Sears, IBM, and a Reflex Bounce

Equity futures weren’t doing much of anything early this morning until IBM announced it’s numbers. Equities went instantly bid.

As I’ve mentioned last week, stocks are deeply oversold on a technical basis and are itching for a reason to pop a bit. Today is probably the day. I mentioned how badly the market was setup to rally last Thursday in Capital One, Freddie Mac, Money Markets and Hammers.

Beware: Tomorrow will make or break the bounce. Countrywide reports tomorrow. A really massive write down could end the party early. Also, tomorrow we get PPI (inflation numbers), retail sales (the health of the consumer) and Empire State (manufacturing). With the indices at key technical levels, these numbers will be very important.

IBM Beats Estimates on Emerging Markets; Shares Climb (Update2): “International Business Machines Corp., the world's biggest computer-services company, posted earnings and sales that topped analysts' projections as orders from Asia and Europe bolstered results.

IBM advanced 8 percent in early trading, which would be the most in more than five years if it holds when U.S. markets open. Fourth-quarter profit climbed to $2.80 a share and sales rose to $28.9 billion, exceeding predictions by more than $1 billion.

Business in Asia, Europe and developing countries drove results, Chief Executive Officer Samuel Palmisano said today in a statement. The remarks eased concern that slowing economic growth in the U.S. will drag down technology company profits and marked a reversal from the previous quarter, when IBM disappointed investors with slack hardware sales.

Analysts anticipated profit from continuing operations of $2.60 a share and revenue of $27.7 billion, according to the average of estimates compiled by Bloomberg.

The company plans to report full results on Jan. 17.”

Sears Holdings Shares Drop on Holiday Sales Decline, Downgrades: “Sears Holdings Corp., the retailer run by investor Edward Lampert, fell as much as 12 percent in early U.S. trading after saying profit will trail analysts' estimates following a drop in holiday sales.

Analysts at Goldman, Sachs & Co. and Credit Suisse Group downgraded the stock, saying investors should sell the shares.

Sears Holdings fell $10.17 to $86 at 7:48 a.m. in trading before U.S. markets opened. The shares dropped 39 percent last year.

“We expect the retailer to experience accelerated share loss and profit pressures in an increasingly tough macro backdrop,” Goldman Sachs analysts including Adrianne Shapira in New York wrote in a report to investors today.

Retailers slashed prices by 50 percent or more during the holidays to lure consumers spending more than $3 a gallon for gasoline and facing declining home prices. The National Retail Federation said today that sales may rise at the slowest pace in six years in 2008.

Profit in the fourth quarter ending Feb. 2 will be $350 million to $470 million, or $2.59 to $3.48 a share, compared with $820 million, or $5.33, a year earlier, Sears said today in a statement.

U.S. sales fell at its namesake and Kmart retail chains by about 3.5 percent in the nine-week holiday shopping season ended Jan. 5, citing increased competition and a weak economy.”

Never forget. A bounce is in order, but that is all it is. Sears is one of many barometers of economic health… or lack there of.