Wednesday, April 24, 2013

Earnings Decline

Chart from ZeroHedge at

Q2 margin was weaker than expected at 37.5% versus an expected 38.5%.  The particularly troubling news was the future guidance: Q3 revenue was guided by the company at $33.5-$35.5 billion and this was far below the estimated consensus value of $38.4.  ZeroHedge has a detailed analysis of Apple earnings at…

Apple was up big for the day (Tuesday), but gave it all back after the earnings announcement and was down in after- hours trading as it fell to 399.  Apple’s forward P/E is now 8 according to Yahoo finance.  If I wasn’t negative on the overall market, I’d take a hard look at Apple.  Who ever thought Apple would be a value play?

Yesterday (Tuesday), the market fell 1% in seconds after a fake tweet from the AP reported that there had been explosions at the White House.  The news was quickly found to be false and the markets quickly recovered.  If you looked at yesterday’s chart, you would have assumed it was some sort of mistake in the computers.  It was related to computers – high frequency trading by computers.  Here’s Rick Santelli’s take from CNBC.

“You've got to be kidding me where a fake tweet can have that a kind of impact over the markets at all. Yeah, it highlights how we're in many ways some of our markets are just, you know, high-speed casinos…is it any surprise that [the] average guy on main street looks at this and goes none of this for me, you people are all crazy.”  CNBC Video at…

Here’s more from Rick:
" the point yesterday around 1:00 eastern you looked at stocks, of course, you saw boom you had one of these [pointing to a chart with a huge quick drop]. If you look at the euro currency against the dollar you didn't see it.  If you look at the British pound, the symbol on the computers, you didn't see it. If you looked at the Aussie dollar you didn't see it.  Where you did see the same pattern is any of the cross trades. whether the euro yen, the pound yen, anything yen, you had the exact same pattern.”

“Computerized trading takes place like boom. You already missed half of it just in the snap of a finger. So obviously there was no thought going into this. It's programmed in.”

“The yen is now programmed into the equity algorithms on the high speed computers and that is very important. We talked about the first step was to borrow yen at low interest rates. What is the long and short of borrowing yen? A short position. So if you really want to know what's going on in the world of stimulus, keep an eye on anything related to the yen.”  CNBC Video at…

Wednesday, the S&P 500 was unchanged and finished at 1579 (rounded). VIX rose about 1% to 13.61.

Market internals are basically flat and thus aren’t giving many clues about market direction.  10-dMA of the percentage of stocks advancing, though, continues a long down-trend that started back in November so unless that trend changes, this market will revert back to correction mode at some point fairly soon.  It may take another week or two.  We’ll see.  Calling short term movement is mostly impossible, so “we’ll see” is about the best I can do.

Wednesday, the NTSM analysis was HOLD at the close.  Only the SENTIMENT indicator is negative. VOLUME, VIX and PRICE are all neutral.

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…
…but now I have confirmation from the NTSM analysis which sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.