The S&P 500 closed higher in three sessions, with the two retreats only providing small losses. As a result the index rebounded significantly posting a 3.27% gain for the week. The rebound followed a significant retreat in the prior week. The pair of back to back significant price direction changes is an indication of volatility. The significant price direction changes are a trait commonly seen during a 90 E indicator’s presence. The index has seen gains in seven of the past eight weeks but has finished lower in nine of the past 13 sessions.
The retail sector continued to give mostly lackluster sales results. On Wednesday Staples (SPLS) reported sales declined six percent for the third quarter. The company reported a 7.8% decrease in sales for the first three quarters as compared to earnings in the first three quarters of 2014. Store closures accounted for three percent of their third quarter sales decline, but they noted a one percent increase due to online sales. Staples closed 18 stores in the third quarter and have shuttered 230 since the beginning of 2014 as part of their plan to cut $500 million in costs during the 2014 to 2015 period. They announced they have reached $450 million of that goal. The company also noted they expected fourth quarter sales to be below those seen in the year earlier.
Not all retailers did poorly with sales, Target (TGT), which closed 133 stores when it exited Canada earlier this year, saw a 2.1% increase in sales over the same quarter a year ago and a 1.9% increase same store sales. About 0.4% of there sales increase came from a 20% increase in online sales. The company reported adjusted earnings per share of 86 cents, an 8.6% increase from the 79 cents reported in the same quarter a year ago, but saw an 8% decrease before these adjustments as they earned 76 cents in basic earnings per share from continuing operations compared to the 83 cents in the year ago quarter.
Ross Stores (ROST) reported it saw sales climb 7.1% from those of a year ago on Thursday. They reported earnings of 53 cents a share and up from 46 cents in the same quarter a year ago while beating consensus estimates of 50 cents in the process. The discount retailer also raised full year guidance, projecting full year earnings of $2.45 to $2.48 per share compared to the earlier earnings projection of $2.40 to $2.45 per share. Yet in anticipation of a very competitive holiday shopping season, the company warned that sales promotions could weigh heavily on earnings during the fourth quarter, projecting profits below the current consensus estimates.
As retail sales slip, many in the Tech Sector have also seen sales decline. Qualcomm (QCOM) announced a 44% reduction in sales on Wednesday. The bulk of the sales decline was blamed on patient licensing issues as the company reports many using it patients in China are understating sales, but they also noted they shipped 14% fewer smart phone chips in the quarter ending in September. Adding to the company woes were earlier announcements by Apple (AAPL) and Samsung (SSNLF) of intentions to use more chips of their own design in their cell phones. Due to its struggles the company announced a $1.4 billion cost savings initiative in July, which included a 15% reduction in its workforce.
The S&P 500 saw two constituent changes during the past week. General Electric (GE) completed its spin-off of Synchrony Financial (SYF) and Synchrony replaced Genworth Financial (GNW) in the S&P 500 after the close on Tuesday. Genworth was added to the S&P 400. Sigma-Aldridge (SIAL) was replaced by Illumina Inc. (ILMN) after the market close on Wednesday. Sigma-Aldridge is being acquired by Merck KGaA (MKGAY). The data provided for the S&P 500 and S&P 400 below were adjusted for these changes.
Earnings were found for 19 of the S&P 500 constituents that reported third quarter earnings, although these results may not include all that reported during the past week and could include some that reported earlier. These constituents reported total earnings that were $0.55 higher than they reported the same quarter a year ago. This represented a 0.03% increase over the index’s total trailing twelve month earnings from the prior week and an average increase of 1.01% in the TTM earnings of those 19 constituents. There were 12 constituents that had reported earnings greater than the same quarter of a year ago and seven reported earnings less than a year ago. Adjustments made to earnings for those that had already reported, resulted in those earnings falling an additional 39 cents below those previously reported.
Projections for third quarter earnings decreased from those of the previous Friday. The S&P 500 constituents that have yet to report third quarter earnings saw projections decrease by two cents. There was one constituent that had a third quarter projection increase and three had decreases. When including the constituents that have changed to fourth quarter earnings, the current quarter’s earnings projections increased by $1.82 week over week.
