Sunday, June 25, 2017

Weekly Stock Market Outlook 6/25/2017

U.S. stocks were mixed on Friday, as the overall market ended the week close to where it started. Energy stocks are driving the markets lower and medical and biotech is exhibiting unusual strength. Blue chips are seeing minor selling pressure and we can expect more consolidation ahead.

Earnings Outlook – We have to wait another few weeks before the Q2 earnings season really takes the spotlight.  Total Q2 earnings are expected to be up +5.8% from the same period last year on +4.6% higher revenues. This would follow +13.4% earnings growth in 2017 Q1 on +7.0%, the highest growth pace in all most two years.  Estimates for Q2 came down as the quarter unfolded, with the current +5.8% growth down from +7.9% at the end of March.

Global Economy – A  gain in Aug WTI crude oil prices is also lifting energy stocks in the pre-market. Mining stocks are higher as well with Aug COMEX gold up  at a 1-week high and Jul COMEX copper up at a 2-week high.

European stocks are down after the Eurozone Jun Markit composite PMI weakened to its slowest pace in 5 months.  Brexit negotiations are under way with residency rights and clearing of euro-denominated financial instruments among the first issues being debated between the UK and the European Union.

China’s Shanghai Composite erased early losses and moved higher in the last hour of trading on reports that state-sponsored funds had stepped in to support stock prices.

The Eurozone Jun Markit composite PMI fell -1.1 to 55.7, weaker than expectations of -0.2 to 56.6 and the slowest pace of expansion in 5 months.  The Eurozone Jun Markit manufacturing PMI unexpectedly rose +0.3 to 57.3, stronger than expectations of -0.2 to 56.8 and the fastest pace of expansion since the data series began in 2014.

France Q1 GDP was revised upward to +0.5% q/q and +1.1% y/y from +0.4% q/q and +1.0% y/y.

The Japan Jun Nikkei manufacturing PMI fell -1.1 to 52.0, the slowest pace of expansion in 7-months.

U.S. Economy – Sales of new homes rebounded in May, helped by strong sales gains in the South and West.  The Commerce Department says sales of new single-family homes rose 2.9 percent last month to a seasonally adjusted annual rate of 610,000. That followed a 7.9 percent drop in sales in April which was the biggest monthly decline in eight months.  Sales gains of 6.2 percent in the South and 13.3 percent in the West overcame big declines of 25.7 percent in the Midwest and 10.8 percent in the Northeast.

The median price of a home sold last month rose to a record $345,800, up 16.8 percent from a year ago. Prices have been increasing as demand has outstripped supply, in part because of a shortage of available building lots.

Market Sentiment – The long bond stopped moving higher few days back and is clearly running out of upside momentum at this time. I’m expecting the downside pressure to increase in the short term and price to move back to the 50 day line to the downside.


The long term trend remains bearish and with FED anticipated to continue raising rates for the next few years, the prospect of seeing bonds trade higher is not feasible, since the long bond and interest rates trade inverse to each other over time.

Stock Market Analysis – The sector that’s been driving the market higher past week is healthcare and biotech sectors, which have been bucking the overall trend of the market in the past several days.
The overall market is stagnate and consolidating, while medical stocks have been moving higher and making aggressive gains in the past few sessions.

At the present time, both healthcare and biotech are grossly overbought, with 10 day RSI moving into the 80th level, which tells us that the most likely scenario will be pause in the trend, consolidation or most likely a pullback taking us back to the 50 day line to the downside.


As you can see from the chart above, volatility levels have been rising in the past few days, which is negative for stock prices and typically causes stocks to experience mild pullback or retracement against the trend.  Most traders don’t pay attention to increase in volatility or trading range which is a big mistake. Massive rise in volatility or trading range is the biggest indication that price is about to stagnate or reverse and that’s what we are seeing in both healthcare and biotech at this time.

I’m also seeing increased selling pressure in industrial and broader blue chip stocks as Dow Jones begins trading lower and losing upside momentum in the short term. We anticipated this would occur, since Dow reached steep overbought price levels in the short term earlier in the week, which typically leads to minor corrective pressure to the downside.


