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Real Story: Earnings, M&A and Housing Drama

TSC Staff

At the onset of first-quarter earnings season, the market is technically strong, John Bollinger of Bollinger Capital Management tells Aaron Task on Tuesday's The Real Story podcast.

"The market looks pretty good in terms of its basic structure -- major averages are approaching new highs -- and we have strong technical support," Bollinger says.

The underlying story is there has been a "long string of better-than-expected economic reports, which creates a positive psychological tone," according to the veteran technician. "People have consistently underestimated the stock market and the economy, [and so] a rapid-fire decline meets support, because [the decline] is met by better-than-expected news."

In terms of sectors, "energy is looking very constructive," heading into earnings season, Bollinger says. "We expect the same for energy as for most [sectors]: on balance, earnings will be better than expected and contribute to a rally to solidify new highs" for major averages.

That said, technology is "more problematic," and the Nasdaq Composite is in the "least good shape" of the major averages, he says on a day in which Seagate Technology (STX Quote) became the latest tech leader to warn of weaker-than-expected results.

Other stocks in the "Geoff Tate Zone" Tuesday included Marathon Oil (MRO Quote) and Jackson Hewitt (JTX Quote).

Task's second guest, TheStreet.com real estate reporter Nick Yulico, discusses the dismal results from DR Horton (DHI Quote), which reported that fiscal second-quarter new-home orders fell 37% from a year ago.

"The situation Horton is facing is homebuilders are aggressively cutting prices because they bought way too much land, spent too much on it and now have to get rid of it," Yulico says. "That means more impairments" or write-downs of the land value are coming. (Yulico and Task discussed the implications of what the write-downs mean for homebuilders' book value in an accompanying video for TheStreet.com TV, which can be found here .)

MDC Holdings (MDC Quote) has "cleared out a lot of higher-priced land" and thus seems to be in better shape on that front vs. competitors, says Yulico. Meanwhile, Toll Brothers (TOL Quote) is exposed to high-end consumers who appear to be holding up better than low- and middle-income Americans.

Still, all the builders face a macro environment where "lending is getting tighter and the jobs report last week means we now may not have a rate cut," he says. "What fueled the boom was loose lending and low interest rates -- it doesn't look good" for builders on either front.

Outside of housing, Task discussed the day's corporate news, including ImClone's (IMCL Quote) announcement that its study of Erbitux in pancreatic cancer failed. He also discussed M&A activity involving United Rentals (URI Quote), Cemex (CX Quote) and BCE(BCE Quote).

In the remainder of the podcast, Task discussed the implications of dollar weakness and provided some speculative suggestions for listeners participating in TheStreet.com's "Beat the Street" contest, a fantasy trading game.

Click here to listen to the entire podcast.