Sunday, July 30, 2017

Weekly Stock Market Outlook 7/31/2017

U.S. markets opened lower on Friday and spent most of the morning trying to gain traction. The Dow was the only index to make it into positive territory in the afternoon while notching a new all-time high and closing the week 1% higher.

The Nasdaq, S&P 500, and Russell 2000 managed to pare their losses but ended the week slightly lower. The indexes held up well during the heaviest reporting week of the second quarter earnings season, but this week will be just as hectic with a number of marquee companies reporting.

Earnings Outlook-With results from 171 S&P 500 members already out, total earnings are up +8.8% from the same period last year on +3.4% higher revenues, with 78.9% beating EPS estimates and 70.8% beating revenue estimates.

For Q2 as a whole, combining the actual results with estimates for the still-to-come companies, total earnings are expected to be up +8.7% from the same period last year on +4.7% higher revenues. This would be coming after +13.3% earnings growth on +7% higher revenues in Q1.

Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +4.6% on +4.1% higher revenues in the September quarter and +8.6% on +5% higher revenues in Q4. Estimates for the September quarter have started coming down, but they appear to be following the moderate revisions pace seen ahead of the start of the Q2 earnings season, at least at this stage.

For full-year 2017, total earnings for the index are expected to be up +7.7% on +4.0% higher revenues, which would follow +0.7% earnings growth on +2% higher revenues in 2016. Index earnings are expected to be up +11.4% in 2018 and +8.9% in 2019.

Global Economy –European markets closed lower on Friday with financial stocks leading the pullback and the oil and gas sector showing some strength. The Stoxx Europe 600 fell 1% to end the week down 0.5%. The FTSE 100 index also dropped 1% while France’s CAC 40 index gave back 1.1%. Germany’s DAX 30 declined 0.4%.

U.K’s consumer confidence slipped 2 points following a five-point drop the previous month, and came in at -12.

France’s Consumer Price Index rose 0.7% on year in July, the same rate as June and matched expectations.

Germany’s Consumer Prices rose by 0.4% in July and 1.5% for the year. Forecasts were at 0.3% for the month and 1.4% for the year.

Asian markets traded mostly in the red with South Korea’s Kospi index taking the biggest hit, sinking 1.7%.  Australia’s S&P/ASX 200 tumbled 1.4% while Hong Kong’s Hang Seng Index fell 0.6%. Japan’s Nikkei Stock Average declined 0.6% and China’s Shanghai index gained 0.1%.

Japan’s Consumer Price Index rose 0.4% in June rose 0.4% from a year earlier, matching the pace of the previous month and in line with expectations.  Also in Japan, Household Spending rose for the first time in 16 months, gaining 2.3% from a year earlier in June, and much better than a 0.5% rise that was forecasted.  Japan’s unemployment rate also improved, falling to 2.8% in June from 3.1% in the previous month. Another very interesting indicator showed tightness in the labor market as there were 151 jobs available for every 100 job seekers, the strongest showing in more than 43 years.

U.S. Economy-U.S. GDP grew 2.6% in Q2 after a 1.2% Q1 gain (revised down from 1.4%) and 1.8% in Q4 (revised down from 2.1%).  Q2 ECI rose 0.5% after the 0.8% gain in Q1. Consumer Sentiment Index at 93.4 compared to a forecast of 93.1 for July.

Market Sentiment –Fed President Neel Kashkari wants to slowly shrink the balance sheet over the next several years as he noted in his town hall comments on Friday. The big balance sheet hasn’t done a lot to boost the recovery. He went on to say the job market remains strong, while there was very little sign of the inflation pick-up that had been expected to follow. Indeed, inflation has been low year after year, he added.  As to last Wednesday’s FOMC, he said that analysts decided not do anything with interest rates, as they likely wanted to wait to see more data.

The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to trade a penny shy of the $124 level. Upper resistance at $123.50-$124 held with further hurdles at $124.50 and a rising 50-day moving average. Support remains at $123-$122.50 and the 100-day moving average.

Market Analysis-The iShares Russell 2000 ETF (IWM) traded lower for the third-straight session after peaking at all-time highs above the $144 level. Current support is at $141.50-$141 with Friday’s low tapping $141.47.  A move below the latter could lead to a continued back-test to $140 and the 50-day moving average that remains in a strong uptrend. Current resistance is at $142-$142.50. A move back above $143 will likely lead to another run at record highs.

The Spider S&P Retail XRT (ETF) made a nice recovery last week after clearing both the 50/100-day moving averages. Current resistance is at $41.50 with Friday’s high reaching $41.36.  Continued closes above this level would be a bullish development for a possible push towards $42-$42.50 and the 200-day moving average. Support is at $41-$40.75.