The S&P 500 constituents saw current year earnings projections decrease by $1.33 compared to the previous Friday. There were 81 constituents that saw their current year projection decrease while 70 saw increases. Three constituents saw a fiscal year change after this report and as a result saw current year earnings projections change from 2015 to 2016. Only one saw an increase with this change and the net resulted in an increase of one cent.
The S&P 500 saw 250 constituents that finished Friday below their 200 DMA, a sharp reduction from the 328 seen a week ago. There were 291 constituents that finished Friday either below their 200 DMA or less than one dollar above it, also a sharp reduction from the 367 in the prior week. There were 261 constituents with a 200 DMA in decline, a decrease from the 262 seen a week ago.
The S&P 500 saw 278 constituents finish Friday greater than 10% below 52 week highs, a decrease from the 335 seen a week ago. There were 38 constituents that saw new 52 week highs while 28 constituents reached new 52 week lows during the week. There are 40 constituents that are less than 5% from 52 week lows, compared to 70 in the previous week. The stocks that reached 52 week highs during the past week had an average P/E that fell to 24.53. The average even weighted P/E of the index rose to 19.81 during the index rebound.
They were 225 of the S&P 400 constituents that finished Friday beneath their 200 DMA, a decrease from 271 a week ago. The index finished Friday with 259 constituents either below or less than one dollar above their 200 DMA, compared to 304 a week ago. There were 216 constituents that had a 200 DMA in decline, up from the 209 in the prior week.
There were 250 of the S&P 400 constituents that finished Friday greater than 10% below 52 week highs compared to 279 a week ago. The mid-caps saw 21 constituents reach new 52 week highs while 40 fell to new 52 week lows, nearly unchanged from the previous week.
S&P 500 saw 70 constituents reach new 52 week highs so far in November. It has also seen 57 constituents that have reached new 52 week lows this month. The S&P 400 has seen 60 reach new 52 week highs and 59 reach new 52 week lows in November. The two combined for 130 new highs and 116 new lows. Considering the indexes were over a month into a rebound off the September retest and were very near previous highs at the beginning of November, the numbers still reaching new 52 week lows seems very high.
Based on the current constituents at the time data was collected, on Friday the S&P 500 has seen 327 reach new 52 week lows on or after Aug 24. On Aug 28, the first Friday after the Aug 25 lowest close, there were 212. On Oct 2, the first Friday after the Sept 28 lowest retest, there were 243. This data shows more constituents have broken to new lows in the rebound since the retest (84), than did during the retest of previous lows (31).
Bullish rebounds do not normally see high numbers of stocks reaching new 52 week lows. The two indexes normally see much fewer reaching new lows during rebounds like that seen, but combined to have 12.89% reach new lows in this push back towards highs, not far below the 14.44% that reached new highs. It appears many that have rebounded from recent drops to 52 week lows still have valid reasons to retest them, including but not limited to very high P/E ratios, a continued deterioration of earnings and forward earnings warnings or guidance reductions. Many shattered major support levels in their previous retreats and the minor support levels they rebounded at seem likely to fail if retested.
The featured and supporting indicators discussed below are not always correct, but they have been many times. Being so they are worth reading about and taking note of.
The 100 L, -/(+) 90 D, +2% H, -2% H, -/(+) 9 Day, (+)/- 90 D and 90 E indicators are currently active. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The S&P 500 found support at Monday’s low of 2019.39 that fell within likely resistance from 2010 to 2020 in upper half of the 100 L at 2000 before rebounding to a close of 2053.19 within the 2035 to 2055 MRL. Tuesday pushed above the 2035 to 2055 MRL, but slipped to close with a small loss back within the MRL at 2050.44. Wednesday opened higher at the session low and continued higher to 2085.31 and within the likely resistance from 2085 to 2100 in the lower half of the 100 L at 2100, before slipping to a finish of 2083.58 but still within the 100 L. Thursday pushed slightly higher into the likely resistance reaching 2086.74 and spent the session within the lower half of the 100 L, but finished with a small loss at 2081.24. Friday started with a gap higher at the session low and pushed higher into the likely resistance to 2097.06 before slipping to a close of 2089.17 and within the likely resistance.
