Earnings Provide No Boost

Updating each Saturday.

Economy:

The PMI Manufacturing Index Flash is reporting sharp acceleration in activity this month, at a flash October index of 53.2 for a nearly 2 point gain from September and the strongest rate of growth since October last year.  The PMI Services Flash is reporting a sharp upturn in business this month, with the headline index up nearly 3 points to 54.8 for the strongest rate of composite growth this year.  New home sales in September, up 3.1 percent to a 593,000 annualized rate.  The September durable goods report was flat, where orders slipped 0.1 percent.  Initial jobless claims fell 3,000 in the October 22 week to 258,000 with the 4-week average up but only slightly, to 253,000.  The consumer and the nation’s exports are the headliners in third-quarter GDP which topped expectations at an annualized 2.9 percent.  The consumer sentiment index (U. of Michigan) weakened substantially in October, ending the month at a lower-than-expected 87.2.

Geo-Political:

Post Brexit, the UK pound has sunk like a rock, down 20% since June (huge in currency moves), so Apple has raised the price on their products by 20% (http://www.cnbc.com/2016/10/28/apple-pushes-up-prices-in-uk-by-20-percent-as-customers-feel-brexit-bite.html ).  If this is followed by other companies, Britain will soon show big inflation as one result of the Brexit vote.

The Chinese economy is stable:

“China will focus on combating asset bubbles and preventing economic and financial risks while “continuing to moderately expand aggregate demand and push forward supply-side structural reform”, the top leaders said on Friday.

Economic growth has remained sound in the first three quarters, and much headway has been made in reducing excessive production capacity and lowering production costs, said a statement released after a meeting of the Political Bureau of the Communist Party of China Central Committee, presided over by General Secretary Xi Jinping.”

http://www.chinadaily.com.cn/business/2016-10/29/content_27212090.htm

Globally, interest rates have begun to rise slowly:

“Sept 21, 2016 – Global interest rates jumped Friday to their highest level since the U.K.’s vote to leave the European Union, in a sharp global government-bond selloff sparked by hawkish comments from Federal Reserve officials and policy inaction by the European Central Bank.

The selling pushed the benchmark 10-year Treasury note  to 1.675%, its highest level since June 23, the day of the Brexit vote, while the 10-year Germany bund yield  turned positive for the first time since the Brexit vote. Yields rise as bond prices fall.

The sharp move vindicated analysts that had been warning investors not to get complacent during the recent global bond rally that inflated prices to their most expensive levels in history, pushing global yields to all-time lows, in many cases in negative territory.” http://www.marketwatch.com/story/these-investors-will-get-hit-hardest-as-global-interest-rates-rise-2016-09-09

 

Technical Analysis:

The market has been weak for a few months, despite setting an all-time high just a couple of months ago.  We’ve traded in a range from 2120 – 2190 and we remain in that range.

I bought in using SPY about 5 weeks ago and put a trailing stop loss % -3% order under that.  I’m still in, and with the high water mark nature of the trailing stop loss %, my max loss is 1% now (since the market went higher after I bought).

Technically, RSI is at 40 and headed down, not a good sign.  MACD has fallen to -5 and may head down.  Nothing encouraging there, so I expect to be stopped out of my position next week.  This does not offer a good buying position.

Earnings season has been slightly positive, with earnings up quarter over quarter by about 2%.  This has not been enough to get stocks to rally, so one really has to wonder what the next catalyst will be?

2016-10-29-sp

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Remember the “Glossary” is at the top of the blog if you want to see what some terms mean.  If I need to add terms to the glossary, you can email me, email address is at the top of the “About” page, at the top of the blog.  I enjoy hearing from my readers!

Rich Comeau, Rich Investing

Mid Earnings Season

Updating each Saturday.

Economy:

Flat is the best word to describe the factory sector right now. The latest evidence is the industrial production report which inched up only 0.1 percent in September with August revised 1 tenth lower to minus 0.5 percent.  Consumer prices (CPI) rose a noticeable and as-expected 0.3 percent in September.  Initial jobless claims moved higher in the October 15 week, up a tangible 13,000 to 260,000, but this is still in the historically low end of the scale.  Existing home sales surged 3.2 percent in September to a 5.470 million annualized rate that exceeds Econoday’s high estimate.  September was a respectable month for the economy based on the index of leading economic indicators which rose an as-expected 0.2 percent.

