Sunday, November 20, 2016

Weekly Stock Market Outlook 11/21/2016

Stock Market

As of Friday November 18th, Q3 results from 36 retailers in the S&P 500 index have been reported out of the 43 total, which combined, makes up approximately 94% of the sector’s total market cap in the index.  Overall earnings for these 36 retails are up +7.4% compared to the same period last year, and on +4.9% higher revenues, with a relatively low 61.1% .  This beat the EPS estimates and a very low 44.4% coming ahead of top-line expectations.

To date we have Q3 results from 476 S&P 500 members or 95.2% of the index’s total membership. Total earnings for these 476 companies are up +4.0% from the same period last year on +2.6% higher revenues, with 73.1% beating EPS estimates and 55.5% coming ahead of revenue estimates.  Combining the actual results from the 476 S&P 500 members with estimates from the still-to-come 24 index members, total Q3 earnings are now expected to be up +3.6% from the same period last year on +1.5% higher revenues. The +3.6% earnings growth in Q3 is the first positive growth for the index after 5 quarters of back-to-back declines.

Looking at the overall market sentiment, it appears to be out of balance and that typically means more corrective pressure or congestion until we see some evidence of balance between the sectors. The semiconductors are leading and has just passed it's 52wk high in Friday's session.


As compared to the Health Care sector, which is most likely to continue dropping due to the uncertainty of the direction the Trump administration will go with health care.


The most likely scenario will be downside in blue chip sector, which will trigger selling pressure in the overall tech sector, which will consequently push the QQQ [NASDAQ 100] below the 50 day moving average, which will cause further pressure to the overall stock market.


Tech is already at the 50 day and it’s not going to be too difficult to break below this level, since institutional traders do not like to trigger program buying until stocks are trading strongly above the 50 day.

The blue chips should see downside as a result of corrective pressure coming into the overall stock market. The financials need a major catalyst to continue moving higher and consumer stocks are trading below the 200 day moving average…this confirms that the overall market is grossly out of balance and long term momentum based rallies usually cannot sustain themselves when individual sectors are out of balance for prolonged period of time.


Expect blue chips and commodity stocks to begin putting pressure on the stock market, till we see financials fall back inline with pre-election price levels.

The VIX index, which measures the expected volatility of the stock market is still moving lower. The enthusiasm, or the Trump rally as we called it, that propelled the Dow Jones industrial average to consecutive all-time highs last week and gave the S&P 500 index its biggest weekly gain in two years, seems to be over. The rally, which lost some of its momentum in last Friday's session pulling the S&P 500 slightly lower, has continued its downward move through the moving averages   I still think it’s going to take a  few more weeks for the overall market sentiment to completely absorb the impact that the political shift will have on various financial sectors of the economy.




Sunday, November 13, 2016

Weekly Stock Market Outlook 11/14/2016

We now have Q3 results from 445 S&P 500 members or 89% of the index’s total membership. Total earnings for these 445 index members are up +4.0% from the same period last year on +2.7% higher revenues, with 72.8% beating EPS estimates and 55.3% coming ahead of top-line expectations.
The earnings and revenue growth pace for these 445 index members is still low, but nevertheless an improvement over other recent periods.  For Q3 as a whole, combining the actual results from the 445 index members with estimates from the still-to-come 55 companies, total earnings are expected to be up +3.3% from the same period last year on +1.5% higher revenues.

Estimates for Q4 have come down, in-line with the trend that we have been seeing for almost three years now. Total Q4 earnings for the S&P 500 index are currently expected to be up +3.4% from the same period last year, which is down from +5.5% in late September.

Shifting focus to overall market sentiment – It was perhaps the most surprising record-setting week on Wall Street: How quickly investors swapped presidential pre-election jitters for enthusiasm at Donald Trump’s victory over Hillary Clinton.  That enthusiasm — call it the Trump rally — ultimately propelled the Dow Jones industrial average to consecutive all-time highs this week and gave the Standard and Poor’s 500 index its biggest weekly gain in two years. The rally lost some steam Friday, pulling the S&P 500 slightly lower.  It’s going to take a a few more weeks for the overall market sentiment to completely assimilate the impact that the political change will have on various financial sectors of the economy and for volatility level to move back down to pre-election level.

Currently, volatility as measured by the VIX index, which measures the expected volatility of the stock market is moving lower and considering the election took place less than 1 week ago.


It’s a positive sign to see the VIX trade below the 20 level, which tells us that there’s no imminent sign of turmoil on the horizon and decrease in volatility will continue to take place over the next few weeks.



Tech is trading below the 50 day moving average, and I’m seeing substantial downside ahead, since there’s balance between individual sectors.

Retail sales numbers do not appear strong enough to propel sustainable momentum at this time and the most probable scenario will be turn-down below the 90 day line over the next few sessions, when the dust over the unexpected election results settles.

The end of year rally typically originates around the third week of November and begins with the retail sector, which begins to rally off positive earnings growth.

While earnings are better than expected, the medium term growth will take a bit of time to develop sustainable momentum and I’m not seeing the type of earnings growth that will trigger rally from the retail sector, especially in light of the fact that the odds of interest rates going higher in the near term is probable.


Interest rates moving higher would put too much pressure on the overall stock market and more than likely cause either congestion or corrective price action, taking us back to the 200 day moving average to the downside.



Complements of Market Geeks

Sunday, November 6, 2016

Weekly Stock Market Outlook 11/6/2016

Stock Market

The bulk of the Q3 earnings season is now behind us, with results from only 15% of the S&P 500 members still awaited. The Retail sector is the only one at this stage that has a sizable number of reports still to come. The picture emerging from the Q3 earnings season is one of overall improvement, particularly on the growth front. Earnings growth for the quarter is on track to be in positive territory, the first positive growth for the S&P 500 index after 5 quarters of back-to-back declines.  The +3% earnings growth in Q3 is nevertheless a notable improvement over what we saw in the preceding 5 quarter.We now have Q3 results from 423 S&P 500 members or 84.6% of the index’s total membership that combined account for 87.1% of the index’s total market capitalization.

Total earnings for these 423 companies are up +3.6% from the same period last year on +2.4% higher revenues, with 72.8% beating EPS estimates and 55.1% coming ahead of revenue estimates.
Combining the actual results from the 423 S&P 500 members with estimates from the still-to-come 77 index members, total Q3 earnings are now expected to be up +3.0% from the same period last year on +1.5% higher revenues. This would compare to 2016 Q2 earnings growth of -2.8% on -0.2% revenues.

Shifting focus to overall market sentiment, the percentage of stocks in the SP 500 trading above the 50 day moving average is now below 30th percentile, which tells me that stocks are approaching steep oversold territory in the medium term time frame.  The most likely scenario will be a bit more decline, before we begin seeing buying pressure move back into the market once again.

                             

If you look at the chart of the SP 500, you can see that price is violating the 200 day moving average and RSI Oscillator is now in oversold territory, which tells me that price may be moving lower a bit too quickly, in light of the current market climate.

                           

We can expect a bit more downside and possibly a shake out, but overall the market is gaining some degree of balance and appears to be reaching the final leg of selling pressure, before we begin seeing accumulation come into the market once again.

The next few trading sessions may involve higher level of volatility, but the VIX index is not spiking nearly as much as anticipated earlier in the year and that tells me that the majority of corrective action ahead of the election is priced into the current market cycle.



Furthermore, if the FED does push back raising rates till March or June of 2017, the odds of seeing further upside, against the main trend is a very strong possibility.  In a nutshell, the odds of further downside at this juncture is unlikely, especially with the SP 500 violating the 200 day line to the downside.



Courtesy of Market Geeks