Trader Talk

GE Is A Real Mind Blower For Markets

First Alcoa , then GE missed earnings.This is a rare occurrence, and as a result the Street is changing its mindset. They are expecting more conservative guidance, and looking for places where negative surprises might pop up.

One example: IBM , which reports next week. While most are expecting weakness in hardware, traders have noted that services (more than half of revenues) gets a good part of its revenues from financial companies, and that this may be the source of a negative surprise from IBM.

Another issue: financial earnings, which are coming next week for US Bancorp, Wells Fargo , JP Morgan , and others. In addition to cautious guidance, traders are looking for:

--Higher delinquencies on home equity, credit cards, commercial real estate--which ultimately means higher charge-offs and building of reserves;

--Higher Level 3 assets;

--More capital raising (though there is some debate about how much more will need to be raised)

Bulls argue that the worst case scenarios are now off the table, thanks to the Fed providing liquidity and a backstop.

Given the problems, many now believe that we are in for a period of sideways trading for the next several months. This can be part of the healing, but it can also lead to low volume days no matter which way the tape is heading. As one trader on the floor said to me, "For three months, we've had no conviction on up days; now we have no conviction on down days either."

Major indices this week:

Dow down 2.2 percent
S&P down 2.7 percent
NASDAQ down 3.4 percent
Russell 2000 down 3.6 percent

Questions?  Comments?