Monday, August 12, 2013

Without Banks: No revenue Growth this Quarter

“With 90% of the companies in the S&P 500 reporting actual results, the percentage of companies reporting earnings above estimates (72%) is slightly below the four-year average, and the percentage of companies reporting revenues above estimates (55%) is below the four-year average. However, the percentage of companies reporting revenue above estimates is above 50% for the just the second time in the past five quarters….
…In aggregate, companies are reporting earnings that are 2.5% above expectations. This surprise percentage is below the average over the past year (4.3%) and the average over the last four years (7.0%). If this is the final surprise percentage for the quarter, it will mark the lowest surprise percentage since Q4 2008 (-62%)…Blended Earnings Growth is 2.1%, but Falls to -3.1% excluding the Financials Sector.”  Full FactSet report at…

“… by our back-of-the-envelope analysis, EPS growth for the overall S&P 500 would have been much closer to 0 percent if not for financials…[FactSet stated -3.1% without the Financials]
…banks are by and large reducing their loan-loss provisions and reserves. The net effect is that bank earnings and year-over-year earnings growth are much higher than they would be in the absence of lower loss provisioning. Suffice it to say that this accounting gimmickry, which has been going on for several quarters, has contributed greatly to overall S&P 500 earnings growth.  At some point, banks will no longer be able to rely on this source of earnings.”  Full story at…

“Jim Chanos notes that more stocks are trading above three times book value today than at the 2000 market peak, which is largely because of a speculative runup in secondary issues. Indeed, small cap stocks and over-the-counter Nasdaq stocks have outpaced even the S&P 500 in recent months. Last week, Barron’s magazine bubbled “this is a golden era for initial public offerings,” describing the IPO market as “white hot,” featuring a flood of new offerings – mainly small cap growth ventures.

All of this enthusiasm seems rather encouraging, unless one is familiar with market history…In my view, deep losses await investors who are so willing to abandon the lessons of history, in the belief that the Fed has discovered some new economic principle and permanent safety net in quantitative easing.” – John Hussman, PhD.  Full commentary at Hussman Funds at

“The euro-area economy probably edged back to growth last quarter for the first time since 2011, ending the longest recession since the single currency union started 14 years ago…While the overall outlook has improved, the recession has left the region with a youth unemployment rate of 24 percent, and parts of southern Europe remain mired in a slump.

“The external environment is really getting better, led by signs that U.S. demand is picking up,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The second quarter should mark the end of the recession in the euro area, but the recovery will be excruciatingly slow.”  Story at…

It is good news for the US economy to see our trading partners getting out of recession.  I commented not long ago that investors currently see no risk of recession in the US since cyclical stocks are doing well compared to the S&P 500.  In a perverse way, though, it may bring some pressure to the US markets if foreign investors begin putting money into Europe rather than the US...or worse…pulling money out of the US to invest in Europe. 

The 10-day moving average of stocks advancing on the NYSE climbed to 48%.  Usually a value below 50% signals additional trouble for the markets. 54% of stocks on the NYSE were advancing today while the index was down slightly.  This “divergence” often indicates the next day (Tuesday) will be up. 

New-highs minus new-lows (spread) was positive again today, again, but the 10-day change in spread was still barely trending down.

Generally, I’d say the internals are neutral.

Monday, the S&P was down 0.1% to 1689 (rounded).
VIX fell 4.5% to 12.81. 

As of Monday the S&P 500 was still 9.4% above the 200-dMA.   It was above 10% just 2 trading-days ago and that is a point that has frequently signaled a correction start. 

The index was 2.2% above the 50-dMA as of the close on Monday. Traders may be anticipating the 50-dMA will hold by buying before the market drops that far.  Obviously, if a correction is going to occur, the S&P will need to fall below the 50-day moving average, now at 1645.

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

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.