Monday, July 29, 2013

Revenues Decline; Earnings Growth-Rate Weak

“At Mid-Point, Companies Beating Estimates By 2nd Smallest Margin since 2009
...there is a good chance that the Q2 2013 quarter will finish with the third lowest earnings growth rate recorded by the index in the past four years, trailing only the Q3 2009 (-15.3%) quarter and the Q3 2012 quarter (-1.5%)...

With 53% of the companies in the S&P 500 reporting actual results, the percentage of companies reporting earnings above estimates (73%) is in line with the four-year average, while the percentage of companies reporting revenues above estimates (54%) is below the four-year average.”  Report available from FactSet at…

“About a fifth of the S&P 500 companies report earnings in the coming week, and it's a first look at big oil, with BP, Exxon and Chevron all reporting. Then there are two major data releases — the Friday jobs report, always important, and second-quarter GDP on Wednesday.

Many economists expect second-quarter GDP to come in at less than 1 percent. But the big deal may be the government's special release of revisions going all the way back to 1929, which could make the economy look slightly better, at least on paper.” Story at….

“Consumer sentiment in July rose to 85.1, marking the highest level in six years, according to the final University of Michigan/Thomson Reuters data released Friday…‘The July survey suggests a growing resilience among consumers that will enable them to more easily withstand the cross-current inevitable in a slow growth economy,’ said Richard Curtin, chief economist of the surveys of consumers.”  Story at…

Monday, the S&P 500 was down 0.4% to 1685 (rounded). 
VIX was up 6% to 13.50 (rounded). 

VIX will need to rise a lot more before a downturn is confirmed by the VIX.  If anything, options players are quite complacent.

On 17 May the S&P 500 was 1667.  Today the index closed at 1685.  The index has only gained 1% in more than 2-months.  It’s just another indication of topping process underway.  When topping is occurring, the chart looks like a mountain-range, rather than a pyramid. In 2011 this went on for about 3-months before the correction got serious in late July.  No gurantees though - the index could go flat for some time and then simply begin moving up again.

Breadth (%-advancing) was negative with only 30% of stocks advancing Monday.  The 10-day moving average of stocks advancing on the NYSE dropped to 49%.  Usually a value below 50% signals additional trouble for the markets.

There were 80-new-highs today (Monday) down from 98 Friday so new-highs continue to decline; 5-days ago there were over 300-new-highs.  Market internals suggest further down for the S&P 500.

Monday, the overall NTSM analysis was HOLD at the close. 

Sentiment was high Friday as fully 66% of traders in the Guggenheim/Rydex funds I track were long.  That pushed the 5-day moving average up to 62%-bulls.  I would get a sell signal for this one indicator at 63%-bulls in the NTSM system.  Sentiment is one of the weaker indicators because it is not accurate regarding the timing of buy-sell signals.  Because of this Sentiment tends to be a supporting player and it takes 1 or 2 more indicators to send the system to sell.

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.