the mixed results of these three firms justify a 5% move in the S&P 500? Thoughts and comments are appreciated.
Sold all my longs into today’s rally and shorted wfc and xrt, will cover if we break 930 on the S&P. Any change in your position?
Does the “working group” have specific orders to blow up the head and shoulders pattern on the S&P chart that everyone was seeing? BTW, TPC, nice calls getting short at 945 at covering near the recent low…Atta, Boy.
Eric & Frank,
No change in my position. The Intel news is going to give the bulls an excuse to buy until someone more important knocks them off their pedestal. The estimates are simply too low heading into this earnings season. This could very well go on for weeks. Certainly not something I am shorting in front of, but at this pace we’ll get overbought very quickly.
Frank,
You have to be careful with the pure charting patterns. Fundamentals make charts, not vice versa. This earnings catalyst is just too strong for any technical analysis to overcome it.
I would maintain a bullish bias here. I actually don’t think S&P 1,000 is out of the question, but we’ll take it one day and week at a time….
@TPC – your timing this year has been uncanny. Just wanted to say thanks. I covered my shorts last week when you did and it saved me a bundle. Keep up the nice work.
Erik, ballsy move, but you might regret about it tomorrow.
AndyD,
Thanks. Glad I can help.
Gotta agree with anon about the short erik. You’re picking a fight with JP Morgan tomorrow. Good luck though!
YUM was probably considered by many to be a defensive play, and defensive plays tend to get overbid during downturns. Interest in the fast feeders may be waning if the market is getting more optimistic, to the extent that these restaurants are seen as US defensive plays, despite their international presence.
Of course, the analysts were off the mark. As it turns out, you would have been better off buying Starbucks on the dips than either McDonald’s or YUM. We were all supposed to stop drinking coffee, but we didn’t, just as investment banking was supposed to die, but it didn’t.
Intel is a good brand, but is in a mature market. It seems to be more like the new version of GM or IBM than a growth stock. I don’t really follow it, but I don’t see anything that makes it particularly exciting or horrible.
I don’t follow Dell, but the business model doesn’t move me enough to want to. I don’t see how a company in its position could expect to avoid commoditization (read: eroding margins) or not have its market share continually under threat.
TPC,
GS seemed to be an exception to the norm as far as finacials go since we all know it’s the US Govt’s favorite step child.
So on that point, don’t you think the moon, sun and the stars is baked into any earnings surprises by banks going forward considering the run they’ve had in lock step with GS this past 3-4 days ?
Mike,
JPM is the other favorite stepchild. The numbers I have run make the 4 cent bottom line estimate for JPM look absolutely absurd. I could be wrong, but I have no clue how the analysts came up with that figure. They must be expecting larger charge-offs than I am.
Remember, my change to a bullish stance isn’t a belief that the fundamentals are actually improving, but rather that the analysts have set the bar too low. It’s interesting to note that this rally is on very low volume, weak breadth and is not being confirmed by the transports. Classic signs of a short covering rally as opposed to a real change in the fundamental perspective.
Also everyone,
I added an edit button to the comment section. Sorry that took me so long to resolve. Let me know if it’s not working for anyone. I only see the administrator version. Hope that helps.
When 80% of the volume is controlled by GS + 1 or 2 more institutions, then all the fundamental analysis are useless. Market will move wherever GS wants and for however long they want.
Only best thing one can do either long/short side is to hold onto their positions irrespective of counter direction move till their position becomes profitable and not to be too greedy to hold onto the position for profits beyond some initial target.
Didnt blow through 930 strong enough to make me cover my wfc and xrt short I put on this afternoon and added 1k share short of spy at the close. GS is up 20 points from its low last Wednesday and it leads the financials higher/lower…I just dont see another big up day in GS tommorow after the move it has had, without some type of retracement. The whisper on JPM is closer to .25-.3 cents, so I agree they will handily beat the number, however, I expect a selloff in the financials tommorow as this turns into a buy the rumor sell the news. Up 60 straight points in the S&P with no pullback and every pundit coming on CNBC saying the market will have clarity by the end of the week, I would venture to guess we get a nice down day either thursday or friday to muddy the waters. Good luck all.
Mrinmoy,
I totally disagree. This whole argument about GS and the dark pools is not an argument about market direction. The market is going to go where the fundamentals take it in the long-term. These high frequency traders are just scraping pennies inbetween.
High frequency trading and the impact of GS and other large players is not the equivalent of manipulation. They are working within the rules as they are defined. If the conspiracy theorists have a problem they should take it up with the regulators rather than pointing to the institutions. I don’t like what’s going on either, but that sort of mentality won’t help you make money.
There are a lot of bloggers who have had a negative directional bias for months because of their hatred for the wall street machine and they’re likely getting their clocks cleaned. If someone is gaming the system it’s better to just realize it and figure out how that might drive prices rather than try to fight it. That’s like trying to fight the mob circa 1920. It’s useless.
TPC,
How do you take it up with the regulators when most of them are bought and paid for by GS? GS is the one who sets the rules…even the former assistant treasury is on record as saying the treasury dept works not for the people, but GS.
Eric,
These sorts of stories have been going around since the day I first started trading. There are always people who stay negative because they have some belief that the little guy is always getting screwed by the institutions. Meanwhile, the institutions are stealing their lunch every day. I don’t condone what’s going on and I don’t necessarily like it, but I have learned that it’s just plain stupid to fight it.
