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Tuesday, June 3, 2014

Daily update 6/3

That was a snoozefest of a day.  I wonder if everybody is waiting for the ECB meeting Thursday before doing anything.  I guess we will see.  Here is the daily SPX chart.

The upper channel trend line is still holding.  Is it insurmountable or not?  The resistance mentioned last week in the other indexes is also still holding.  I guess we are on pause while people decide what to do.  Here is the futures chart.

We got a white bar this morning, but next bar rallied some and turned back to green.  We can see some lower tails on the bars indicating the dip buyers were doing their thing.  What is lacking is rally chasers.  Will they show up or not?  This looks like the short term trend is sideways now.  Lets take a look at the breadth chart tonight.

The McClellan oscillator turned back negative today.  However, that is not really what I wanted to show you.  Check out the 10 DMA volume lines in the third panel.  I put a horizontal line on the recent peak.  Notice how much lower that peak is below the other peaks in the last year.  The same is true all the way back through this bull market.  People have talked about light volume for years.  However, this is light volume to a new extreme.  This recent break out to new highs is on almost no volume at all.  So breadth and new highs are not particularly strong and volume is pitiful.  This does not look like much conviction here.  I guess we will see how it works out.

Yesterday was an outside and all the other outside days have seen a sizable down day within two days.  With the ECB meeting coming up on Thursday I wonder if we sit and spin another day here.  Just don't be surprised if tomorrow is a big down day.  Rather hard to say here.  I guess we wait until the market decisively breaks through resistance or turns back.

I saw this article (Analyzing Earnings As Of Q1 2014 ) with more information on Q1 earnings.

With 97.5% of the S&P 500 having reported earnings, as of May 29, 2014, we can take a closer look at the results through the 1st quarter of the year.  Despite the exuberance from the media over the "number of companies that beat estimates" during the most recent reported period, operating earnings FELL from $28.25 per share to $27.32 which translates into a quarterly decrease of 3.4%. While operating earnings are widely discussed by analysts and the general media; there are many problems with the way in which these earnings are derived due to one-time charges, inclusion/exclusion of material events, and outright manipulation to "beat earnings."

Therefore, from a historical valuation perspective, reported earnings are much more relevant in determining market over/undervaluation levels. It is from this perspective that the news worsened as reported earnings dropped from $26.48 to $24.79 or 6.82% from the 4th quarter. However, despite the drop in both operating and reported earnings for the quarter, trailing twelve months earnings per share rose from $107.30 to $108.85, a 1.42% increase, on an operating basis. However, trailing twelve month reported earnings remained virtually flat rising only $0.57 from $100.20 to $100.77, an increase of 0.57%. While the headline reports were a mixed bag - digging into the details revealed a bit more troubling picture. 

I noticed the reported earnings rose only .57% over the last twelve months.  That isn't much compared with how much SPX is up over that same time.  I suspect earnings will have to pick up to keep prices up here.

SPX is now in the third longest streak above the 200 DMA ever.  It is closing in on number two from 1996.  I have seen a number of pundits claiming we are in a similar situation as then.  After a dip to the 200 DMA SPX did not touch it again until 1998.  Here is an article pointing out some fundamental differences between now and then (Weekly Market Summary).


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