The S&P 500 finished the holiday shortened trading week little changed with a 0.05% gain and the eighth gain in the past nine weeks. It split the week’s sessions with two small gains and two small losses. The index has finished little changed in the past five sessions as it continues to grapple with resistance in the lower half of the 100 L. Although it has two straight weekly gains, the S&P 500 dipped lower in 11 of the past 17 sessions.
The third quarter earnings season has nearly wrapped up for the S&P 500. Although the beat rate for the third quarter earnings were very high, finishing the week with above 69% beating estimates, overall earnings for the quarter were very poor. Many beat earnings projections, but estimates were very low and many reported earnings and revenue far below the same quarter of the year before.
According to data made available by the S&P 500 Dow Jones Indices containing earnings information of 490 constituents; there were 241 constituents that saw revenue decreases compared to the year ago period. Those constituents finished with total revenue $89.6 billion below that of a year ago. As reported earnings fell in 216 constituents and there were 46 that had negative as reported earnings during the third quarter. The total as reported earnings per share dropped $87.59 or 18.30% lower compared to the same constituents in the year ago quarter. There were 197 constituents that saw a drop in operating earnings and 28 constituents reported negative operating earnings. Total operating earnings slipped by $77.29 or 14.78% below the year ago quarter.
Fourth quarter earnings will begin to trickle in during the week ahead, but the bulk of the fourth quarter reports will be seen after the New Year. Many of those that had earnings problems in the third quarter warned that earnings problems could continue. It therefore seems possible another earnings drop from the year ago quarter could be seen in the upcoming reports.
The S&P 500 had one constituent change during the past week. After Friday’s close, Computer Sciences Corp. (CSC) was replaced by its planned spin off of CSRA Inc. (CSRA). Computer Sciences was added to the S&P 400. Since CSRA was added on a zero price basis until the spin off completes on Monday, the changes to the two indexes were not reflected in the data provided below, but will be included in subsequent results.
Earnings were found for 15 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 18 cents lower than they reported the same quarter a year ago. This represented a 0.02% decrease over the index’s total trailing twelve month earnings from the prior week and an average decrease of 0.91% in the TTM earnings of those 15 constituents. There were seven constituents that had reported earnings greater than the same quarter of a year ago, seven reported earnings less than a year ago and one reported earnings the same as a year ago. Adjustments made to the earnings of one that had already reported resulted in those earnings falling 2 cents below those previously reported.
Projections for fourth quarter earnings decreased from those of the previous Friday. The S&P 500 constituents that had already reported third quarter earnings saw fourth quarter projections decrease by 87 cents. There were 26 constituents that had a fourth quarter projection increase while 59 saw decreases.
The S&P 500 constituents saw current year earnings projections decrease by 79 cents compared to the previous Friday. There were 60 constituents that saw their current year projection increase while 79 saw decreases. Seven constituents saw a fiscal year change after reporting earnings in the past week and as a result saw current year earnings projections change from 2015 to 2016. Four of these constituents saw an increase and three saw decreases with the net resulting in an increase of eight cents.
The S&P 500 saw 247 constituents that finished Friday below their 200 DMA, down slightly from the 250 seen a week ago. There were 282 constituents that finished Friday either below their 200 DMA or less than one dollar above it, also lower than the 291 in the prior week. Despite the decrease in constituents that finished below their 200 DMA, on Friday there were 267 constituents with a 200 DMA in decline compared to 261 a week ago.
The S&P 500 saw 278 constituents finish Friday greater than 10% below 52 week highs, the same as a week ago. There were 30 constituents that saw new 52 week highs while 11 constituents reached new 52 week lows during the week. There are 32 constituents that are less than 5% from 52 week lows, compared to 40 in the previous week. The stocks that reached 52 week highs during the past week had an average P/E of 27.86. The average even weighted TTM P/E of the index remained unchanged at 19.81.
They were 205 of the S&P 400 constituents that finished Friday beneath their 200 DMA, a decrease from 225 a week ago. The index finished Friday with 240 constituents either below or less than one dollar above their 200 DMA, compared to 259 a week ago. There were 205 constituents that had a 200 DMA in decline, down from the 216 in the prior week. The S&P 400 finished with an average TTM P/E of 20.88.
There were 238 of the S&P 400 constituents that finished Friday greater than 10% below 52 week highs compared to 250 a week ago. The mid-caps saw 36 constituents reach new 52 week highs while 12 fell to new 52 week lows.
The S&P 500 saw 52 constituents that had a decrease in there 52 weeks highs during the past week. This decrease is the result of their old 52 week high falling out of the trailing 52 week period. It seems likely 42 more could see a lower 52 week high in the coming week and a total of 95 more could see a fall in their 52 week high before the New Year. As many as 36 others could see a lower 52 week high in January.