The number of Nasdaq 100 stocks trading above the 50-day moving average dropped below the 60% level after testing 55% on back-to-back sessions to close out the week. This represents a crucial level of support as there is risk to 50%-45% on a continued Tech pullback. There was some sector rotation out of Tech last week and it will be important to see if it continues this week.

Courtesy of Market Geeks

Sunday, July 16, 2017

Weekly Stock Market Outlook 7/17/2017

U.S. markets wrapped up a strong week following Friday’s second half breakout to fresh all-time highs and prior resistance levels from early June.

The Financial sector lagged on mixed earnings results while the Transports continued their run to record highs. The beginnings of a summer rally appears to be in play and will be tested as 2Q earnings season starts to heat up.

Global Economy –European markets largely finished lower on Friday, with Financial stocks slipping after their U.S. earnings season got underway.  Energy and Mining stocks traded higher and helped limit the losses. The markets in Germany, France, Spain, Italy and the U.K. closed slightly in the red while the Stoxx Europe 600 ended higher led by the Commodity stocks.  While the major U.S. banks posted higher-than-anticipated profit, weaker trading revenue fell shy of expectations.  This raised questions about what European lenders will say about the lower revenues when they begin releasing financial results in the coming weeks.

The U.K. published its first draft legislation on Brexit that is designed to revoke a 1972 law that made European Union (EU) law applicable in the country. The bill marks the initial step in what is expected to be a rough battle in negotiating the U.K.’s exit from the EU.

U.S. Economy-U.S. CPI was flat in June, with the core up 0.1%, as analysts forecast, following a 0.1% dip in the May headline, and a 0.1% gain in the ex-food and energy component.  Compared to last June, overall prices slowed to a 1.6% year-over-year pace from 1.9% y/y, while the core rate was steady at 1.7% y/y.

U.S. retail sales slipped 0.2% in June, with the ex-auto component also declining 0.2%. The 0.3% May decline was revised to -0.1%, while the -0.3% for the ex-auto figure was not changed.

U.S. industrial production rose 0.4% in June, pulling capacity up to 76.6%. The flat reading on May production was revised up to 0.1%, with the capacity figure nudged down to 76.4% from 76.6% previously.

The 0.4% U.S. June industrial production rise beat estimates to leave a fifth consecutive gain from weather-depressed winter readings, though analysts saw downward revisions that left a slightly weaker than expected report.  The University of Michigan consumer confidence index fell another 2 points to 93.1 in the preliminary reading for July.

May Business Inventories up 0.3% versus consensus of 0.3% for the month.

U.S. consumer sentiment slipped another 2 points to 93.1 in the preliminary read from the University of Michigan survey, after falling 2 points to 95.1 in June.

The index has ranged from 93.1 to 98.5 so far this year with the former the lowest since October, and the latter the best since January 2004.

Market Sentiment –Fed’s Robert Kaplan said some of the weakness in inflation is transitory, some is not, noting that some technical disruptions are helping soften pricing power.  He went on to say he expects wage pressures to be picking up in the months ahead with the U.S. close to full employment.

The Fed voter also believes the balance sheet unwind will have a limited impact on the markets and could happen as early as September.  The FOMC will likely take a pause from hiking rates at the upcoming July 25, 26 meeting and there is chatter they could announce QT, quantitative tightening while beginning it in October.  Wall Street had expected the announcement in September, to begin in October, and suspect that might be the case after the recent Fed reports, with the next rate increase coming in December.

The iShares 20+ Year Treasury Bond ETF (TLT) traded to a high of $124.16 but was unable to hold its 50-day moving average and upper resistance at $123.75-$124. Support is at $122-$121.75 and the 100/200-day moving averages if $123 fails to hold over the near-term.

Market Analysis-The Spiders S&P 500 (SPY) gained 0.5% on Friday to settle at $245.56. SPY slipped 8 cents to $244.31 at the start of trading with rising support at $245-$244.50 holding.  There is additional help at $242.50 followed by $241 and the 50-day moving average. The surge to nearly $296 afterwards and all-time high gets fresh resistance at $247.50-$250 in play.

The percentage of S&P 500 stocks trading above their 50-day moving average jumped nearly 10% on Friday and is now at 69.50. Continued closes above the 70 level could lead to 74-74.50 and the early June highs.  The June 14th peak reached 74.25 followed by a run to 73.80 five days later. While this could signal a short-term market peak, if tested, it is important to remember January’s high cleared 82.  Continued closes above the June highs could get 78-80 in the mix at some point this month, or next.

