April 18th 2011

Bracing For Impact

The market is bracing for impact next week as eight Dow components are scheduled to report their
earnings. We’ve had three disappointing results already in the first week and if we include GOOG
as well, it would have been four disappointing results. Let’s backtrack a bit.

AA said that its Q1 EPS was at 27c, just as expected by the market. Excluding special items, AA
booked a net of 28c, beating market consensus of 27c. Alas, its revenue was reported at $5.96B, just
below the consensus of $6.07B. Hence, the share has been punished. AA was the worst Dow
performer with a loss of 7.81%, flipping its MTD performance into the red (-6.46%).

Next was JPM. Despite it reported Q1 EPS at $1.28, better than the consensus of $1.16, its revenue
was reported at $25.22B, slightly missed the consensus of $25.27B. But it was not the source of
concern, because the source of concern was 29c from the EPS came from reduced loan reserves. The
market was not impressed by the results and sent JPM down 4.16% this week, dragging the MTD
performance to -2.62%.

BAC was the next in the firing line. On Friday, the bank reported Q1 EPS at 17c, way below the
consensus of 28c. Revenue for Q1 was at $26.88B, also missed the consensus of $27.08B. Similar to
JPM, earnings came mostly from reduced loan loss reserves which were $2.2B. Looking ahead, BAC
expected its mortgage business to recover in 2014. BAC has been surrounded by seemingly endless
problems stemming from its mortgage business. The results could be the reason why the Fed denied
BAC’s dividend proposal a while ago. The market was not happy with BAC’s figures and sent it 4.9%
lower this week, and in effect pushed it 3.83 lower for MTD.

There you have it. AA was the worst Dow performer this week, BAC was the second, while JPM was at
the third. If we include GOOG, GOOG would have been the worst with 8.21% decline.

Let’s take a look at the top.

The top performers came from defensive stocks such as KFT (+5.34%), PG (+3.68%), and MRK
(+2.49%). This could mean that the risk appetite for the week has declined somehow.

The Dow Jones Industrial Average itself advanced 56.68 points or 0.46% higher on Friday, settling at
12,341.83. S&P 500 index gained 5.16 points or 0.39% to end at 1,319.68, and the tech-laden
NASDAQ composite edged slightly higher by 4.43 points or 0.16% to 2,764.65.

Apart from the earnings stories, perhaps the attention-grabber was the shiny yellow metal.

Gold hit the peak of $1,487.90 on its spot price before settling down at $1,485.70 an ounce by the
end of the day, gaining 0.9%. Gold futures for June delivery gained $13.60 to finish at $1,486.

1 .DJI 12,341.83 (+56.68 ● +0.46%) .SPX 1,319.68 (+5.16 ● +0.39%) .IXIC 2,764.65 (+4.43 ● +0.16%)
 April 18th 2011

Eurozone debt crisis and mostly inflation outlook as shown by the inflation data coming from China
and US have been the primary concerns among investors at the moment.

On Friday, Moody’s downgraded Ireland bond ratings from Baa1 to Baa3 and attached NEGATIVE
outlook on the ratings, suggesting possibilities for more downgrades. Declining financial strength in
Ireland and weaker growth prospects were the factors behind the downgrade, according to Moody’s.

Oil prices were tumbling earlier this week when Goldman Sachs recommended its clients to exit the
commodities markets. US light crude fell from $113 a barrel while the Brent crude plunged from
$127 a barrel. Goldman was later advised its clients to reduce commodities from their portfolios.

Yet, oil recovered from the slump and on Friday, the US light crude climbed $1.55 to end the week at
$109.66 a barrel. Brent crude contract for June delivery also up, ending the session $1.45 higher at
$123.45 a barrel. Strong data coming from US and China were said to trigger the rise.

Corporate News
 AXP reported a drop in March delinquencies rate from 2% in February to 1.8%, while net write-
off rate came in 3.7% lower than 3.8% in Feb.
 CSCO announced the purchase of newScale Inc. a provider of service catalog and self-service
portal for IT organizations. The financial terms of the deal were not disclosed. Also, CSCO signed
a deal with WiLAN on patent license. The terms of the agreement were also undisclosed.
 DD’s path to buy Danisco has been cleared by the Chinese regulator. The $5.8B deal will wait
until Danisco shareholders to tender their shares which are to be held until April 29th.
 INTC is set to report its earnings next week, and BMO Capital sees the results to be in-line with
expectations but that INTC will give a weak guidance. BMO Capital keeps INTC at OUTPERFORM
as the house believes that the mobile division may show progress soon.
 JNJ and MRK reached an agreement on the distribution rights of REMICADE and SIMPONI, which
treat chronic inflammatory diseases such as rheumatoid arthritis. One of the terms agreed was
that JNJ will receive a one-time payment of $500M in April. Elsewhere, JNJ is said to be in talks
to buy Synthes, Inc. which manufactures medical devices. The deal is expected to worth $20B but
there are still doubts whether the deal could go on. Both JNJ and Synthes provided no comments
on this matter.
 JPM reported its March card delinquencies to have declined from 3.29% to 3.08%, while net
credit losses were down from 6.21% to 6.02%.
 MSFT’s Xbox 360 led sales in March with 443,000 units. According to Electronista reports, the
sales were up 28% YoY.
 Clairol Natural Instincts’ voluntarily recalls have been expanded by PG.