A lower 52 week high is an indication that a stock’s price has been in decline for over a year. Of the 131 likely to see a lower 52 week high in the coming two months, 118 reached new 52 week lows during the past three months, also an indication of this decline. The charts appear to support this data as they show many of these stocks have been trending lower for well over a year and some for more than two years.
The S&P 400 shows a lower percentage with 52 week highs in recent declines or likely to decline in the next two months, but has similarly high numbers. It saw 36 constituents with decreases in the past week. As many as 86 could see their 52 week high decline in the coming two months, while 70 of these constituents reached new 52 week lows in the past three months. The charts of these constituents also show many in long term downtrends.
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 index finished the past week slightly higher, but continued to wrestle with likely resistance from 2085 to 2100 in the lower half of the 100 L at 2100. The index has finished the last five sessions within 3.52 points and all within that likely resistance. It saw daily highs slip mostly lower during this time and broke below the lower boundary of lower half resistance of the 100 L on Wednesday.
Gaps lower remain open from July 22 and Nov 6. The Nov 20 gap higher was filled, but gaps higher on Sept 30 and Nov 18 remain open. 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 expired after Tuesday’s close. It finished as follows in the standard format: highest close / lowest close / final close.
0.00% / -11.87% / -1.43%
Note: The highest close only considers closes higher than the starting point; if there are none higher it is reported as zero percent.
The full projection of the possible outcome during this indicator’s presence was included in the July 27 issue. It seemed possible the index could see a large retreat during the presence of the July 21 indicator, with a retreat to or below the lower trend or lower support line possible, thus making a retreat of 10% or greater seem possible. It also seemed possible this retreat was already in progress when this indicator became active. It seemed possible the index could rebound from this drop into this indicator’s expiration, but that third quarter earnings might not be as good as expected at that time, possibly limiting the rebound. Although not completely correct, most points in this projection appeared to be relatively close including the points listed above; therefore the projection for this indicator was considered mostly correct in this instance.
The -/(+)9 Day indicator that became active on Sept 15, 2015 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% / +5.66%
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% / +3.53%
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 has seen two significant price direction changes during its current presence. Significant price direction changes are a trait commonly seen during this indicator’s presence. To this point none of the other traits common to this indicator have been seen.
The -2% H and +2% H indicators remained quiet. The supporting volatility indicators slipped lower but remained in very high levels, mainly due to the time of year. Although this time frame has seen many volatile daily sessions in the past, they are somewhat less likely to be seen in this instance due to the calmness seen leading into this time frame.
The average daily volume decreased 24.99% from the previous week. Volume was highest in Tuesday’s small retreat and lowest in Friday’s shortened session. The five day volume variance increased 145.87% to finish the week at 167.90%. The large decrease in average volume and large increase in five day volume variance was unduly affected by lower volume in Friday’s holiday shortened trading session.
The first reported GDP estimate showed an increase over prior estimates due to restocking of inventories. Nearly half of the S&P 500 constituents saw reduced year over year sales even into this restocking. At least four of the ten largest increases in year over year sales were due to mergers, not sales increases. Several of the S&P 500 constituents that merged saw a decrease in revenue compared to the combined revenue of the two companies a year earlier.
The problem continues further, recent earnings reports noted many now have inventory problems due to this restocking. Black Friday sales were not a bust, but many reported much lower traffic and sales compared to a year earlier, indicating that consumers continued to be weary. Big ticket items continued to do well holding consumer spending up, but they often peak just before the downturn. Even with a high first GDP estimate for the third quarter, it still seems very likely a recession could be seen.
Although fourth quarter earnings will not begin to be reported in earnest until early in the New Year, constituents reporting fourth quarter earnings will begin in the week ahead. The third quarter reports and statements in these reports make it seem possible fourth quarter earnings could be ugly. A continued fall in earnings could send the index P/E spiking higher.
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. The S&P 500 saw weighted earnings fall below the prior year’s quarter for a fourth straight quarter, while the even weight earnings slipped to its first loss during the third quarter.
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 along with a large increase in those that have seen quarterly losses.
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 be falling to retest these lows, and several have broken lower in these retests. Many shattered strong major support levels in earlier 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.
Have a great day trading.
Disclosure: Ron has investments in CSC and on completion of the spin-off will have investments in CSRA. He is currently about 57% invested long in stocks in his trading accounts. This represents a lowered investment level from the previous week, the result of the purchase of one issue with the cost of this purchase more than fully offset by the sale of two issues and dividend payments. He will receive dividend payments from 18 issues in the coming week and 13 in the following week. If no further investment changes are made during this time frame, these dividend payments would not change 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.