Friday, August 29, 2014

Weekly Market Summary

The 2Q earnings season is over. Per Fact Set, earnings grew at 7.7% yoy and sales grew 4.5%. These are the strongest results in several years and, remarkably, they are coming when the bull market is already more than 5 years old.

The sales growth rate was particularly strong. Analysts had expected 3.7% in 2Q. The consensus forecast for 3Q and for the full-year are still for 3.7%; so, some moderation is expected.

The recent macro data supports growth of 3.5% to 4.5% in sales. But it shows a curious lack of accelerating growth after the winter slump.

Real personal consumption (PCE), which comprises about 70% of GDP, grew at annual rate of just 2% in July. There had been a post-winter pop to 2.5% in March, but the rate of growth has declined every month since then.



These figures are inflation-adjusted. Adding a 1.6-2% deflator yields a roughly 4% annual growth rate in nominal terms, equivalent to the sales growth rate expected for SPX in 2014.

Monday, August 25, 2014

Crossing SPX 1000 in 1998 vs SPX 2000 Today

The S&P crossed above 2000 for the first time Monday.

This brings to mind 1998, the year the S&P crossed above the 1000 milestone.

The 1990s are wrongly remembered as a period in the market where volatility was uniformly low and double digit annual gains came in easy succession. The crossing of the 1000 milestone is a case in point.

SPX first came within 2% of 1000 in early October of 1997. In the month before, it had risen over 9%. After attempting to close higher for 3 weeks, SPX instead dropped over 10% in late October. So much for low volatility.



It was back near 1000 by early December, 1997. It again failed to close higher and dropped 6% by the end of the month.

Friday, August 22, 2014

Weekly Market Summary

US indices have risen 8 of the past 11 days. SPX, NDX and DJIA have all gained about 5%. NDX and SPX made new all-time highs and DJIA is close to doing so.

This was an incredibly quick fall and recovery to a new high. Recall that in July, fund managers had their second highest equity overweight since 2001. After every similar situation, SPX typically fell 8% over 4 weeks and then took another 6 weeks to regain all of its losses. This time: a 4% fall in 10 days with a full recovery 10 days later.



This type of strength, as we have seen before, is usually followed by further gains. Two studies follow that demonstrate this tendency well.

Thursday, August 21, 2014

A Short Term Watch Out For High RSI and Low Trin

In our weekend post (here), we specifically warned how a break back above the 50-dma for SPX has been a momentum kick off in the past. This has been when the long win-streaks have taken place (yellow). This remains the big picture view for SPX.



SPX has since risen 4 days in a row. There are two studies indicating that short-term (1-2 days) weakness is ahead, followed by at least one higher high.

What a Gallup Poll Tells Us About Equities

A lot of attention is being given to a Gallup poll showing that the general population is unaware of the bull market in stocks.  Only 24% knew the stock market had risen more than 20% last year. 30% said stocks were flat to lower last year.

Is their lack of stock market knowledge surprising?

It would be easy to poke holes at Gallup who famously called the comfortable victory for President Romney in 2012. But the Gallup poll on stocks is probably fairly accurate.

When polled, here are other things a third or so of Americans didn't know:
  1. The name of the world's largest ocean, to the west of California.
  2. The year 9/11 took place.
  3. The name of the country the American Revolution was fought against.
And a third or so believe:
  1. The earth is the center of the universe.
  2. Ford Foundation, Rockefeller Foundation and Monsanto are trying to shrink the world's population using GMO foods.
  3. Someone they know has been abducted by aliens.