2 .DJI 12,341.83 (+56.68 ● +0.46%) .SPX 1,319.68 (+5.16 ● +0.39%) .IXIC 2,764.65 (+4.43 ● +0.16%)
 April 18th 2011

Week Ahead
Eight Dow components will report their earnings next week. Which ones will deliver strong results and
which ones will share the fate of the prior three companies already reporting? Of the 8 components,
JNJ and T are expected to deliver declining net profits, while the biggest jumper expected is GE with
33.3% of increase, followed by AXP. IBM is next with 16.8% growth and UTX with 15.1%.

INTC which has been seeing its market eroded by the rise in tablet PC has a potential to disappoint,
while JNJ may also disappoint should the strings of recalls eroded the company’s earnings.

Date ET Company Periode F/C Prv

19-Apr 12:00 ET IBM Q1 $2.30 $1.97
19-Apr 12:00 ET Intel Corp. Q1 $0.46 $0.43
19-Apr 12:00 ET Johnson & Johnson Q1 $1.26 $1.29
20-Apr AMC American Express Q1 $0.92 $0.73
20-Apr BMO AT&T Q1 $0.57 $0.59
20-Apr BMO United Technologies Q1 $1.07 $0.93
21-Apr BMO Dupont Q1 $1.36 $1.24
21-Apr 12:00 General Electric Q1 $0.28 $0.21
AMC = After market closes BMO = Before market closes

Housing data are also abundant next week, and this should put the focus on to HD. Oil producers may
continue to bask on the back of rising oil prices despite Goldman’s warning, while gold is seen to
continue to shine as it march towards $1,500 per ounce.

3 .DJI 12,341.83 (+56.68 ● +0.46%) .SPX 1,319.68 (+5.16 ● +0.39%) .IXIC 2,764.65 (+4.43 ● +0.16%)
 April 18th 2011

Stock Focus: General Electric, Co.

GE
Last Apr 15th Resistances 20.75 20.93 21.65 22.30 23.08
$20.04  0.20% Supports 19.60 18.60 17.70 16.77 15.61
WTD MTD Outlook
 0.74%  0.05% POSITIVE
YTD 12-Month Price Tgt
 9.57%  6.26% $22.30

GE would have been at a higher position now if it wasn’t knocked by the Japan’s earthquake.
Struggling to regain its footings, GE now aims at $22.30. MACD is not yet strong, but the EMAs
continue to rise. RSI is at the neutral zone, providing space to jump higher. GE will report its earnings
next week. What matters though, is how the company will foresee its nuclear business in the future.
How far would the impact from Japan hurting the company’s outlook?

4 .DJI 12,341.83 (+56.68 ● +0.46%) .SPX 1,319.68 (+5.16 ● +0.39%) .IXIC 2,764.65 (+4.43 ● +0.16%)
 April 18th 2011