The move higher slowed considerably as it reached likely resistance from 2085 to 2100 in the lower half of the 100 L at 2100. Although price movement slowed, the index appears to be working higher into this resistance. Friday managed to close within the likely resistance, being a somewhat bullish indication.
At the same time earnings appeared to leave little reason for stocks to move higher. Many beat earnings expectations, but expectations were very low and many that beat estimates saw year over year earnings and or revenue declines. Forward statements were not comforting. Many reduced forward guidance. Many used words like challenging, difficult, competitive, slow, lower, reductions, cost savings, closings or divestures in their reports; leaving the overall wording in reports with a feel that is far from bullish. Reports saw cautious earnings statements abound, even in many of those that reported good earnings.
Gaps lower remain open from July 22 and Nov 6 with all other open gaps lower covered in the previous week. A gap higher was seen on Sept 30 and remains open while the index added gaps higher on Wednesday and Friday. Although all of these gaps are likely to be filled at some point, current conditions make it seem possible the gaps lower could remain open for some time.
The -/(+) 90 D indicator that became active on July 21, 2015 appears to have bearish potential. This indicator will expire after Tuesday’s close. It has performed as follows to this point in the standard format: highest close / lowest close / last close.
0.00% / -11.87% / -1.42%
Note: The highest close only considers closes higher than the starting point; if there are none higher it is reported as zero percent.
The -/(+)9 Day indicator that became active on Sept 15, 2015 also appears to have bearish potential. It has performed as follows to this point in the standard format: highest close / lowest close / last close.
+6.66% / -4.87% / +5.62%
The (+)/- 90 D indicator that became active on Oct 21, 2015 also appears to have bearish potential. It has performed as follows to this point in the standard format: highest close / lowest close / last close.
+4.50% / 0.00% / +3.48%
Note: The lowest close only considers closes lower than the starting point; if there are none lower it is reported as zero percent.
The 90 E indicator saw a significant price direction change in the past week as the index rebounded 3.27%. This followed a significant price move lower in the previous week. Significant price direction changes are a trait commonly seen during this indicator’s presence.
The -2% H and +2% H indicators did not provide any correct indications in the past week. Although no volatile daily moves were seen, the constituents continue to see high levels of daily volatility. The supporting volatility indicators pushed higher into the extreme levels during the past week. It is uncommon for these indicators to hold within these levels for this duration without seeing a volatile session on the index.
The average daily volume decreased 0.19% from the previous week. Volume was highest in Tuesday’s small retreat and lowest in Thursday’s small retreat. The five day volume variance increased 6.15% to finish the week at 22.09%. The average weekly volume remained within generally bearish levels.
The index will enter a time period that is most often bullish in coming week, but not always so. This bullishness tends to run in strings, but the index saw this string broken during the past year’s small loss during December. Although there are exceptions to both, most of the bullishness or bearishness seen during this time period has been small. It therefore seems possible the index could remain in a flattish struggle with the 100 L resistance for the remainder of the year, but possibly begin to slip off this resistance into the end of the year. Fourth quarter earnings will begin to be reported in earnest early in the New Year. The current reports and statements in these reports make it seem possible fourth quarter earnings could be ugly. This is concerning as the average TTM P/E of the index hoovers near 20. A fall in earnings could send it spiking higher.
The 90 E indicator has shown a second significant price direction change as the index rebounded in excess of 3% during the past week. Although the index has not yet seen any volatile daily moves (those of 2% or greater), the pair of large price swings are a heightened indication for the potential of volatile conditions. As a result supporting volatility indicators pushed higher into already extreme levels. The numbers of constituents seeing very large daily price moves also continues to be elevated and also gives a higher potential for index volatility. Overall third quarter earnings were poor while most economic indicators are soft, again indications that volatile conditions could be seen.
After reactivating on Nov 6, the 90 E will be active during a vast majority of the following 92 sessions. When considering its previous active period, it will have a stretch of activity encompassing 107 of 129 sessions. Long periods with high levels of activity for this indicator have been seen in the past, but they are most often seen during market crashes or during rebounds from market crashes. Therefore this long period of activity could be reason to show caution with investments.