Courtesy of Market Geeks

Sunday, July 9, 2017

Weekly Stock Market Outlook 7/10/2017

U.S. stocks closed higher after the government reported a solid pickup in hiring in June. Technology and consumer-focused companies made some of the biggest gains Friday.  The positive sign for the job market came a day after a disappointing measure of hiring by private companies, which sent stocks to their biggest loss since mid-May.

Global Economy – European stocks are down ahead of U.S. monthly payroll data. Weakness in energy stocks was a negative for equity prices with Aug WTI crude oil down sharply  to a 1-week low on technical fund selling.

The 10-year German bund yield rose to a fresh 17-1/2 month high of 0.581%, which also undercut European stock prices.  Bund yields rose on hawkish comments from ECB Governing Council Member Knot who said, “our monetary policy decisions will always be dictated by the economic circumstances and the economic circumstances at this point are that reflation has clearly replaced deflation.”

Losses in European stocks were limited after German May industrial production rose more than expected. Asian stocks settled mostly lower:

China’s Shanghai Composite erased early losses and rallied up to a 2-1/2 month high on reports of state-sponsored buying of equities.

ECB Governing Council Member Knot said, “our monetary policy decisions will always be dictated by the economic circumstances and the economic circumstances at this point are that reflation has clearly replaced deflation, the deflation risk is gone.”

German May industrial production rose +1.2% m/m, stronger than expectations of +0.2% m/m.

U.S. Economy – U.S. employers added a robust 222,000 jobs in June, the most in four months, a reassuring sign that businesses may be confident enough to keep hiring despite a slow-growing economy.  The government also revised up its estimate of job growth for April and May by a combined 47,000. Hiring has averaged nearly 180,000 jobs a month this year, only slightly below last year’s pace.  The unemployment rate for June ticked up to 4.4 percent from 4.3 percent in May, a 16-year low. The jobless rate rose because more Americans began looking for work and not all of them found it.

Friday’s jobs report from the government suggested that after eight years of a grinding but resilient recovery, companies still have room to hire at a healthy pace.

Earnings Watch: The Q2 earnings season takes the spotlight with quarterly reports from the big banks next week, but companies with fiscal quarters ending in May have been reporting results already.  Q2 Estimates have come down since the quarter got underway, but the magnitude of negative revisions nevertheless compares favorably to other recent periods.  Total Q2 earnings for the S&P 500 index are expected to be up +5.7% from the same period last year on +4.6% higher revenues.

The Energy, Aerospace, Finance, Technology, Construction and Industrial Products are expected to be big growth drivers in Q2, with the quarterly earnings growth pace dropping to +3.3% on an ex-Energy basis.

Market Sentiment – Bonds continue driving lower and 10 day RSI is now below 30 level. We could see lower prices, since we haven’t had increase in volatility, but more than likely, the odds of seeing consolidation and slight pullback is likely in the next few weeks.

Expect price to remain near 50 day line and don’t expect more direction till end of summer, since there’s no catalyst on the horizon that can cause price to move directionally in the short term.

Stock Market Analysis – Chips remain the biggest influence on tech at this time. I’m not ruling out a rally, since price did reach oversold price territory, but I want to see price reach above the 50 day line once again.

If SOXX trades above the 50 day line over the next few sessions, the odds are strong that institutional traders would begin accumulating once again.

At the present time, price remains completely below the 50 day line to the downside and if we can get a few positive earnings surprises next few sessions, the odds are fair that price may trigger institutional accumulation in the broader NASDAQ 100 as well.

Few weeks back, tech was broadly ahead of the blue chips and the overall market. Since we’ve seen corrective pressure from the tech over the past few weeks, both the QQQ and SPY are now near the 50 day moving average and SPY is actually leading at this time, since price is above the 50 day line.

If SPY can hold current price level, the odds are strong that tech will regain some degree of directional bias and we will see more upside from the overall tech sector, which is driving the current market cycle.  The next few sessions are going to be crucial, since most indices are trading near the 50 day line, which attracts institutional traders into the market.

Volatility remains low and with fundamentals pointing to solid job growth, the odds of seeing a rally is not unlikely, especially if we get a bit of upside from the SP 500, which will help drag the SOXX and QQQ along for the ride.

Courtesy of Market Geeks

Sunday, July 2, 2017

Weekly Stock Market Outlook 7/3/2017

U.S. stock indexes were mixed Friday, recovering some of their losses from a day earlier. Utilities and industrial companies led the gainers. Banks were the only laggard. Investors were sizing up the latest company earnings and deal news and adjusting portfolios in the final hours of the second quarter.