At one point the 10 day RSI actually reached close to 80th level, which confirms that Dow Jones industrial is running out of momentum and with energy stocks increasing downside pressure, the odds of seeing directional upside momentum in the Dow Jones OR the NYSE is highly unlikely, till we see some degree of balance throughout individual sectors over time.

In summary – don’t expect major upside till stocks see some degree of corrective pressure and unity from various key sectors. Blue chips are not seeing accumulation and investors are waiting to see if funds begin accumulating tech once again.

Major funds are out of the market in July and I’m volatility levels are near historic lows. We can anticipate less volatility as we head into July and more consolidation and corrective pressure from the overall stock market in the next few sessions, unless there’s Global uncertainty develops, which will only increase selling pressure and cause spike in VIX.



Complements of Market Geeks

Sunday, June 18, 2017

Weekly Stock Market Outlook 6/18/2017

Amazon’s $13.4 billion deal for Whole Foods sent grocery stores, big retailers, and food makers and distributors plunging Friday. Energy companies rose while other stocks were little changed.

Earnings Outlook – Total Q2 earnings are expected to be up +5.7% from the same period last year on +6.5% higher revenues. This would follow +7.4% earnings growth in 2016 Q4 on +3.7% revenue growth, the highest growth pace in all most two years.  Estimates for Q2 came down as the quarter unfolded, with the current +5.7% growth down from +7.9% at the end of March.

U.S. Economy – Housing starts dropped 5.5% in May from the previous month to a seasonally adjusted annual rate of 1.092 million. The median estimate was 1.22 million.  Residential building permits, fell 4.9% to an annual pace of 1.168 million last month, which compares to expectations of 1.249 million. Economists had expected a 3.4% increase for starts and a .8% gain for permits.

Market Sentiment – Based on financial futures contracts, the probability that the Federal Open Market Committee will increase its fed funds rate at the December 13 meeting is 46%, which compares to 50% yesterday.


Technically, there’s not much data on the horizon to increase buying pressure above the current price level, especial with the long term trend pointing lower.  Expect price gap to the upside to fill as bonds trade lower and decline form overbought price levels in the near term.  RSI remains above 70 and unless we see global uncertainty ahead, the odds of more accumulation at the current price level is unlikely.

Stock Market Analysis – Key blue chip sectors continue to lag behind the overall market at this time, which opens up increased vulnerability in NYSE and Dow Jones in the near term.


If more blue chip sectors begin trading lower in the medium term time frame, the overall marke will gravitate towards the 50 day line and that will limit the number of institutional traders entering the market.  More importantly, as more and more sectors become weaker, we are seeing Dow Jones increase in price value, which tells us that less sectors are causing upside to the broader market and that creates vulnerability in the coming days.  RSI is now in the mid 70’s and price is showing major divergence against the RSI oscillator, which confirms that price is getting a bit ahead of itself in the short term time period.


Expect more congestion in the near term and lack of directional bias as stocks look for catalyst to drive price higher in the near term. Earnings season doesn’t officially start for some time and the majority of economic data is priced into the market at this time.  Tech is already near the 50 day line and more downside in the tech sector will cause more pressure to overall stock market, which will drag the SP 500 and Dow Jones lower.


Without such corrective pressure, it will become increasingly difficult for stocks to generate sufficient momentum to trade higher over the next few months.  Unless we see institutions coming into tech over the next few days, the odds of seeing QQQ break below the 50 day line is probable, which would create more downside pressure for the broader market.

Keep your eye on VIX index since it gives us accurate assessment of fear in the market. At this time, fear level is hear historic lows and unless something unexpected develops, I’m not expecting too much increase in volatility or corrective pressure to the downside ahead…only minor corrective pressure.


Courtesy of Market Geeks

Sunday, June 11, 2017

Weekly Stock Market Outlook 6/12/2017

U.S. stocks were again mixed on Friday. Banks and other financial stocks led the gainers. Energy companies also rose. Utilities stocks were the biggest laggard.  I prepared a full momentum analysis for you below, please review since all three market analysis methods [price, momentum and internals] are pointing to increased vulnerability and selling pressure to begin over the near term time frame.

