As Intel goes, so does the market during earnings season.
Or so say some traders, who are watching the big tech bellwether not only for its results and forecast, but what it might tell them about the broader market. Intel reports after the bell today.
"It has been a factor for sure. Whenever they report, they always have the possibility of being a market mover for the short term." said Michael Holland of Holland and Co. "I think Intel really is broadly based. It's so key to what's going on that they are a significant factor so people watch and wait and then people do whatever they do."
Tim Smalls of Execution LLC believes in the power of Intel. He points to a new earnings season trend that he says materialized in the last two quarters, where the market saw a short term peak between the reporting dates of Alcoa, the first Dow component to report, and Intel .
Smalls said Alcoa's significance is only in that it is the first Dow component to report.
"I'm not making a case for the individual price action of Intel and Alcoa. I'm saying Alcoa leads on the calendar, and the time frame between Alcoa and Intel is when the market peaks. If today's the peak, it's the third consecutive quarter and three out of three a trend shall make."
The day after Intel's Jan. 14 fourth quarter report, the Dow lost 100 points even though Intel beat on earnings and revenues. The company reported a jump in inventories, but traders chalked down the market move to a "sell on the news" effect.
Just as many people see the market as overbought now, traders then were expecting profit taking during the quarter.
The Dow recovered in the next session after that, but it subsequently lost 6.6 percent through on Feb. 4.
From the day Alcoa reported, Jan. 12, the Dow lost 6.2 percent. But if you look at Alcoa and Intel charted together, the two Dow components rode down hill together. Alcoa lost a total 26 percent between Jan. 12 and Feb. 4.
In October, Alcoa reported on Oct. 7, a week before Intel. During that time, the Dow lost just 0.13 percent, but as Intel reported on Oct. 14, it then moved down 1.6 percent to its trough on Oct. 30.
Alcoa lost 13 percent between Oct. 8 and Oct. 30, while Intel lost 6.7 percent. Intel beat on earnings and revenues in its third quarter report as well, but it guided higher on its fourth quarter.
Intel is expected to report first quarter earnings of $0.38 on revenue of $9.8 billion. Margins are expected to come in at 61.4 percent. Holland said the market's move will be more pronounced if Intel misses rather than beats.
"In the case of Intel, if they really did disappoint, that would be a huge surprise ... everything in technology has been so robust for so many quarters," said Holland.
Goldman Sachs analysts, in a note this week, pointed out that while energy companies should show the highest growth this quarter, it's S&P 500 tech stocks that will contribute the most earnings per share in the quarter and for the year. They also note that the stock market rallied 7 percent on supportive macro data and the outlook for earnings since early March.
Dow from 10/13 (Intel's report) - 10/30 lost -1.60%, Intel lost -6.73% in the same period.
The Dow lost -6.61% since Intel's report on 1/14 - 2/4 and Intel lost -11.45% in the same period.
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