Daily Wrap

DJIA +7.22 (+0.05%) to 13,986.52; S&P 500 +0.83 (+0.05%) to 1,512.12; NASDAQ -3.10 (-0.10%) to 3,168.48

Today was a sloppy up day that saw the S&P 500 spend the majority of the day down except for a midday and then end of day rally which equate to less than a 1 point gain.

I noted last night that this week does not have much in the way of planned economic data or events and therefore it is likely that the headlines will be focused on the earnings being announced.  Today seems to be an example of how there just didn’t seem to be too much new news except for earnings and so far it seems the market used that as an opportunity to digest after 3 days of big swings

GameStop (GME) found their way into the headlines and in early trading was down over 10% but then firmed up and rallied with the support of some positive analyst comments.  The news sending GME lower was due to a report from Edge-online.com regarding Microsoft’s new Xbox720.  Generally a new device would be good for GME and their sales but in this case Edge-online.com is also reporting that Xbox will need an internet connection and that games will be used along with activation codes which will have no value beyond the initial user i.e. no used games.  SUnTrust and Piper Jaffray both came out in support of GME and Piper went as far as to say they believe blocking pre-owned game ownership would hurt new console adoption, if the rumors were true.  Both firms stated they would use weakness as a buying opportunity.  GME bounced off its 20 Day SMA today and could be carving out a consolidation pattern for new prices as long as today’s lows and the $22 level are held.  I believe GME should have earnings coming soon so I wouldn’t be stepping in pre-announcement especially with now some uncertainty in future revenue.

Also moving lower on news today was Elan (ELN).  Today ELN provided Q4 EPS which beat Analysts estimates for both EPS and revenue (15c vs 0c and $319.8M vs $315.45M).  Along with their earnings ELN announced that they agreed to sell 50% interest in the Tysabri collaboration with Biogen Idec (BIIB).  In return for the 50% ELN received an upfront $3.25B payment and a royalty of  12& of Global net sales for the first 12 months and a tiered structure after 12 months.  This seemed to be what sent ELN lower and I saw that Deutsche Bank downgraded ELN from Buy to Hold but RBC Capital maintained their Outperform rating and noted that they felt the royalty agreement is fair and will ultimately help ELN diversify into other products.  I am leaning more toward RBC’s view.  I think a one time $3.25B payment for a company with a roughly $5.6B market cap and $1.15B in sales can go very far in helping a company proceed with other ventures.  Also with 12% of first year net global sales and then a tiered structure with 18 and 25% Royalties for sales up to and over $2B seems like if Tysabi is a home run ELN will still get paid.  I understand the amount will be significantly less than if they were 50% owner of all revenue and that may be disappointing but again it still looks like a promising development for ELN.  One key factor and something I would want to review before making an investment (not trade) in ELN is what else is in the pipeline and where it stands.

Also in the news today was Disney (DIS) which reported EPS and revenue that beat analyst expectations (79c vs 76c on $11.34B vs $11.21B).  This news sent DIS gaping over $1 higher on the open but by the close DIS only gained $0.23 (0.42%).  DIS currently has a small negative divergence on the Daily chart.  That itself doesn’t make for a top but DIS definitely looks like a name that can be entered at lower prices if someone is patient.  There was one positive analyst comment that I saw and it was from Citigroup who maintained their Buy rating on the name but raised their price target to $63 from $54.  I think for quick trades it is possible that DIS could extend to the upper $50’s low $60’s but I don’t think I would be comfortable entering a longer swing or investment position here and would be waiting for that aforementioned pullback.  DIS was not un upgrade and just a price target change but as a reminder that you can review the list I compile each day as well as an archive of past days in the Upgrades/Downgrades section.

The following noteworthy companies are scheduled to report earnings before tomorrow’s open: CCE, CI, EXC, IFF, S, CTSH, FLIR, NBL, PM, SNI, SNA, HOT, TDC, XYL

My thoughts for the broad market remain the same as yesterday and that all this action feels to be the process of a top that then provides a more prolonged consolidation and then move higher.  No charts tonight.