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Wednesday, January 7, 2015

Daily update 1/7 Consumer discretionary earnings warnings

Oversold bounce initiated.  Here is the daily SPX chart.

The rally stopped less then 1 point from yesterday's high.  Breadth was a strong 73% positive.  There were 212 new highs and 74 new lows.  I wonder if some of those news highs might be coming from bond related funds and ETFs.  I have no idea why the big gap up this morning.  I guess we were oversold and the sun came up today.  Was that a one day wonder or will it carry higher?  The breadth was very strong and there is room up to resistance so there could be some follow through.  However, that daily chart is just plain loopy.  It looks unstable.  I am not going to try to predict what will happen.  This looks like a good time to be nimble.  Lets take a look at the futures chart.

The rally today took the -DI line below the ADX line.  We can discuss the possibility we make bottom yet again around the 100 DMA on SPX.  Notice the price bars are still white so the market has more work to do to prove the bullish case.  We don't have a FED meeting like last time that provided the lift.  The 18, 50 and 100 SMAs all lie about 20 points above.  They could provide resistance.  The bar at the bottom was blue indicating it was below the lower Bollinger band.  While it is common to bounce from that condition it is a bit rare for the last bar of a sell off to be blue.  There is generally some kind of retest of the low, but it can be a few days later.

There is nothing that stands out to indicate the bottom is in that I can see.  Maybe we rally some more and maybe we don't  There are MAs above on both the SPX daily and futures charts that could provide resistance.  If the selling is exhausted that resistance won't last long.  If not then we could roll over and tank.  This is a good time to be nimble or be on the sidelines.

For months the pundits have been telling us the drop in energy prices will be a big positive for consumers as they have more money to spend.  They often pound the table on retail as being the beneficiaries.  Here is a rather interesting article on that.  Consumer Companies Lowering Earnings Guidance, Despite Oil Price Drop  There are some interesting facts in that article.  Worth a couple minutes to read.  Here are a couple of interesting snippets.

What is surprising, however, is the unusually high number of companies in the Consumer Discretionary (XLY) sector issuing negative EPS guidance for Q4.  While the number of companies issuing negative EPS guidance in the Information Technology (XLK) sector (24) is 11% above the five-year average (21.6) for the sector, the number of companies issuing negative EPS guidance in the Consumer Discretionary sector (24) is 73% above the five-year average for the sector (13.9). 

Seven of the 24 companies that issued negative EPS guidance in this sector specifically discussed lower oil and gas prices in relation to their guidance. All seven companies stated that they either had not seen a positive impact to date, or that the positive impact was being offset by other negative factors.

Earnings in the energy sector are getting killed.  I read a while back that the financial sector was also having some earnings problems.  Retail was supposed to be a shining star.  I am starting to wonder how this earnings season is going to play out.  It may be more volatile then we have seen the last few years.

The energy sectpr problems begin.  I saw this today.

A private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money.

The key thing here is money being cut off.  Almost all of these small energy companies are cash flow negative.  They only live because there were plenty of people willing to throw money at them.  Those days are certainly over unless oil makes a big rebound.  Layoffs are coming.


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