The ragged slow-growth economy continues.

Geo-Political:

The article below is such a good description of what is going on in China and it is a little long, so I’ll skip Europe today.  The article echoes my understanding of their situation.

“10/22/2016

The latest GDP data from China show the world’s second-largest economy seemingly in good health. Third-quarter growth was 6.7 per cent, reflecting the government’s continued pump priming by way of increased spending, and a robust property market. That the headline number came in exactly at the same reading as the previous two quarters also signals a level of almost unnatural stability in the economy’s performance as expansion has hovered around 7 per cent or very close to it for the last nine quarters, ensuring that there has been no hard landing as the key global growth engine slows. Earlier this decade the Chinese government began a ‘rebalancing’ of the economy by shifting the focus away from a production and export-led model to an increasingly domestic consumption and services reliant one; it has had some success in this with consumption contributing 71 per cent of GDP growth in the first three quarters of 2016. Still, the high level of government spending and the mounting debt — core debt as a percentage of GDP exceeded 250 per cent in the first quarter according to data compiled by the Bank for International Settlements — are causes for concern. With the state leading investment in infrastructure as a means to stabilise growth, public spending climbed 12.5 per cent in the nine-month period, widening the nation’s fiscal deficit. But it is the pace and size of the overall credit expansion that have set alarm bells ringing, including at the International Monetary Fund.”

http://www.thehindu.com/opinion/editorial/china-economic-growth-chinas-tightrope-walk/article9252387.ece

Technical Analysis:

The stock market remains range bound between 2120 and 2190.  RSI and MACD are both in neutral territory and just moving sideways.  On MACD, the histograms have been shrinking and moving up to zero and the faster moving thick line may cross the slower moving thin line which would be a small positive.  The price action remains below the bottom of the channel we have been in since winter, a small negative.

2016-10-22-sp

Last week was important for earnings season with 91 S&P 500 companies reporting, and next week a few more than that will report.  Earnings were projected to contract by 2% vs. the year ago quarter, but now are expected to come in flat to slightly up.  Earnings season is going well, but it is not driving the stock market.  That is not a good sign.

The election will soon be over, thankfully.  Hillary will win and the stock market won’t go up, but it won’t go down either.  The stock market likes certainty over uncertainty, and they think Hillary is more of a known quantity than Trump.

Everyone now expects a rate hike in Dec., and that may the thing holding back stocks.  The market is overvalued (I discussed this in the Long Term update in the post just prior to this one), and as interest rates rise, bonds and CD’s become more attractive to investors relative to stocks.

I got more heavily into the stock market a month ago, given that technicals were neutral, the Fed was on hold until Dec., it’s a bull market, and I hoped earnings would be good and produce a rally in stocks.  Everything has come true except the rally in stocks.  I’m protected by the “trailing stop loss %” order under the SPY, but if earnings continue to come in good and we don’t rally, I will be concerned that we are starting to focus more on fear of the rate increase in Dec. and look to sell the SPY, hopefully on a little pop.

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Remember the “Glossary” is at the top of the blog if you want to see what some terms mean.  If I need to add terms to the glossary, you can email me, email address is at the top of the “About” page, at the top of the blog.  I enjoy hearing from my readers!

Rich Comeau, Rich Investing

Long Term October 2016

Once a month, on a Wednesday around mid-month (15th or the next week), I will put up a long term view of the market.  This is provided for investors who don’t want to trade secondary swings in the market, but would like to exit the stock market when a bear market begins, or enter the market when a new bull market begins (change in the primary trend).  In the blog, they will always have a title called “Long Term (month) (year)”, so you can use your browser “Find” function and easily find them.

Economics:

GDP – The third estimate of GDP for Q2 is +1.4%.  That’s not good if we are looking to break out above the 2% annual growth we’ve been experiencing for a few years, but it does not point to a recession in any way.

Oil – Oil is selling for $50 a barrel, which is a mid-level price compared to history, so it should not tip the economy.

Fed interest rates – The Fed Funds Rate sits at .5% as it has so far this year.  Other interest rates have inched up in anticipation of a ¼ point hike in the Fed Funds Rate in December.  Overall, rates are stable.

