Intel Earnings (INTC) Crush but Optimism Fades

Wednesday, July 14, 2010

Intel logoTokyo leaps after Intel (NASDAQ:INTC) but optimism fades in Europe

The Nikkei lept 2.71% following the extremely bullish report out of Intel (NASDAQ:INTC). INTC reported EPS of $0.51 handily topping estimates for $0.43. The top line was strong as well coming in at $10.8 billion versus $10.3 billion expected. I continue to reiterate, productivity gains are the under-appreciated story in this economic recovery. INTC has expanded its gross margins to 67% from 51% a year ago! And, it is even more encouraging to see a company grow on the top line as well. Guidance was excellent as well with Q3 revenues forecasted to be $11.6 billion versus analyst consensus of $10.9 billion. Revenues from Europe were weak but Asia and America easily made up the difference. This was Intel's "best quarter in the company's 42-year history." CEO Paul S. Otellini believes "PC and server segments are healthy and the demand for leading-edge technology will continue to increase for the foreseeable future." Shares of INTC are trading up 5.6% pre-market.

On the other side of the coin, Yum! Brands (NYSE:YUM) also beat expectations but disappointed investors with lowered guidance. Find the full report here.

China rebounded 82 basis points after yesterday's drubbing. Optimism faded into the European session and all major markets are trading marginally lower. London is off 68 basis points. US futures are trading off 40 basis points despite INTC's excellent report now having faded over 10 handles from last night's after hours excitement.

Continue with hedges, was too early, Telsa Motors (NASDAQ:TSLA)

I am continuing to hold my puts on the indexes despite yesterday's rally. I was too early, there is no doubt about that and I hedged away the gains I could have made in my longs. I initiated a small position in TSLA but was quickly stopped on most yesterday as the rally into yesterday's close brought TSLA through the $18 level. Buying was found at the $17 IPO price for now. I am down to a feeler position just to be in it and watching. I still believe the stock is wildly overvalued now at $1.69 billion and selling pressure will win out eventually.

I also bought volatility yesterday through the NYSE:VXX at $24.58 and will look for a large upside move. Trading volatility can be a low probability game that is evened out by the potentially large moves that can occur relative to the risk. I think this scenario against the 24% offers good risk-reward. The long-dated VIX options are trading at a very high premium and even the ETF VXX is holding up better than the underlying VIX. Daily Options Report had a good piece on this; he seems to think it's a bullish but we will see.

Disclosure: Short TSLA. Long IWM and SPY puts. Long VXX.
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