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Why Bulls Are Having a Problem

Lowe's: lower same store sales outlook for 2009 is a problem for bulls looking for some topline growth.

Lowe's stock is up 25% since early July, but there is no top-line pickup in their Q3 guidance.

Q3 same store sales are expected to decline 6 percent to 10 percent. The is essentially in line with Q2 trends of down 9.5 percent.

Analysts, who had been raising second half 2009 and 2010 estimates, will now be under some pressure to revise those estimates down a bit.

Big ticket items under pressure. Gross margins were stronger, suggesting that there was a stronger mix of lower-ticket items (big ticket items typically have lower margins).

Bulls now have a problem: they have to push out the recovery. Tepid remarks, like Lowe's comments that it is seeing some positive signs that the housing market and the economy are bottoming, are not enough.

Credit Suisse's analyst, trying to put a positive spin on things, reflected this "look on the bright side" mentality: "This morning's earnings results may change expectations for the timing of an earnings recovery in the near-term, but they don't change our expectation for LOW's long-term (5 years out) earnings power...which is predicated on a modest top-line recovery beginning in late 2010/early 2011."

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Now we are into 2011, and even then we can only expect "modest top-line recovery."

Might be a little tougher to get that late-day rally today. One of the factors helping the markets intraday in the past month has been short covering. Traders who believe stocks are overbought have come in and shorted the markets early in the day, which has led to intraday dips.

But because many do not want to go home holding positions, many cover their short positions in the last hour of the day, creating an upward bias.

That will be a bit tougher to pull off today, because with the S&P 500 opening down 20 points right near the open, there is less interest in shorting the market, because it will be tougher to make money shorting.

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