There are some indications that Japan and Europe are disappointed that negative interest rates have not spurred more growth in their economies and that they will abandon them.  This would take some pressure off a rising dollar and give the Fed a clearer path to a rate hike.

“Sept. 26, 2016

Failure to generate inflation, as a gauge of a better economic activity, didn’t stop numerous central banks from stepping into negative interest rate territory.

The Bank of Japan, the European Central Bank, Swiss National Bank and Riksbank are among the leading central banks applying negative rates to their borrowers, hoping that the latter would use debt and spend.

In fact, many of these central banks desperately seek inflation to fulfill their policy mandate, without even thinking why an artificial inflation would be fundamentally detrimental for their economies.

Inflation should be the result, a reward for healthy economic activity. Creating inflation per se should have never been a primary goal.

As a result, negative rate policies, besides the massive private and sovereign asset purchase programmes, have been unsuccessful in encouraging consumption and in bringing back inflation.

In fact, the Japanese markets immediately gave the opposite reaction to the NIRP by buying the yen instead of selling it, which has led to a 15% appreciation in the yen against the US dollar since the Bank of Japan’s rates turned negative nine months ago. In turn, the stronger yen further weighed on the inflation in Japan.

As of today, the nationwide inflation in Japan is -0.4% year-on-year.”

https://www.leaprate.com/2016/09/why-have-negative-rates-failed-to-generate-inflation/

Valuation:

PE on S&P 500 – The current P/E on the S&P 500 is 24, compared to a trimmed 30 year average of 19, based on the trailing 12-month GAAP P/E.  That’s moderately over-valued, and while not a sell signal on its own, it should limit the amount of upside progress that can be made in a year.

S&P earnings – Earnings have been coming in mixed, with a miss by Alcoa giving the markets pause early in the earnings season, but beats by most banks pleasing the markets.  S&P has forecast earnings for the current quarter at $26.89, compared to last quarter actuals of $23.28, but they have historically been rosey.  Q2 over Q1 was an actual increase in earnings, and that was welcome news.

Age of primary move, bull or bear market – We are 7.5 years into this bull market, making it a mature bull market.

Geo-Political:

  • Europe seems economically stable, and Mario Draghi recently indicated that the ECB was not leaning to an extension of their QE program. That would indicate some healing of their economies.
  • In the Middle East, Syria remains the hot spot with Russia deploying their forces inside Syria, nominally to fight ISIS, but generally fighting all the rebels to keep Assad in power. There is plenty of fighting going on in the region, with Iraqi forces supported by the US trying to dislodge ISIS in Mosel, and fighting in Yemen.  These are all small scale conventional wars and have not impacted global economies, as long as they do not widen.
  • In Russia, their recession drags on, hurt by low oil prices and sanctions laid on by the US and Europe over their incursion in Ukraine. They have spent most of the reserves in their rainy day fund and it will be depleted by winter.  http://money.cnn.com/2016/09/16/news/economy/russia-cash-reserves-depleted/
  • China appears stable, with GDP coming in around the 6.5% target the government set for them.

Overall, the global situation is a slow growth world, but there is nothing to greatly impact US stock prices.

Technical, Chart of Dow Jones Industrial Average (DJIA) – 10 year

RSI on the upper right of the chart below is at 51, which is a neutral reading.  MACD has turned down but is still high on its scale at 200.

The price action looks sideways, and it has fallen out of the up-channel it has been running in the last few years.  Sometimes a new, less steep, up-channel can be established, but that remains to be seen.  For now, we appear to just be in a trading range on the DOW from 15,500 to 18,500.

2016-10-19-long-term-october

This bull market is looking tired, but the operative words are “bull market” and it is still a bull market.  The economy is growing slowly both domestically and internationally, the Fed will be accommodative even if they raise interest rates a bit from here since the rates will be historically low, the energy market is stable, and there are no major global conflicts that would disrupt commerce.

Rich Comeau, Rich Investing

Rangebound

Updating each Saturday.

Economy:

Unemployment claims remain at or near historic lows, indicating a lack of layoffs and quick turnaround for those who do lose their jobs. Initial jobless claims came in near the low end of expectations in the October 8 week, at 246,000.  Retail sales proved solid in September hitting the Econoday consensus across the board: total up 0.6 percent.  The consumer sentiment index (U. of Michigan) is down sharply so far this month, 3.3 points lower to 87.9 for the weakest reading since September last year.

