Wednesday, November 12, 2008

Intel Lowering Guidance - A Good Thing

What a difference a month makes. One month after releasing its third quarter earnings report, Intel has issued a press release guiding down revenue and margins for the fourth quarter. As recently as October 14th, the company was expecting Q4 revenue to come in between $10.1 and $10.9 billion with gross margin at or near 59%. The company is now looking for revenue of $9 billion with gross margin in the vicinity of 55%. In just under one month, Intel's business has deteriorated by 14%. This is a huge miss.

There will be plenty of negative commentary over the next day about this miss, but I actually think this may perversely turn out to be positive for the market in the near-term. Despite the earnings misses and the cautious guidance from virtually every company this earnings season, Q4 and 2009 earnings expectations still remain too high. Now that bellwethers Intel and Cisco have both put a serious ding in expectations, it's hard to imagine that investors and analysts will be able to ignore the poor near-term earnings reality that nearly all companies face.

I suspect this will soon lead to yet another near-term bottom (though not necessarily THE bottom) in the market, as investors (particularly the pros) start to think that a more realistically poor earnings outlook is finally being discounted.

As I wrote in my
November 6th post:

As we stand now, I plan to continue fading strong moves in the market. I'll be looking to cover the current shorts and rebuild the long side should we head back to recent lows. If we turn around and start heading back up, I anticipate adding short exposure in the S&P 500 and the Russell 2000 as well as in the consumer, alternative energy, and financial spaces.
With the market now down about 15% from its most recent peak on November 4th, my bias has again shifted to the long side. Today I covered 2 of my outstanding (alternative energy) shorts, leaving one financial short. I've also begun to add some long exposure (Russell 2000 and QQQQ). I plan to keep building the long portion of the portfolio at lower levels and will be a bit more aggressive if we see a sharp Intel-inspired sell-off tomorrow morning.

Disclosure: The Rubbernecker is getting longer again but is still short slothful, Panglossian, sell-side analysts.

The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.