qe3-300x199This morning Caterpillar (CAT) offered reduced guidance on both EPS and revenues through FY2013.  Last week, Microsoft (MSFT), Intel (INTC), General Electric (GE), McDonald’s (MCD) and IBM (IBM) all either missed their EPS or revenue expectations.  With 20% of the S&P 500 having already reported earnings, only 42% have seen third-quarter revenue surpass analyst estimates.  This is well below the recent average of 59% and the worst performance since early 2009 when the economy was in recession.

Supporting the market is the liquidity being provided by the Fed’s QE3.  Our indicators have been weakening over the past month but remain bullish.  With the presidential election two weeks away, we suspect the market will remain range bound and investors will buy Friday’s dip as the market has returned to being oversold on a short-term basis.

The 10-year U.S. Treasury yield is roughly 1.8% which is near the high end of its recent trading range.  This suggests that bond market buyers are not spooked by the recent market downdraft as we are not seeing the typical flight-to-safety associated with bearish stock markets.

On Friday, there was M&A speculation regarding Manitowoc Company (MTW) with investors buying the Nov 15, 16 and 17 calls roughly 10,000 times.  We also saw investors buying calls and selling puts in MTW in the March 11p/17c risk reversal trade.  As an election trade, we saw bearish flow in Arch Coal Inc. (ACI) with a seller of various calls roughly 20,000x.  Right at the closing bell, there was a buyer of 40,000 Ford (F) Nov 11 calls.

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