Price Performance - as of Apr 15th 2011

Code Last Dy WTD MTD YTD 12-Mos
AA 16.52 -0.18% -7.81% -6.46% 7.34% 23.01%
AXP 46.25 0.81% -0.06% 2.32% 7.76% 0.28%
BA 72.60 0.41% -1.18% -1.80% 11.25% 0.23%
BAC 12.82 -2.36% -4.90% -3.83% -3.90% -28.10%
CAT 107.21 -0.34% -2.38% -3.72% 14.47% 57.45%
CSCO 17.03 -0.82% -3.51% -0.70% -15.82% -36.76%
CVX 106.24 1.30% -3.12% -1.16% 16.43% 30.45%
DD 54.89 1.44% -0.92% -0.15% 10.04% 37.78%
DIS 41.52 1.22% -0.57% -3.64% 10.69% 12.70%
GE 20.04 0.20% -0.74% -0.05% 9.57% 6.26%
HD 38.17 0.87% 1.90% 3.00% 8.87% 8.35%
HPQ 40.26 -0.25% -1.08% -1.73% -4.37% -22.53%
IBM 166.21 0.75% 1.32% 1.93% 13.25% 28.84%
INTC 19.75 0.87% -1.35% -2.13% -6.09% -13.53%
JNJ 60.56 0.90% 1.85% 2.21% -2.09% -5.82%
JPM 44.89 -0.18% -4.16% -2.62% 5.82% 5.43%
KFT 33.36 1.24% 5.34% 6.38% 5.87% 12.70%
KO 68.01 -0.44% 1.10% 2.52% 3.41% 27.24%
MCD 77.38 0.40% 1.76% 1.70% 0.81% 9.62%
MMM 92.82 -0.13% -0.43% -0.73% 7.56% 4.68%
MRK 34.51 1.92% 2.49% 4.54% -4.25% -1.51%
MSFT 25.37 -0.20% -2.69% -0.08% -9.10% -16.93%
PFE 20.53 0.20% 0.34% 1.08% 17.25% 22.79%
PG 64.18 1.39% 3.68% 4.19% -0.23% 3.25%
T 30.65 1.19% -0.20% 0.13% 4.32% 17.61%
TRV 59.80 0.29% 0.37% 0.54% 7.34% 17.86%
UTX 83.45 -0.63% -1.60% -1.42% 6.01% 11.34%
VZ 37.85 0.37% 0.34% -1.79% 5.79% 30.97%
WMT 53.55 0.09% 1.92% 2.88% -0.70% -0.17%
XOM 84.29 1.02% -1.93% 0.19% 15.28% 24.38%

5 .DJI 12,341.83 (+56.68 ● +0.46%) .SPX 1,319.68 (+5.16 ● +0.39%) .IXIC 2,764.65 (+4.43 ● +0.16%)
 April 18th 2011

Analysts' Upgrades & Downgrades

Stock Code House Ratings PT
Cisco Systems CSCO Auriga Buy HOLD $23  $19
Chevron Corp. CVX CLSA Buy OUTPERFORM $114  $120
n Reiterate n Upgrade n Downgrade n Initiation
US Economic Calendar
Date Time Report Period Actual Forecast Previous
12-Apr 8:30 AM Trade balance Feb -$45.8B -$42.9B -$47.0B
12-Apr 8:30 AM Import prices Mar 2.7% 2.0% 1.4%
12-Apr 2:00 PM Federal budget Mar -$188B n/a -$65B
13-Apr 8:30 AM Retail sales Mar 0.4% 0.5% 1.1%
13-Apr 8:30 AM Retail sales ex-autos Mar 0.8% 0.7% 1.1%
13-Apr 10:00 AM Inventories Feb 0.5% 0.7% 1.0%
13-Apr 10:00 AM Job openings Feb 3.1M n/a 2.8M
13-Apr 2:00 PM Beige book n/a
14-Apr 8:30 AM Jobless claims 9-Apr 412K 380K 382K
14-Apr 8:30 AM Producer price index Mar 0.7% 0.8% 1.6%
14-Apr 8:30 AM Core PPI Mar 0.3% 0.2% 0.2%
15-Apr 8:30 AM Consumer price index Mar 0.5% 0.5% 0.5%
15-Apr 8:30 AM Core CPI Mar 0.1% 0.2% 0.2%
15-Apr 8:30 AM Empire state index Apr 21.7 15.5 17.5
15-Apr 9:15 AM Industrial production Mar 0.8% 0.6% 0.0%
15-Apr 9:15 AM Capacity utilization Mar 77.4% n/a 76.9%
15-Apr 9:55 AM Consumer sentiment Apr 69.6 69.0 67.5

US Economic Calendar
Date Time Report Period Actual Forecast Previous
18-Apr 10:00 AM Home builders' index Apr 17 17
19-Apr 8:30 AM Housing starts Mar 529K 479K
19-Apr 8:30 AM Single-family permits Mar n/a 382K
20-Apr 10:00 AM Existing home sales Mar 5.05M 4.88M
21-Apr 8:30 AM Jobless claims 16-Apr 390K 412K
21-Apr 10:00 AM Leading indicators Mar 0.2% 0.8%
21-Apr 10:00 AM Philly Fed Apr 38.0 43.4

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any securities. This
report has been prepared based on sources believed to be reliable, but there is no assurance or guarantee regarding its
completeness and accuracy. The author accepts no responsibility or liability arising from any use of the report.

6 .DJI 12,341.83 (+56.68 ● +0.46%) .SPX 1,319.68 (+5.16 ● +0.39%) .IXIC 2,764.65 (+4.43 ● +0.16%)