Global Economy – European equities moved higher even after UK Prime Minister May’s Conservative Party lost its majority in parliament, which weakens her hand in Brexit talks with the European Union that are scheduled to begin in 10 days.   GBP/USD fell to a 1-1/2 month low on the fallout from the surprise UK election results, but the impact on the rest of the global markets was muted.

European stocks found support on signs of strength in the German economy, the Eurozone’s largest, after trade date showed German Apr exports and imports rose more than expected.

Expectations of a hung parliament in the UK failed to dent optimism in Asian markets as China’s Shanghai Composite rose to a 1-1/2 month high and found support on an as-expected increase in China consumer prices and a slower-than-expected pace of increase in Chinese producer prices.

The German Apr trade balance was in surplus by +18.1 billion euros, narrower than expectations of +23.0 billion euros. Apr exports rose +0.9% m/m, stronger than expectations of +0.3% m/m. Apr imports unexpectedly rose +1.2% m/m, stronger than expectations of -0.5% m/m.

UK Apr industrial production of +0.2% m/m and -0.8% y/y was weaker than expectations of +0.7% m/m and -0.3% y/y.  UK Apr manufacturing production of +0.2% m/m and unch y/y was weaker than expectations of +0.8% m/m and +0.7% y/y.

China May CPI rose +1.5% y/y, right on expectations. May PPI rose +5.5% y/y, weaker than expectations of +5.6% y/y.

U.S. Economy – In yet another negative for second-quarter GDP, wholesale inventories fell a sharper-than-expected 0.5 percent in April.  The draw is centered in autos but also includes other durable goods and non-durable goods as well. Sales at the wholesale level were weak, down 0.4 percent in the month and justifying the inventory draw.

The wholesale stock-to-sales ratio holds unchanged at a still lean 1.28.

Market Sentiment – Long bond continues to weaken as we get closer to upcoming FED rate hike.
Flight to quality longs continue to liquidate as the odds of FED raising rates during June 14th meeting appears to be almost a certainty.  Technically, the probability of a rate hike is 99%, which compares to 96% yesterday.

june9bonds

Expect price to continue moving south as we head towards the 50 day moving average to the downside. Once price hits the 50 day line, I’m expecting congestion and consolidation, followed by further downside action, as the long bond finally reverts back to the long term trend.

If you expand the bond chart to a further time frame, you will notice that the long term trend is bearish and unless the stock market sees major selling pressure and increased volatility in the short term, the odds of seeing major spikes in the bond market over the next few sessions is highly unlikely.

Stock Market Analysis – Stocks are slightly higher in spite of the uncertainties  stemming from former Director of the FBI Comey’s testimony on Thursday with SP 500 and Dow Jones making new highs for the session, which is unexpected, since the level of uncertainty entering the market is substantial.

Technically, all indices except for the Russell 2000 is trading substantially higher and moving extensively into overbought price territory and we are seeing massive narrowing of momentum at this time.

If you look at percentage of stocks in the SP 500 trading above the 200 day moving average, you will notice that the percentage moved from 80% percentile to 70% percentile, but price is making new highs…this is called narrowing of momentum and occurs when smaller percentage of stocks in the index are working harder or generating more momentum and causing price to go higher, even though there’s a substantially lower number of stocks causing the upside.

june9momentum

This is equivalent to having to push harder on the gas pedal to generate the same speed in the car because the engine is weakening.  And that’s exactly what we are seeing in the current market cycle at the present time from the overall stock market.  When there’s a lower percentage of stocks causing upside momentum it creates much more vulnerability in the overall market, which taken together with the current overbought price levels in major sectors and indexes creates strong possibility for corrective pressure in the near term.

Once momentum levels decline below 60% percentile, institutional traders will be less inclined to buy into the current market cycle, which will increase volatility and cause price to plummet or correct over a short period of time.  This typically creates balance to overall market and allows the market to trade higher once again.

To show you more evidence of “narrowing of momentum” take a look at the QQQ – which tracks the top 100 NASDAQ stocks. Few weeks back 85 out of 100 stocks were trading above the 200 day line and now only 75 stocks are trading above the 200 day line, but price is at or near all time highs.


As you can see from the chart below – while internally the index is weaker and as result more vulnerable, price remains near all time highs.  However, RSI levels are extremely stretched out and overbought, which tells us momentum levels have more than likely peaked out, especially with the renewed uncertainty in Britain and in U.S. in relation to Comey testimony.


