Preliminary Earnings Outlook/Trade PCLN

With the market so volatile, it is difficult to see the 3C moves that are out of character with the market because so many as of late have been out of character with the market's trend of relentless melt-ups, and then suddenly rocked by world events. It does seem that PCLN is seeing deeper negative divergences then the market, that could also be because there has been a higher risk on trade in PCLN and any delveraging is bound to hit the high fliers hardest.

So if we were in the typical market we've seen over the last year, I'd say something looks wrong with PCLN. The point of the exercise is not to predict earnings, but to gauge how the stock will trade after earnings and in this, we may have some useful information just by the nature of PCLN's business model.

We know that airlines are seeing thinning margins, some have resorted to their own deep discount websites choosing to forgo the classic PCLN business model. Furthermore post earnings trade is not about what the company did, it's about sentiment toward what the company will do. This is why you see companies blowout earnings and still get sold off, the expectations are that the last period was as good as it gets and they "sell the news".

In looking at the trading action of PCLN, the recent market slide has provided cover for any institutional money that wants out, who can say they are leaving because of leaked earnings or because of deleveraging of risk? Very convenient.

Looking at their business model, considering the tightening margins for travel companies, it would seem that more airlines and other travel companies will try to offset the margin squeeze by cutting out the middle man, it's either that or cut your own staff. Furthermore, destinations such as Egypt for instance are probably the last place anyone wants to go. A significant amount of destinations have all of the sudden become potential conflict zones. Add to that the American consumers forced deleveraging (many of us book vacations on credit cards)-just look at V, AXP or MA-their not exactly leading the way. And just exactly how does a PCLN make up for a margin squeeze? Offer cut rate travel deals that may not be there to offer?

Of course there's the other side of the argument, but with conditions deteriorating rapidly in the world and in economics and most probably (truthfully) in unemployment, I'm willing to bet many are willing to forgo their travel plans for now to try to build a nest egg or buffer. Stocks like DISH, TWC, TWX, CMCSA, CBS, CNK, MSG and DTV seem to show people are willing to stay closer to home.

I DON'T USUALLY PLAY EARNINGS WITHOUT A SIGNIFICANT EDGE, there are simply too many wild cards and in good trading we seek to control as many elements as we can and when presented with too many wild cards, we pass. However, if I had to make a choice, I'd say PCLN will trade lower in the days and weeks to come. Don't be surprised to see it bounce with the market or set an initial show of strength to draw in demand which is needed to distribute to. The trend however over a period of several weeks I'd say will show sentiment on the sector souring.

Here's a few charts

 Diversified Entertainment Industry

Cable TV Systems Industry