"…the Fed has spent the past several years intentionally trying to revive the
precise dynamic that produced it [the mortgaged backed security crash of 2007
]. As a consequence, speculative yield-seeking has now driven the most
historically reliable measures of equity valuation to more than double their
pre-bubble norms [within 15% of year 2000 peak valuation]. Meanwhile, as
investors reach for yield in lower-quality but higher-yielding debt securities,
leveraged loan volume (loans to already highly indebted borrowers) has reached
record highs, with the majority of that debt as “covenant lite” issuance that
lacks traditional protections in the event of default. Junk bond issuance is
also at a record high. Moreover, all of this issuance is interconnected, as one
of the primary uses of new debt issuance is to finance the purchase of
equities…At present, the most historically reliable
valuation measures are more than 100% above pre-bubble historical norms that
associate with normal equity total returns (about 10% annually). That implies
that stocks are “fairly priced” here provided
that short-term interest rates are expected to be held at zero until about
2040.” – John Hussman, PhD, Weekly Market Commentary, Hussman Funds
HIGHEST EARNINGS GROWTH RATE SINCE Q3 2011 – EX-FINANCIALS (FACTSET)
“During the past week, the blended earnings growth rate
for the S&P 500 increased to 6.7% from 5.4% due to a high number of companies reporting earnings
above EPS estimates…If the Financials sector is excluded, the blended earnings
growth for the remaining nine sectors would be 8.5%. If the final percentage
for the quarter is 8.5%, it would be the highest earnings growth rate for the
S&P 500 excluding the Financials sector since Q3 2011 (17.4%)…In terms of
revenues, 67% of companies have reported actual sales above estimated sales and
33% have reported actual sales below estimated sales.” – Excerpted from Factset
Earnings Insight for 25 July 2014 at…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_7.25.14/view
CASS FREIGHT INDEX IMPROVES FOR JUNE (CASS Information
Systems) “The freight logistics sector continued to strengthen in
June, with both shipment volumes and expenditures rising once again…The
Commerce Department’s third revision of GDP for the first quarter was dismal.
It was revised downward for a second time to show that the economy shrank by
2.9 percent ‐ the worst contraction in five years. The severe
weather in January and February is partly to blame, but a sharp reduction in
healthcare spending as the Affordable Care Act took effect, as well as the
impact of the end of extended unemployment benefits, also curtailed GDP. The
current growth sectors in the economy depend on transportation services, so the
outlook remains good for transportation.” Press release at…
http://www.cassinfo.com/Transportation-Expense-Management/Supply-Chain-Analysis/Cass-Freight-Index.aspxRECESSION? (ZeroHedge)
“This week, in the aftermath of the Q1 -2.9% GDP disaster, the biggest "non-recessionary" drop in 67 years which was blamed on harsh weather (because there have never been harsh winters in the past 67 years), we get the first glimpse of what Q2 GDP was in the US economy. It is expected to print just shy of 3%. However, one person disagrees: Gary Shilling believes that not only will Q2 GDP be closer to 1% than to 3%, there is a fairly good chance it could be negative…It could put the Fed on hold at least into 2016 and be great for Treasury bonds. But for stocks, look out below!” Story at…
http://www.zerohedge.com/news/2014-07-27/gary-shilling-q2-gdp-was-closer-1-3-it-could-even-be-negative-number
ZeroHedge tends toward the extreme side so I’ll wait and see what happens before I get too worked up.
MARKET DETERIORATION SAYS PULLBACK PROBABLY THIS WEEK
Chart from…
http://www.indexindicators.com/charts/sp500-vs-nyse-stocks-above-200d-sma-params-3y-x-x-x/Usually, when the % of stocks above their 200-dMA drops below the mean of 61, the S&P 500 is already in decline. Friday’s value was 60 (rounded) so it appears the market may be getting ready to crack. Internals were negative too, Monday, so I think some down time is coming this week. I am reminded a “correction is 10% down or greater while a Bear Market is 20% down or greater. As of now this looks like a pullback since “pullback" is less than 10% down.
MARKET REPORT
Monday, the S&P 500 was unchanged
at 1979 (rounded). VIX rose about 0.5% to 12.62.
The yield on the 10-year Treasury Note rose slightly to 2.48% at the close.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks
advancing (NYSE) fell to 48% at the close Monday. (A number below 50% for the 10-day average is
generally BAD news for the market.) New-highs outpaced New-lows Monday. The spread (new-highs minus new-lows) was +25.
(It was +34 Friday.) The 10-day moving average of change in the spread fell to
minus-13. In other words, over the last 10-days, on
average, the spread has DECREASED by 13 each day. The smoothed 10-dMA of up-volume
was DOWN today and the Internals turned to negative on the market.
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 2013, using these
internals alone would have made a 16% return vs. 30% 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, straight-up year like 2013.
NTSM
The NTSM analytical model for LONG-TERM MONEY remained
HOLD Monday. Sentiment rose slightly to
76%-bulls (5-dMA of {bulls/(bulls+bears)} for funds invested in selected
Rydex/Guggenheim funds at the close on Friday (data is a day late). (84% is the
current negative level for the Sentiment indicator.) This value was 85%-bulls
on 19 May. Price, Sentiment, Volume & VIX indicators are neutral.
MY INVESTED POSITION
I increased my stock allocation to 50% invested in stocks
on 26 March because of the NTSM indicators turned positive 24 Mar at the
close. 50% in stocks is fully invested
for me, given my age (semi-retired) and the risk inherent in today’s stock
market. I am watching closely to see if it is time to reduce my long-term stock
holdings.
--INDIVIDUAL STOCKS--
ENSCO (ESV): HOLD (Earnings announce 31 July)
For my initial discussion see the NTSM blog at:http://navigatethestockmarket.blogspot.com/2014/05/coppock-curve-says-stock-crash-nowblow.html
Ensco has surpassed the mean and median analyst price targets so I rate it hold, but the 6% yield is worth owning. Here is a downright negative analysis of Ensco.
ANALYSTS PREDICT ENSCO WILL DISSAPOINT
“…the I/B/E/S consensus estimate has continued to move
lower, in the direction of the SmartEstimate. The consensus estimate is now at
$1.34 per share, down more than 10 cents per share in the last 90 days. The
SmartEstimate is even lower at $1.29. There are three Bold Estimates that are
all significantly below the consensus ($1.25, $1.26 and $1.22). These estimates
are flagged as Bold Estimates because they are by 5-star rated analysts who
have a strong track history. It's one reason why we strongly believe that Ensco
will disappoint…There are now more sell recommendations for Ensco than there
are buy, when the reverse was true 90 days ago. Analysts point to falling
demand coupled with an excess supply of rigs.” Analysis and commentary at…http://seekingalpha.com/article/2332045-weakness-in-offshore-drilling-may-mean-no-gusher-for-ensco-earnings
I remember that there were several insiders that sold about 30-60-days ago. While a single insider sale means little, when several insiders sell it is concerning.
At 54, ESV is at the lower trend line of the chart and any further
decline may be time to leave. I think I
might be able to buy it back at a better price later.
