Friday, April 8, 2016

Earnings Estimate Falls … GDP Estimate Falls … Stock Market Analysis

“-For Q1 2016, the estimated earnings decline is -9.1%. If the index reports a decline in earnings for Q1, it will mark the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008 through Q3 2009.
-The forward 12-month P/E ratio is 16.7. This P/E ratio is above the 5-year average (14.4) and the 10- year average (14.2)
-With 22 companies in the S&P 500 reporting earnings to date for Q1 2016, 19 have reported earnings above the mean estimate and 14 have reported sales above the mean estimate.”

Analysis and chart from FACTSET at…
GDP ESTIMATE FALLS TO 0.1% FOR Q1 (Atlanta Federal Reserve)
“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.1 percent on April 8, down from 0.4 percent on April 5. After this morning's wholesale trade report from the U.S. Bureau of the Census, the forecast for the contribution of inventory investment to first-quarter real GDP growth fell from –0.4 percentage points to –0.7 percentage points. The next GDPNow update is Wednesday, April 13.” GDP Now available from the Atlanta Federal Reserve at…
-Friday, the S&P 500 was up about 0.3% to 2048 at the close.
-VIX dropped about 5% to 15.36.
-The yield on the 10-year Treasury rose to 1.71%
The S&P 500 has been up 5 of the last 6 Fridays and today it did not disappoint. This may indicate that traders don’t want to hold short positions over the weekend. We also had Thursday’s big down day that suggested an up-day Friday.
I heard a comment from an RBC strategist on CNBC who said the markets will go up because the analysts are overly pessimistic on earnings; he expects companies will beat the reduced earnings estimates. He may be right, but the FACTSET chart above shows what happened in 2007 when earnings growth went flat - the Index dropped. We have flat earnings now and the Index remains near all-time highs. It seems to me the Index needs to reset lower. It’s an interesting difference of opinion that may be resolved in the next week or two.
Market internals have been positive for 2-days. I wouldn’t be surprised to see the Index try to make another run back to 2073.
The short-term Money Trend indicator remains negative on the market and suggests further downside ahead.  I continue to hold short positions mostly in SH and some in QID.
(I am getting data from various sites. Some of the numbers are subject to minor revision so the previous day’s numbers may be slightly different than reported yesterday.)
The 10-day moving average of the percentage of stocks advancing (NYSE) rose to 53.3% Thursday. It was 50.9% Thursday. (A number above 50% is usually GOOD news for the markets.)
On a longer term, the 150-day moving average of advancing stocks remained 51.2%. A value above 50% generally indicates an up-trend, but the slope of the 200-dMA is still down, so the trend must still be considered down. The McClellan Oscillator (a Breadth measure) improved, but remained negative on the markets.
New-highs again outpaced New-lows. The spread (new-highs minus new-lows) was +90 Thursday. (It was +62 Thursday.)   The 10-day moving average of the change in spread rose to +5. In other words, over the last 10-days, on average; the spread has increased 5 each day. Market Internals remained positive on the markets.

Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late.  They are most useful when they diverge from the Index.  In 2014, using these internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive, out on Negative – no shorting).  Of course, few trend-following systems will do well in an extreme low-volatility, nearly straight-up year like 2014.
Friday, Price & VIX were positive. Sentiment & Volume were neutral.  The long-term NTSM indicator is BUY. I have not followed the guidance yet. My numbers suggest that the Index is topping out. I have been saying that for a while as the market has moved up; but there are some topping indicators (RSI & the Breadth Index Top Indicator) that suggest a top has occurred.  We’ll see.

On 30 Dec I reduced my invested position in my retirement account to 30% invested in stocks thru an S&P 500 Index fund (“C”-fund in the TSP) and on 15 Jan I reduced stock allocation to zero in long-term accounts.
The S&P 500 peaked in Mid-May and has not been able to break higher in the past 10-months. That looks like a top to me. See “Why the Bull Market May be Dead” in my 14 December blog at…