Short-term Outlook:  25% Bearish  As of Jan 12, 1134 SPX

Equity Indicators - Updates and Extremes

Intel Earnings

Other than a disturbing spike in the ratio of Nasdaq to NYSE Volume, there aren't really any extremes that differ from what we've already covered over the past week or so.

It's also pretty evident that traders are focused on one major event, and that's Intel's earnings.  JP Morgan is a focus as well, but their importance as a bellwether has waxed and waned over the years.  Intel, however, has been a focal point for many years.

After jumping 3% after its release yesterday afternoon, Intel has settled back to nearly unchanged as I write.  Earlier this morning it was still indicated to open higher, yet the Nasdaq 100 futures were gapping lower.  That would have been only the 5th time that's happened since 1999, out of 27 occurrences.

With Intel looking to open around unchanged, let's just look at how the market has responded when Intel reports (either bad or good numbers, it doesn't matter) while the Nasdaq 100 was sitting near a 52-week high at the time.  We're using the QQQQ exchange-traded fund here.

 

QQQQ Performance When Intel Reports And QQQQ Is Within 2% Of A 1-Year High
Date	Two Weeks Later	Max Loss	Max Gain
04/13/99	-1.6%	-10.7%	4.7%
07/13/99	-1.9%	-5.9%	4.2%
10/12/99	-2.8%	-9.1%	0.1%
01/13/00	-1.7%	-8.5%	7.0%
07/15/03	-2.6%	-5.1%	0.7%
10/14/03	-0.0%	-5.2%	1.5%
01/14/04	-2.7%	-3.7%	2.4%
01/17/06	-1.3%	-3.8%	0.3%
04/19/06	-1.9%	-3.2%	0.5%
01/16/07	-2.7%	-4.4%	0.0%
04/17/07	2.8%	-1.0%	3.4%
07/17/07	-4.6%	-6.5%	0.9%
10/16/07	4.1%	-1.7%	4.2%
10/13/09	-2.8%	-3.0%	2.9%
Average	-1.4%	-5.1%	2.3%

The results were weak over the next couple of weeks, with 12 out of 14 instances sporting a negative return.  The average maximum loss during those two-week stints was more than twice as great as the average maximum gain.  It should also be noted that one of the winners, from October 2007, showed a gain over the two-week span, but it topped immediately thereafter and marked the peak of the bull market.

Yesterday we looked at how the market has performed during earnings season when sentiment is optimistic, so let's try that again with Intel's earnings:

 

QQQQ Performance When Intel Reports And I.I. Bull Ratio > 70%
Date	Two Weeks Later	Max Loss	Max Gain
07/15/03	-2.6%	-5.1%	0.7%
10/14/03	-0.0%	-5.2%	1.5%
01/14/04	-2.7%	-3.7%	2.4%
07/13/04	-3.3%	-5.2%	+0.3%
01/11/05	-3.0%	-4.7%	1.5%
01/17/06	-1.3%	-3.8%	0.3%
07/17/07	-4.6%	-6.5%	0.9%
10/16/07	4.1%	-1.7%	4.2%
Average	-1.7%	-4.5%	1.5%

When the Investor's Intelligence Bull Ratio is over 70% and Intel reports earnings, weakness tended to set in almost immediately and stay there for awhile.  A weak later, QQQQ was positive only 1 out of 8 times, as it was two weeks later as shown in the table above (and again, that one positive instance marked the peak of the bull market).  The risk/reward was skewed heavily towards "risk".

By the end of earnings season, QQQQ was negative every time, with an average return of -3.5%.  The average maximum gain during the span was +1.6%, compared to an average maximum decline of...get this...-8.0%.