It was a light week for economic data, but no damage was done.

Geo-Political:

Singapore reported slowing growth and Singapore is an important Asian economy.

“Singapore’s growth in the third quarter badly missed expectations on Friday, potentially signaling weakness around the region.

The city-state’s gross domestic product (GDP) grew 0.6 percent on-year in the third quarter, well off forecasts for 1.7 percent growth from a Reuters poll and the weakest reading since 2009, during the global financial crisis.

GDP also contracted 4.1 percent on-quarter, compared with a Reuters poll forecast for 0.3 percent growth.”

http://www.cnbc.com/2016/10/13/asia-economy-news-singapores-gdp-miss-may-signal-weak-regional-growth.html

Europe and China seem stable.  OPEC says they have a framework in the works to limit oil production and oil prices have risen, but these agreements have always been cheated on, so we’ll just have to wait and see.  The US has been allowing production to fall, but we can quickly ramp it back up so no long term shortage should emerge.

Technical Analysis:

The chart is uninspiring.  We’ve been in a trading range for 3 months, from 2120 to 2190 and the chart conditions are deteriorating slightly.  RSI is at 41 and trending slowly downward to oversold (top right of chart), while MACD is a bit below zero and has rolled over and is trending slightly downward now.  It could slip below the downtrend line it was under for a couple of months which would be a negative.  The price action has been weak and fallen below the bottom of the channel which is always a caution sign.

Based on the technicals alone, you might sell out here.  I’ve been in the market for a month, with a “trailing stop loss %” order under my SPY at 3% down, and it has not sold yet.  Since a “trailing stop loss %” order works off a high water mark, and the market was higher after I placed the order, my max loss for this swing is not 3%, but closer to 1% now.

Alcoa had poor earnings which started earnings season off on a sour note.  This week coming will be a big week for reporting, so I hope we get some better reports.  Better earnings reports should spur a rally we can take advantage of, and I’m positioned to automatically sell out if further weakness develops.

2016-10-14-sp

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Remember the “Glossary” is at the top of the blog if you want to see what some terms mean.  If I need to add terms to the glossary, you can email me, email address is at the top of the “About” page, at the top of the blog.  I enjoy hearing from my readers!

Rich Comeau, Rich Investing

Earnings Approach

Updating Saturday and Wednesday.

Economy:

One of the first hard indications on the September economy is strongly positive as Motor Vehicle Sales surged 4.7 percent to a 17.8 million annualized rate.  August proved to be a one-month letdown for ISM’s manufacturing sample as the September index bounced more than 2 points higher to a much better-than-expected 51.5.  Factory orders in August edged only 0.2 percent higher but core capital good orders (nondefense ex-aircraft) jumped 0.9 percent following very impressive gains of 0.8 percent and 0.5 percent in the prior two months. These results point to a rebound for business investment which otherwise has been depressed this year.  The ISM Service Sector composite index shot up to 57.1 from August’s recovery low of 51.4 which now looks like a very odd outlier for this report which otherwise has been consistently strong this year.   Crude oil inventories fell 3.0 million barrels in the September 30 week to 502.7 million barrels. It was the fifth weekly decline in a row and whittled the year-on-year gain down 1.4 percentage points to 8.4 percent.  Jobless claims keep moving lower and lower in what is definitive evidence of labor market strength. Initial jobless claims in the October 1 week fell 5,000 to 249,000, breaking the 250,000 barrier for the second time this year.  On the Jobs Report, non-farm payrolls rose 156,000, which is at the low end of expectations, while average hourly earnings don’t look that inflationary, up only 0.2 percent and again at the low end of expectations.

Every major indicator that I follow is positive this month, and that is the first time in a long time.  It is just one month of the quarter, but I should help out earnings when the Q3 results start next week.

Geo-Political:

Looking over the international news sites, Europe and China are reporting stable conditions.

OPEC has reached a deal to limit oil production in Nov. and the oil price surged to $50 a barrel as a result.  These agreements frequently fail as the member nations cheat and produce more than their commitment, to try and get more than their stated share.  Then we find they were all cheating, and the price of oil comes back down.  But the fracking revolution in the US has changed the balance of power in oil.

