Sulaman Chaudhry and Andy Cole send: Recapping the events of last week…

• Texas Instruments (TXN) posted a lower than expected profit and cut their outlook for the year.
• American Express (AXP) blew out earnings. However, those estimates had already been lowered for the year.
• Yahoo (YHOO) matched estimates and announced plans to cut 10% of its workforce. Yahoo also reduced their revenue estimates for the year.
• DuPont (DD) beat and said they expected weakening demand in North American and Western markets for the remainder of the year.
• Fifth Third Bancorp (FITB) badly missed estimates and stated that they are considering taking part in the Treasury’s plan of buying Tier 1 securities from banks.
• US Bancorp’s (USB) profit disappointed as they stated that future performance could further suffer due to market conditions. They also mentioned that they were not fully convinced that the Emergency Economic Stabilization Act of 2008 would be able to completely stabilize the financial system or other economic conditions.
• Blackrock profit fell prior to the previous year.
• Coach (COH) beat estimates by a penny citing strong demand in Asia. They also cut their sales outlook for the year, but kept the earnings outlook for the remainder of the year.
• Apple (AAPL) beat earnings, but gave a weak outlook for the year.
• Boeing (BA) profit fell sharply on concerns of the companies outlook going forward.
• AT&T (T) missed expectations despite gaining subscribers.
• McDonalds (MCD) beat expectations as consumers were looking for cheaper places to dine.
• Wachovia (WB) posted a $4.8 billion dollar loss en route to being acquired by Wells Fargo (WFC).
• Kimberly Clark (KMB) posted a lower quarterly profit and cut their full-year profit forecast.
• Conoco Philips (COP) beat earnings on higher oil prices.
• Lockheed Martin (LMT) beat estimates and raised its full forecast for the year.
• Amazon (AMZN) cut revenue and income forecasts for the year saying the holiday quarter would fall short of analyst expectations.
• Microsoft (MSFT) records a rise in profit, but lowered its full year earnings forecasts.

and finally…

• Jobless claims rose to 478,000 as Friday’s gain of 15,000 claims was more than expected.
• And the FDIC says a bigger mortgage fix is needed because $750 billion was not enough.

There are a couple things we need to touch on here.

First, the overall theme for earnings thus far has been “lowered outlook” or “cut forecasts.” This leads us to believe that estimates for the remainder of the year are still too high. The same could be said going into 2009. Currently, the S&P trades at a P/E of around 24. That is a number that could easily fall into the next few months.

Secondly, there has been a lot of news over the past few weeks concerning the loss of jobs in the United States, with General Electric (GE), Goldman Sachs (GS), and Coca-Cola (KO) being the headliners. Current unemployment in the United States has been most recently figured at 6.1%. California’s most recent data came in at 7.7% and since California can tend to be a leading indicator of where the economy might be headed, we would look for that number to also rise into the remainder of the year.

Overall, the fundamentals are still deteriorating. There are some places of strength (bio-tech, agriculture, etc.), but for the most part, the trend is still down.

Only three charts to focus on today:

Friday’s action was very left us with a much more bearish bias going into this week. The fact that we closed below 900 on decent volume was definitely not what we were expecting going into Friday. In order to see any rally from here, we need to get back above 900 in a hurry. If we fail to do that, then the shorter-term trend is lower. The next support level on the S&P is at 855. 900, 960, and 1010 continue to provide resistance on the way up.

The financials came close to retesting the lows set a little earlier this month. Could we get a pop from here? Maybe, but seeing as how the S&P traded last Friday, don’t try to bottom pick around this one.

Back in early August, we noted that the XHB was trading at very high levels around that $20 area and in a little less than three months, the XHB has fallen about 40% from those levels. We also managed to form new lows over that period. $14.35 remains firm resistance and from there, the trade would be short. We would not be trying to pick any bottoms here, though, because it’s literally been straight selling for the past four weeks.

And that’s about it. Keep in mind that these are only our views on current market conditions, and they should be used only as that. Good luck.

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