Global Economy – European stocks are up as a rebound in technology stocks boosts the overall market. Energy stocks are higher as well with Aug WTI crude oil up, the seventh consecutive session of gains, as oversupply concerns ease.

Signs of strength in Chinese manufacturing also improves confidence in the global economic outlook and gave equities a lift after the China Jun manufacturing PMI unexpectedly rose.  Weakness in industrial output undercut Japanese stocks as the Nikkei Stock Index fell to a 2-week low after Japan May industrial production fell -3.3% m/m, the biggest decline in 6-years.

The Eurozone Jun CPI estimate rose +1.3% y/y, stronger than expectations of +1.2% y/y. Jun core CPI rose +1.1% y/y, stronger than expectations of +1.0% y/y.

China Jun manufacturing PMI unexpectedly rose +0.5 to 51.7, stronger than expectations of -0.2 to 51.0.

German May retail sales rose +0.5% m/m, stronger than expectations of +0.3% m/m.  German Jun unemployment unexpectedly rose +7,000 to 2.547 million, weaker than expectations of -10,000.

Japan May industrial production fell -3.3% m/m, weaker than expectations of -3.0% m/m and the biggest decline in 6 years.

U.S. Economy – May was not a strong month for the consumer. Income did rise 0.4 percent but it wasn’t because of wages & salaries which could manage only a 0.1 percent gain.  Spending was weakest in non-durable goods, down 0.5 percent in the month but, in an important note, reflected low energy prices not low demand.  But spending on durables was also negative, down 0.3 percent. The positive is a moderate 0.3 percent gain for the biggest category and that’s services.

The consumer sentiment index slipped back to the least optimistic reading since the November election, falling 2.6 points in preliminary June to 94.5 with both the current conditions and expectations components falling.  The report said the move lower reflected easing confidence among both Republicans and Democrats. Econoday’s consensus for final June to remain at 94.5.

Earnings Outlook – Estimates have come down since the quarter got underway, but the magnitude of negative revisions nevertheless compares favorably to other recent periods.

Total Q2 earnings for the S&P 500 index are expected to be up +5.9% from the same period last year on +4.6% higher revenues. The Energy, Aerospace, Finance, Technology, Construction and Industrial Products are expected to be big growth drivers in Q2, with the quarterly earnings growth pace dropping to +3.3% on an ex-Energy basis.

Market Sentiment – James Bullard, president of the St. Louis Federal Reserve said weak data has undermined the Fed’s hawkish stance and the U.S. central bank should take a more reactionary approach if and when it sees more solid signs of economic growth.  The probability that the Federal Open Market Committee will increase its fed funds rate at the December 13 meeting is 54%, which compares to 53% yesterday.

Technically, bonds remain bearish, even though stocks are slightly weaker. I’m anticipating more downside to develop over the near term or possibly a bit of congestion, before price violates the 50 day line and reverts back to the main trend, which is lower.

We may experience a week or even two of congestion or slight bounce from the current levels, but ultimately, the long term trend is lower and it’s a matter of time till we see more corrective pressure develop in the near term.

Stock Market Analysis – Stocks are going through major rotation at this time. If you recall, over the past few months, tech has been leading, while blue chips have been lagging behind. Over the past few sessions, we’ve seen increased weakness in the overall tech sector, due to extreme weakness in semiconductor stocks.

At the present time, the top leading sectors over the short term are blue chips and are helping NYSE and SPY remain near record high price levels.

Keep in mind, my analysis only covers very short term time period and the long term trend in tech remains bullish. Till we see major violation of the up trend, I will assume the weakness in semiconductors, which is spilling in to the broader tech sector is temporary.

As you can see from the chart below, the SOXX index is now trading completely below the 50 day line and 10 day RSI is in the upper 30th level, which tells us that price is approaching oversold territory in the short term.

Once we get closer to 30 level, we can expect some degree of institutional accumulation to move into the overall market and cause mild upside to develop. July is typically not a busy month for institutional accumulation, but with earnings season approaching and without major fundamental damage, we can expect a reasonable pullback to the upside in the overall tech sector, which will be triggered by SOXX index.

The SP 500 touched the 50 day line and bounced back yesterday. I’m anticipating choppy conditions over the near term, since there’s no major catalyst till earnings to propel price higher.

Expect less volatility and more congestion in the near term, followed by more upside, since earnings are expected to outperform last few quarters.

Volatility as measured by the VIX remains near historic lows and during low volatility environment, the odds of seeing aggressive accumulation from stocks is likely in the near term.

Courtesy of Market Geeks