“July 5, 2016

The US holds more oil reserves than Saudi Arabia and Russia, the first time it has surpassed those held by the world’s biggest exporting nations, according to a new study.

Rystad Energy estimates recoverable oil in the US from existing fields, discoveries and yet undiscovered areas amounts to 264bn barrels. The figure surpasses Saudi Arabia’s 212bn and Russia’s 256bn in reserves.”

http://www.cnbc.com/2016/07/05/us-oil-reserves-surpass-those-of-saudi-arabia-and-russia.html

Fracking is one of the biggest economic game changers in our lifetimes.  The cost of energy influences how we spend our leisure time, the cost of goods we consume, and to whom our political and military alliances swing.  Forget all the old rules, it is a new day in the energy space.  Russia and Saudi Arabia are still important, but the US is just as important, thanks to figuring out how to bust oil out of shale rock.

Technical Analysis:

Earnings season starts Monday, Yahooo!  This is what I’ve been waiting for.  The market has been listless for weeks, months even, and something has to be the catalyst to get it going, to break out to the upside or downside.  Maybe earnings will do it, and I am positioned for an upside breakout.

  1. The economic indicators have been mostly positive and quickened some in Sept.
  2. The Long Term position report for Sept. (mine in this blog) says we are still in a bull market.
  3. The technicals of the chart are supportive of the market making progress.
  4. There are warning signs out there like over-valuation, but they are cautions on the long term and will probably be overridden by a good earnings season in the short run.

The market is moving so slowly this will sound like a broken record (how many of you really know what I’m talking about?).  RSI is neutral at 50 (upper right of chart), but it decisively has broken above the purple downtrend line it was living under in August and Sept.  In a bull market, RSI many times does not get fully oversold down at 30, and 50 can represent a decent entry point.  MACD (lower right of chart) has broken above the downtrend line it was tracking under for the last 2 months.  These are both mildly positive.  The S&P price action leaves it on the bottom of the uptrend it has been in since the Feb. low, which also represents a decent entry point if you think a rally will occur.

2016-10-08-sp

I bought in about 3 weeks ago, in anticipation of earning season.  We’ll find out soon if it will be the positive catalyst I’d hoped for.  I’m mostly in SPY, with a “trailing stop loss %” order set at -3% for protection, just in case we get an ugly surprise.  That’s the way I left it while I was on vacation.

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Remember the “Glossary” is at the top of the blog if you want to see what some terms mean.  If I need to add terms to the glossary, you can email me, email address is at the top of the “About” page, at the top of the blog.  I enjoy hearing from my readers!

If you would like to receive a “reminder” when I make a new update, if you send me your name and email address to sharplet@gmail.com .  I will send a notice on email when I make new posts.

Rich Comeau, Rich Investing

Dullsville

Updating Saturday and Wednesday.

The market is pretty dull these days, waiting for something to move it.  No interest rate action is expected until Dec. so that won’t move it in the near term.  Alcoa reports earnings on Monday, which kicks off earnings season for Q3, and with the economic statistics looking a little better, that could move the market, and that is one reason I bought into the market two weeks ago.  The market has plenty of warning signs out, but it has refused to go down.  Maybe that means it wants to go up, and if earnings come in strong on the back of a pick-up in Q3 GDP, that could do it.

Most have heard the old adage, “sell in May and go away”, because historically, the Oct. – April time of the year has yielded a higher return than May – Sept.  It does not always work out, but it usually does.  We are entering a seasonally favorable time of the year.  People will get excited about the analysts rosy predictions for 2017 and start to buy in advance of improved earnings (sometimes the earnings show up and sometimes they do not, but the market almost always goes up on the rosy projections going into the new year).

Technical Analysis:

No real change from Saturday’s report.  RSI broke above its recent downtrend, MACD looks like it is trying to do the same.  Both are in neutral territory.

2016-10-05-sp

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Remember the “Glossary” is at the top of the blog if you want to see what some terms mean.  If I need to add terms to the glossary, you can email me, email address is at the top of the “About” page, at the top of the blog.  I enjoy hearing from my readers!

If you would like to receive a “reminder” when I make a new update, if you send me your name and email address to sharplet@gmail.com .  I will send a notice on email when I make new posts.

Rich Comeau, Rich Investing