Part of me wants Goldman to pay back their earnings after they were bailed out and the other part of me says that Goldman gamed the system better than anyone else. Is it fair? No, but am I gonna go out and short Goldman? Definitely not.
Wall Street and Congress have been holding hands since the dawn of capitalism. As much as I hate to admit, what’s good for Wall Street is good for America. The politicians know and they cater to the banks’ every need.
It sucks, but it’s the system we live in.
Denninger has some interesting comments on Intel – it may be in how you read the report.
http://market-ticker.org/archives/1216-Intel-Too-Much,-Too-Far,-Too-Fast.html
Let me also add:
http://www.topgunfp.com/top-line-still-weak-at-intel/
tpc
if JPM will have 40 cents EPS in a 2Q, (they had 40 cents eps in 1Q with aig cash infusion), its still much more then PE 20. I remember in bubble years they had PE something like 10-12 and they were actuallly growing. i agree there is going to be a lot of beats, but on the other side, PE ratios are already on insane levels.
“As much as I hate to admit, what’s good for Wall Street is good for America.”
do you think it was valid in last 5 years? really good, now you guys will have to pay at least Trillion bill for it. WS is still pretending to be alive, while its going to become much more closer to japan zombie banks
Teomax,
I don’t mean to imply that a 40:1 leveraged Wall Street is good. It’s not. But a healthy banking system is good for America. That’s what I should have said. In many ways the politicians have to cater to the bankers because they are such an important cog in the machine. Without a healthy banking system the entire system struggles.
I still maintain that we are in for a really tough slog for years to come and I by no means think we are out of the woods, but that doesn’t mean I won’t be bullish at certain times.
Jeff,
Good reads. I would only point out that no one is judging these numbers on their true merit. They only judge them based on how they compare to the analysts estimates. Traders are making a bet now that earnings will continue to beat the estimates. That doesn’t mean the economy is recovering. Regular readers know that I expect the rally to top out as we get deeper into earnings season.
For those interested. CIT Isn’t getting support….
http://www.marketwatch.com/story/cit-says-government-support-unlikely-near-term
The High Frequency Trading that GS is alledged to be conducting according to Themis and others
is another form of front running. Instead of everyone having a consistent view of the market
the computer that’s closest to the exchange wins. In any event, it’s distorting the market since the activity isn’t transparent. It will only end in tears some day.
TPC, for a very detailed analysis of how divorced Intel’s results were from the reality of end-use demand, see this:
http://www.minyanville.com/articles//7/15/2009/index/a/23565
Asteroid,
I think TPCs point is that it isn’t illegal now so the best we can do is try to focus on ways to make money rather than bitch about it on tHe Internet
Asteroids, Andy is correct. I don’t mean to imply that it has no impact on trading or that it isn’t having an adverse effect, but for now they are working within the rules that the system has laid out. I can voice my unimportant opinion here on the site and write about it, but we’re just as well focusing our time on how to benefit from any potential manipulation rather than wasting time trying to change the Wall Street/Washington DC relationship that has been the same for 50 years….Anyone who thinks the Goldman Sachs club in DC is going to change the rules to hurt GS is kidding themselves. Can’t beat em, join em.
Robert, good stuff. Thanks for passing it along.
Good practical points, TPC, you’ve certainly earned the right to call yourself a pragmatist.
Those who trade based upon political belief and/or conspiracy theories are setting themselves up for huge failure and disappointment. It’s one thing to convince oneself of black helicopters, but it’s entirely another matter to put one’s capital at risk based upon those beliefs. Those beliefs will get in the way of objective analysis, and will cause those who hold them to either miss opportunities or else obscure their ability to see when they’ve been proven incorrect and need to exit.
If the issue here is one of short-term trading, as opposed to medium- to long-term investing, then forget the political protestations or hatred of Goldman, and try to make a play that is going to actually make a profit, with an exit strategy if your business case (not political one) proves to be incorrect.
Some of these folks who are shorting because they are afraid of a Marxist takeover or are fearful of the end of the world are just setting themselves for needing welfare checks. Ignore the hucksters who prey upon either deep fears or hopeless optimism, and make a pick that will produce cash. Cash tilts neither left nor right, it just takes up more space in your wallet.
Excellent points MBA. If I have earned the right to call my self pragmatic I am still trying to figure out where you get off calling yourself Angry? You seem more practical than myself most of the time….:-)
Intel has a good quarter. But one of the heavy customers of Intel – Dell has a bad quarter. I do understand that there are other players like HP andACER… that use Intel chips and technologies offered by Intel. But to me, it some how is not gellin! I dont have the info as to get into to the details of Intel’s revenues from Dell, but I can think of this reason: Intel recognized the revenue once it supplied to its Customers(PC makers) but thePC makers themselves couldnt sell, so couldnt recognize the revenue! I think Intels a lagging indicator – the market reacted AND unnecessarily bid up the prices. The PC makers are probably hanging on to the inventory. But again, I have heard of Dell’s JIT(just in time inventory) propositions! Or may be we need to wait to hear from otherPC manufacturers!
If it istoo good to be true – is probably is not ture!
FYI: I come from India but live in USA. My Dad did tell me 2 weeks back that some local PC manufacturers are too busy to take his orders for a shipment of 3 PCs. Does that speak something?