Expect price to decline to 50 day line in the near term and VIX levels to begin spiking over the next few weeks. There’s too many mixed signals to see further momentum levels and that’s based on price, momentum and market internals.



Courtesy of Market Geeks

Sunday, June 4, 2017

Weekly Stock Market Outlook 6/5/2017

Bond yields touched their lowest level of the year and the dollar’s value dipped against other currencies Friday after the nation’s job growth slowed more than expected last month. Stock indexes hugged close to their record highs.

I’m seeing increases vulnerability in the stock market at this time, due to overbought price levels and key blue chip sectors nearing the 50 day moving average to the downside.

Global Economy –  European stocks are up at a 2-week high. Global stocks rallied on optimism in the economic outlook ahead of Friday’s monthly U.S. payroll report.  European stocks also received a boost after a gauge of UK May construction activity expanded at the fastest pace in 17-months.UK May Markit/CIPS construction PMI unexpectedly rose +2.9 to 56.0, stronger than expectations of -0.5 to 52.6 and the fastest pace of expansion in 17 months.  Eurozone Apr PPI was unch m/m and up +4.3% y/y, weaker than expectations of +0.2% m/m and +4.5% y/y.

On the negative side is a -2.50% plunge in Jul WTI crude oil prices to a 3-week low on concern about abundant global oil supplies. EIA data Thursday showed U.S. crude production increased to its highest level in 2-years while OPEC May crude output rose +315,000 bpd to 32.21 million bpd, a 3-month high.

Improvement in the global economy has investors buying Japanese stocks as the Nikkei Stock Index rose to a 1-3/4 year high.

U.S. Economy – Employers added 138,000 jobs last month, short of economists’ expectations. The government also said that hiring was weaker in March and April than it had earlier reported, and pay raises remain middling with average hourly earnings up 2.5 percent over the past year.  Economists aren’t sure how much of the weakness in the report was due to seasonal issues, or whether it indicates a longer-term trend. Still, many say they don’t expect it to dissuade the Federal Reserve from raising interest rates again at its next policy meeting in two weeks.  The central bank has been trying to pull rates gradually off their record low following the Great Recession, and it has raised rates twice since December.

Market Sentiment – Bond yields touched their lowest level of the year and the dollar’s value dipped Friday after the nation’s job growth slowed more than expected last month.  Bonds are now officially overbought  – as 10 day RSI moves above 70 level. Bonds are technically in an interesting position, since the long term trend is bearish and the short term trend remains bullish.  This creates very low risk trade opportunities to the downside, especially in light of the fact that FED will more likely than not raise rates in the next few weeks.

                              

Expect price to start reverting back down inline with the main trend in the near term, which will cause price to start trading lower.  The upside is limited and the odds are strong that over the next few sessions, we will see the main trend beginning to take control over the long bond once again.

Stock Market Analysis – Stocks are mixed with very little directional bias. Major blue chip sectors have been the weakest over the past month and I’m expecting minor pressure to increase, since markets are becoming more vulnerable at the current levels, especially without meaningful catalyst driving price higher.

                               

Technically, NYSE which tracks mostly large cap blue chip and industrial stocks is diverging from the 10 day RSI oscillator and is now approaching overbought price levels.


The blue chips remain vulnerable to downside pressure, especially if FED raises rates over the next few weeks, which remains highly probable at this time.  I’m not looking for massive corrective pressure since volatility levels remain near historic lows, which tells me that the most likely scenario is a pullback to the 50 day line, which will cause some degree of balance between the various sectors that are out of balance at this time.  One of the major factors that’s causing such strong distortion in the overall market is the strength out of tech, which has been causing bullish fund activity and overlaps the vulnerability we’ve seen out of the overall stock market.


When tech begins seeing downside, these vulnerabilities that I’m pointing out will become much stronger and that will cause blue chips to decline more rapidly, since there’s more weakness there.

Keep your eye on the SOXX index, since that’s the biggest catalyst in the tech right now and when price begins trading lower in the chip sector, I can assure you, that tech will suffer as a result and will begin pushing down on blue chips.



Courtesy of Market Geeks