Caution After the Quick Rally (JPM, SWY, FCS, AOL, YHOO, SINA, BAC)

Stocks took a breather from their recent run to end mixed. Given the surge over the last week and a half, the market needed to take a break as it is near-term oversold. We’d be a little more cautious in the near term after the run, but overall we’re expecting a solid Q3 earnings season to be a catalyst for equities over the final two and a half months of the year.

The Social Networking Stocks Index was the top performing tickerspy Index on the day, led by SINA (SINA) with a 18% gain. The Money Center Bank Stocks Index was the day’s worst performing tickerspy Index, with Bank of America (BAC) down -5%.

Stocks ended mixed on the day, with the Nasdaq the lone winner up 16 points to 2,620. The Dow dropped -41 points to 11,478, while the S&P gave back -4 points to close lower at 1,204. Oil fell -$1.32 to $84.23 a barrel, while gold declined -$14.10 to $1,668.50 an ounce.

In economic news, new claims for jobless benefits fell by -1,000 to 404,000 last week. Economists had expected a reading of 405,000. The four-week moving average fell to 408,000 from 415,000.

In earnings news, shares of Dow component J.P. Morgan Chase (JPM) fell -4.8% after the bank said its third-quarter profit fell to $4.3 billion, or $1.02 per share, down from $4.4 billion, or $1.01 per share, a year earlier. Excluding an accounting gain, though, earnings fell -34% to $3.10 billion, or 73 cents a share, from $4.71 billion on the same basis. The bank repurchased $4.4 billion of its own stock during the quarter and reported a private equity loss of -$347 million. The company also said it plans to cut 1,000 investment banking jobs over the next 18 months. Over 440 pros held JPMorgan Chase in their portfolios at the end of Q2 and more than 2,400 tickerspy members own the stock in their portfolios.

Grocery store operator Safeway (SWY) said its fiscal third-quarter profit rose 6% to $130.2 million, or 38 cents per share, from $122.8 million, or 33 cents per share, a year earlier. Revenue rose 7% to $10.06 billion, while same-store sales advanced 1.5%. Analysts had expected a profit of 35 cents on revenue of $9.85 billion. The company reiterated a full-year profit forecast of $1.45-$1.65 a share. Analysts were expecting EPS of $1.66. Shares of Safeway fell -0.2%.

Shares of Fairchild Semiconductor (FCS) soared 10.2% despite the company issuing weak guidance. Fairchild earned $35.8 million, or 28 cents per share, the same as in the third quarter of 2010. Adjusted EPS came in at 34 cents. Revenue fell -3% to $403.2 billion. Analysts had expected a profit of 32 cents on revenue of $404.2 million. The company forecast fourth-quarter revenue of $350-$370 million, below the $397 million consensus.

Shares of Internet company AOL (AOL) surged 6.5% after speculation swirled that AOL CEO Tim Armstrong has been meeting with investors to push the idea of a sale to rival Yahoo (YHOO). Armstrong said a merger between AOL and Yahoo could wring out between $1.0-$1.5 billion in savings, Reuters reported, citing an unidentified AOL shareholder. Three pros counted AOL among their top holdings at the end of Q2 and more than 80 tickerspy members own the stock in their portfolios.

Tags: AOL, BAC, FCS, JPM, SINA, SWY, YHOO