Companies are increasing characteristics that they tend to exhibit prior to larger downturns. Cost reductions are at high levels and increasing. Reductions in stock buybacks, reduced rates of dividend increases and an increase in dividend cuts have been seen. The index has seen increases in the number of constituents that have negative TTM earnings and several with negative TTM earnings have been replaced.
It appears likely earnings and sales in the coming two quarters could be softer than the already low third quarter numbers. Although some are doing well, the numbers that are not are increasing. Overall index earnings increases have deteriorated for a full year already. Earnings increases or the lack of earnings increases drive stock prices. One generally drives stock prices higher; the other generally drives stock prices lower.
Several economic indicators are showing potentially bearish indications. At this point it seems very likely a recession could be seen, if one has not already started. Although a small quarter over quarter revenue increase was seen, the falloff in revenue over the same quarter of a year ago makes a GDP decline for the year seem possible. A two consecutive quarterly decline in the GPD indicates a recession.
The numbers falling to new 52 week lows during the recent rebound were abnormally high, nearing equality to those reaching new highs. This appeared to show an overall weakness in stock prices. The numbers reaching new lows in the past week’s rebound remained high.
Most stocks have continued to hold within long or short term downtrends. Many that have rebounded from previous trips to 52 week lows appear to have valid reasons to retest these lows. Many shattered strong major support levels in these retreats and rebounded at weaker minor support levels. These minor supports are much more likely to fail if retested.
The S&P 500 broke below the lower trend line in its previous retreat from the upper half resistance in the 100 L. Ten of the past 11 breaks of the lower trend line have seen subsequent dips finish deeper below this trend line. Seven have continued to or below the lower support line. Although not a certainty, current conditions continue to make a retreat that breaks lower in this instance seem likely.
Current chart formations along with past timelines, increases in characteristics companies exhibit prior to larger downturns, softening economic conditions, increases in volatile conditions, worldwide stock overvaluations and continued lackluster earnings make it seem possible the S&P 500 could see a large retreat begin before the end of the year.
The next likely resistance level above the 100 L at 2100 could be seen at the 2140 to 2160 MRL. Earlier highs on the S&P 500 could have seen the effects of this resistance level, but since the index has not yet reached this resistance level it is still considered within the influence range of the 100 L. Therefore this resistance is not yet considered active. This resistance appears to have the potential to cause a significant pullback.
Please note there is no established resistance in the MRL levels before the index has reached these levels. Several instances have proven to hold resistance once reached; however MRL levels that the index has not yet reached are only the most likely levels that resistance will be seen based on research. Back tests of the data used to project these resistance levels work well, but they are not always exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.
Data provided for the S&P 500 was derived from the historical daily data tables, similar data can be found at Google Finance. Earnings information was gathered from Yahoo Finance, CNBC, Edgar Filings, Scottrade Elite, AOL Finance and Morningstar, although other websites, including company websites, may have contributed small amounts of information. Stock and Treasury charts used for analysis and commentary were provided by StockCharts.com, Scottrade Elite or from those that Ron created from his data. Gold charts used for analysis and commentary were provided by Kitco.
Have a great day trading.
Disclosure: Ron has investments in SPLS, GE and GNW; he has no investments in TGT, ROST, QCOM, AAPL, SSNLF, SYF, SIAL, MKGAY or ILMN. He is currently about 58% invested long in stocks in his trading accounts. Although his rounded investment level remained unchanged from the previous week, he purchased four issues and made dividend re-investments in three issues with the cost of these purchases fully offset by the sale of four issues and dividend payments. He will receive dividend payments from five issues in the coming week and 18 in the following week. If no further investment changes are made during this time frame, these dividend payments would reduce his rounded investment level.
Disclaimer: The information provided in the Stock Market Preview is Ron’s perception of the current conditions and what he thinks is the most probable outcome based on the current conditions, the data collected and extensive research he has done into this data along with other variables. It is intended to provoke thought of the possible market direction in his readers, not foretell the future. Ron does not claim to know what the stock market will do. If the stock market performs as expected, it only means he is applying the stock market history to the current conditions correctly. His perception of the data is not always correct.
This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.