Monday, July 22, 2013

80% of Companies Issue Negative EPS Guidance…so far

FACTSET EARNINGS INSIGHT (JULY 19)
“With 21% of the companies in the S&P 500 reporting actual results, the percentage of companies reporting earnings above estimates (72%) is in line with the four-year average, while the percentage of companies reporting revenues above estimates (50%) is below the four-year average.”

“Earnings Growth Rebound Still Projected for 2nd Half 2013, But Little Revenue Growth…At this early stage of the earnings season, 17 companies in the index that have issued [earnings per share] EPS guidance for the third quarter. Fourteen companies have issued negative EPS guidance, while three companies have issued positive EPS guidance.”
Report available from FACTSET at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_7.19.13

MCDONALDS EARNINGS BELOW EXPECTATIONS
http://www.cnbc.com/id/100899153

EARNINGS – THIS IS THE WEEK THAT IS…
"Looking at the rest of the week ahead, it will be a bumper one for U.S. earnings as around 160 S&P 500 constituents are scheduled to report," wrote Deutsche Bank analyst Jim Reid, in a market report. "With U.S. banks now largely out of the way, we should get a clearer picture of how corporate America is performing."  Story at…
http://money.cnn.com/2013/07/22/investing/stocks-markets/index.html?iid=HP_LN

EXISTING HOME SALES FALL 1.2% (CNBC)
“US sales of previously occupied homes dipped in June to 5.08 million, but remain near 3 1/2-year high. Economists polled by Reuters were expecting existing home sales to rise to a seasonally adjusted annual rate of 5.26 million in June from 5.18 million the month before.” Story at…
http://www.cnbc.com/id/100899588

Jeepers…there must some good news around…Yes there is; the S&P 500 was up!

MARKET REPORT
Monday, the S&P 500 was up 0.2% to 1680 (rounded). 
VIX was down 2% to 12.29.  

As I wrote Friday, the Sell signal in the NTSM system is based on bullish action in the market; high sentiment values; “percent-above-the 200dMA”; and failure to decisively take out the prior high.  Except for that last one, the others are all sentiment related – too much bullishness.  It is important to remember that sometimes excessive bullishness is the correct market call.  That is true after a significant bottom.  It is hard to know if the market will shrug-off the current high sentiment and continue up.  I don’t think so.  I looked back as far as 2009: when conditions were as bullish as today (in sentiment, bullish market action, high %-above the 200dMA) a top occurred shortly thereafter.  The tops were not necessarily “major” tops though, so this suggests another correction to me.  Perhaps the S&P 500 will finally have that 10-20% correction that is overdue.  It is not unusual for the extreme bullishness to last for several days before topping.  Market internals can give us a clue.

I do see signs, today, of a turnaround in market internals that would indicate a turn down in the general markets is likely to follow.  Whether this trend will continue remains to be seen. 

One indicator not confirming a downturn is the VIX.  It is neutral in my system and has fallen to near 12.  VIX was around 10 before the 2008-09 crash.  If the options boys expected a correction VIX should be rising.   

NTSM
Monday, the overall NTSM analysis remained SELL at the close. 

MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system 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.