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McCall' Morning Call - China Bubble, Earnings, Market Technicals

Jobs - Initial Jobless Claims for the week spiked by 36K to 482K, well above the 440K estimate. The initial reaction of the market was negative as the S&P 500 futures moved into negative territory after the announcement.

Earnings in Full Swing
- Starbucks (SBUX) - After the bell last night beat estimates and stock is up over 2% in premarket trading. Same store sales rose by 4%, a very impressive number and they are a company that “did it right” during the recession by closing stores and concentrating on what works. I alone may have attributed to their turnaround - HA!
- EBAY (EBAY) - Stock is up big after the online auctioneer reported an increase in revenue and net income, driven mainly by their sales at the online payment company, PayPal. This is one more indication that consumers will continue to migrate to shopping for more goods online.
- Goldman Sachs (GS) - Destroys the number and reports EPS of $8.20, which is $3.00 higher than the street’s estimate. Revenue was in-line so the stock is not up big in premarket trading. What this does say is that the worst is well behind the large banks; net revenue in 2009 was only 2% lower than the record net revenue in 2007.

China Bubble??
- China grew by 10.7% in the fourth quarter and full year GDP growth in 2009 came in at 8.7%, much better than expectations. As great as the number sounds, it has now brought on fears of inflation (as evidenced in today’s CPI and PPI) and a tightening monetary policy. Sure that may be the case, but at the end of the day if you want growth, China is a place to go. The iShares China 25 ETF is down in premarket trading.

Technical View on the Market
- The S&P 500 lost 1.1% yesterday on average volume and it felt like the bubble was bursting for stocks. Why is that? Well because this bull market has been climbing a wall of worry and every 1% pullback is greeted with the naysayers calling for a massive pullback. To all the bears out there - WE ARE 1 DAY FROM A 15-MONTH HIGH! There are several support levels on the index, starting the 20-day EMA at 1133. Beyond the very short-term trading support there is the 50-day SMA at 1113, but more importantly is price support at the 1083 area. As long as the index holds above 1083 I feel the outlook remains bullish and based on earnings so far the E portion of the P/E ratio will continue to improve resulting in new highs for the S&P 500 during the first half of 2010.