Earnings Season Dead Ahead
Courtesy of John Nyaradi at Wall Street Sector Selector
Weekend ETF and stock market Commentary from Wall Street Sector Selector
This week will kick off the all important Q2 earnings season and will very likely set the tone for the markets going forward over the intermediate term.
The manic tone of the major indexes continued this week as eight out of nine down days in a row has been followed by four straight up days in a row.
We have lots of major economic news as well as a slew of earnings reports coming up and so can expect more volatility but possibly also a resolution of near term direction.
Looking at My Screens
Major markets went from vastly oversold last Tuesday to vastly overbought by Friday and the S&P 500 now faces significant resistance at the 1080-1100. In the chart below you can see the overhead resistance marked by the red horizontal lines and also that the index is below its 50 and 200 Day Moving Averages which also will offer significant resistance ahead.
Chart courtesy of StockCharts.com
So, for now, in spite of this week’s heady run up, we remain in bear market territory.
The View from 35,000 Feet
Economic news continued to be mostly poor last week as the ECRI, Economic Research Cycle Institute’s weekly index dropped to -8.3 from -7.6 the week before. As we’ve discussed, a reading of -10 has historically been a reliable precursor to recession.
Mortgage interest rates have fallen to record lows but in spite of this incentive, mortgage applications are down -40% from last month and at the lowest levels since 1997, indicating continued weakness in the all important housing market.
Last week’s June ISM report fell to a four month low and May consumer Credit declined -$9.1 Billion, much more than expected, on top of a -$14.9 Billion decline the previous month which was a revised figure from a gain of +$1 Billion. These figures indicate a slowing of economic activity and an ongoing deleveraging on the part of the consumer.
The Baltic Dry Index, a widely followed index of dry goods global shipping demand has fallen more than 50% since May and the price of lumber has declined by 35% since May and both of these indexes are widely viewed as forecasting economic slowdown ahead.
What It All Means
Overall we see more evidence of a slowing economy and the upcoming earnings season will be pivotal, particularly the forward looking guidance offered by the corporations as they report.
The Week Ahead
It’s a busy week for economic reports and earnings. Particularly notable economic reports will be Retail Sales on Wednesday and a host of reports detailing industrial production and manufacturing on Thursday.
Alcoa starts earnings season Monday after the close and we’ll hear from tech heavyweights Intel and Google and the money center banks on Thursday and Friday.
Economic Reports:
Tuesday: June Treasury Budget
Wednesday: June Retail Sales, May Business Inventories, FOMC Meeting Minutes, China GDP
Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, June Producer Price Index, July Empire Manufacturing Index, June Industrial Production, July Philly Fed, June Capacity Utilization
Friday: July University of Michigan Sentiment
Earnings:
Monday: Alcoa, Novellus
Tuesday: Intel, Yum Brands
Thursday: JP Morgan/Chase, AMD, Google
Friday: Bank of America, Citigroup, GE
Sector Spotlight:
Leaders: Spain, Materials, Italy
Laggards: Commodities, Treasury Bonds
I’m in Honolulu this weekend where it’s always a nice day. Hospitality Advisors LLC, a local travel consultant, reports that hotel occupancy for May was at 65.4%, up from the record low of 62% in May, 2009, the lowest level since they began their survey in 1987. So it looks like things here have come off the bottom but locals I talk with say they have a long way to go.
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Disclosure: PSQ, RWM, SH, SKF, SPY Put Option
