Earnings Beats Fail To Spark A Rally. Investors Will Continue To Take Profits This Week!

Great earnings and lower interest rates failed to produce a rally. The market is digesting news and it looks a bit tired. Apple, Texas Instruments and Caterpillar handily beat expectations. Apple is up $10 and the news was fantastic. Even "whisper numbers" were smashed and revenues were strong across all product lines. Texas Instruments raised its sales and earnings forecast. Caterpillar raised its full-year forecast citing signs of a global economic rebound. With all of the good news, you would think that a major rally would be underway today. Unfortunately, much of the good news has already been priced into stocks. Coca-Cola, United Technologies, Bank of New York and Zions Bancorp are weighing on the market. Coca-Cola reported a 4% decline in revenues. United Technologies beat estimates, but reported a 17% drop in profit and an 11% drop in revenue. Bank of New York lost $2.5 billion on a hefty $4.8 billion restructuring charge. Zions posted its fourth consecutive quarterly loss. They were in the red by $180 million or $1.41 per share. After the close, we will hear from SanDisk, Seagate and Yahoo. These stocks should post good numbers, but the upside reaction should be limited. Before tomorrow's open, we will hear from ATI, Arkansas Best, Boeing, Manpower, McDonald's, Morgan Stanley and Wells Fargo. Demand for steel will be soft, trucking will be bleak and Boeing is expected to post a loss due to delays in the 787. Unemployment has been weak and Manpower number should be light. Morgan Stanley will produce nice profits you to investment banking, but Wells Fargo will be weak because of consumer loan write-downs. In total, I believe earnings will weigh on the market. This morning, housing starts came in lower than expected and the PPI showed a drop of .6%. With oil at $80 per barrel, I'm not convinced that producer prices are falling. Tomorrow, the Beige Book will be released and it is likely to show gradual economic improvement on a region to region basis. Earnings are the focal point and it will not have a major impact on the market. Earnings have been good, but that is built-in to stock prices. If investors feel that the market is getting heavy, they will take profits. This does not mean that a full-blown decline is in store. Stocks that have "risen with the tide" but aren't producing will be the first to fall back. Regional banks and cyclical stocks fit this mold. I believe we will fall into a trading range the rest of the year. There are still some money managers who are under allocated. They will be buying from investors who are happy to lock in profits after a 60% market rally from the lows. In general, Wall Street wants to keep prices right where they are. It will mean nice bonuses heading into year-end after a couple of lean years. This fits right into a trading strategy I like a lot. Sell call spreads on weak stocks and sell put spreads on strong stocks. This is a market neutral position and by picking the right stocks, we can even shoulder a breakdown or a breakout. I wanted to see how the market would react to earnings today and now I have my answer. I am selling out of the money call spreads today. As long as SPY 104 holds, I will start selling put spreads on support. Use the stocks in the Live Update Table as your guide. The market feels like it will be soft entire day today and I believe we will see a decline tomorrow.

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