“…With 37% of the companies in the S&P 500 reporting actual results for Q2 to date, more companies are reporting actual EPS above estimates (76%) and fewer companies are reporting actual sales above estimates (54%) compared to the 5-year averages.….
…Looking at future quarters, analysts are expecting year-over-year declines in earnings to continue through Q315, and year-over-year declines in revenue to continue through Q415. Despite the estimate reductions, analysts are looking for record level EPS to resume in Q4 2015. Analysts expect net profit margins to remain relatively flat in the 2nd half of 2015 with the profit margin being reported for Q2 based on per-share estimates)...” Factset Earnings Insight from…
http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_7.24.15/view
NEW HOME SALES FALL (Bloomberg)
“Purchases of new U.S. homes unexpectedly retreated in June and prior readings were revised down, painting a picture of less robust improvement during the industry’s busiest time of year. Sales fell 6.8 percent to a 482,000 annualized pace, the weakest since November…” Story at…
http://www.bloomberg.com/news/articles/2015-07-24/sales-of-new-homes-in-u-s-unexpectedly-fall-to-seven-month-low
CHINA’S MARKET MANIPULATION (Reuters)
“China has enlisted $800 billion worth of public and private money to prop up its wobbly stock markets, a Reuters analysis shows, but the impact of the unprecedented government-orchestrated rescue has so far been modest. Public statements, media reports and market data reveal that Beijing unleashed 5 trillion yuan (515 billion pounds) in funds - equivalent to nearly 10 percent of China's GDP in 2014…” Story at…
http://uk.reuters.com/article/2015/07/23/uk-china-markets-rescue-idUKKCN0PX0AU20150723?link=mktw
My cmt: The article seems to agree with my earlier comments; sooner or later these efforts are bound to fail. We need only remember the turmoil last January when Switzerland gave up trying to cap the Swiss Franc against the Euro.
MARKET REPORT / ANALYSIS
-Friday, the S&P 500 was down about 1.1% to 2080 at the close.
-VIX was up about 9% to 13.74.
-The yield on the 10-year Treasury dipped slightly to 2.27%.
Friday was statistically significant and that means simply that the price-volume move exceeded statistical parameters and, in about 62% of the time, that leads to an up-day the next day. In this case, it may well lead to a reversal. The S&P 500 closed 0.8% above its 200-dMA and that may be close enough to the 200-day MA to warrant a turn-around.
Unchanged volume was low and that is sometimes bullish since it can indicate too much one-sided thinking at a bottom. Friday wasn’t a test of a prior low though, so calling a bottom for Friday is mostly guesswork and there are likely to be indicators each way.
Unfortunately, Market Internals continued to deteriorate and didn’t give any signs of a turn-around or a Friday bottom. With only 47% of stocks on the NYSE advancing in the last 50-days and shorter term internals negative it is hard to be bullish now.
LONG TERM BREADTH
The 50-dMA of advancing stocks dropped from 48 Thursday to 47% Friday. Below 50% is not good. Back in October of 2014 the 50-dMA dropped to 39% before the index bottomed during a 7% mini-correction.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of the percentage of stocks advancing (NYSE) collapsed from to 51% at the close Thursday to 45% Friday. (A number above 50% is usually GOOD news for the markets.
Once again, New-lows outpaced New-highs Friday. The spread (new-highs minus new-lows) was -383. (It was -225 Thursday.)
The 10-day moving average of change in the spread fell to minus-37 Friday. In other words, over the last 10-days, on average; the spread has DECREASED by 37 each day. Internals are negative 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.
NTSM
Friday, the NTSM long term indicator is HOLD. All long-term indicators remain neutral.
MY INVESTED STOCK POSITION
On 13 July, I increased my investments from 30% invested to 50% invested in stocks. I spilt stock investments roughly equally between S&P 500, Euro/pacific ETF (EFA), and the Dow Jones Completion Index (DWCPF) as noted in an earlier post. (My 401k {the TSP} is limited in its choices.)
TSP ALLOCATION (This is a conservative position most appropriate for retirees or conservative investors.) I think all investors would be well served to cut their stock investments to a lower than normal (for each individual) allocation. Until longer term technicals look better, the old adage that one’s stock allocation should equal your age subtracted from 100 seems reasonable. (40years old: 100-40 = 60% in stocks) 50% would be the lowest stock allocation unless conditions deteriorate.
G-Fund (Risk-free yielding 2.1% over the last 12-months): 50%
C-Fund (S&P 500): 15%
S-Fund (DWCPF): 15%
I-Fund (EFA): 20%
