Earnings' Imperfect Storm

11/01/2012 8:00 am EST

Focus: STRATEGIES

Sandy certainly left an impact on the Mid-Atlantic, but it remains to be seen what impact major tech stocks missing earnings...again...will have on the sector and the specific companies in coming weeks, observes Rich Bieglmeier of iStockAnalyst.com.

Let us start this week by letting all our friends on the East Coast know that we are thinking about you and praying for your safety. Due to Sandy, the NYSE will be closed on the floor, but all the electronic trading systems will be open.

A storm of underwhelming earnings guidance, especially from tech companies, helped the indexes shave off more than 1% last week. Apple (AAPL) and Amazon (AMZN) missed earnings and offered unsatisfactory guidance to keep the third-quarter profit season less than Wall Street needed to race off to 2012 highs.

On Friday morning, the street cheered a 2% GDP reading, slightly better than economists’ projections of 1.8%. However—there is always a however—0.6% came from year-end government spending. As the fiscal-year winds down, the agencies push the money out the door. Otherwise, if they don’t use it, they’ll lose it for next year. After further review, investors were unimpressed with the economy’s growth.

Dull earnings news and economic announcements stuffed the Nasdaq to its 200-day average. The index has led the way lower; so, if it breaks the key buy/sell benchmark, we’d expect the Dow and S&P 500 to follow. The good news is that the Nasdaq hasn’t closed below the 200, its relative strength reading is close to oversold, and is two standard deviation below its 20-day average, all of which should add up to some stabilization soon.

A strong rally is probably unrealistic at this point, but a breather from the selling seems realistic. Any run higher should end around 3,050. Now, if the Nasdaq closes below 2,950, then the chart says another 100 points lower could be the destination.

Friday’s Employment Situation could be the determining factor as to whether the 200-day holds and President Obama gets re-elected, or it’s President-elect Romney and talk of how low equities are going to go.

iStock believes the Nasdaq could start the week off on a positive foot. Despite a poor week, momentum on the three levels we monitor turned positive late last week. With that in mind, investors might want to consider adding PowerShares QQQ (QQQ). Just remember, 3,050 could be a lid, and if the index falls below 2,970-ish, you might consider hitting the road.

If stocks are more your thing, the healthiest member of the Nasdaq-100 is Comcast Corporation (CMCSA), in our view. If we are right about an early-week uptick, the cable company should do well. On the downside, iStock would consider a stop at $36.

Read more from iStockAnalyst here...

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