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Wednesday, August 5, 2015

Daily update 8/5 The Revenue Recession

The bulls got charged up overnight and ran the futures up.  However, after a little short covering in the first hour the sellers showed up.

SPX tested above the key 2110 level shortly after the open and found willing sellers once again.  That is a pretty ugly daily candle.  The breadth was +74% early on and went negative before the selling stopped.  That is quite a strong reversal.  It ended the day slightly positive (+23 stocks by my data). 
New highs increased slightly to 134 (nearly all made in the first hour).  New lows increased markedly to 266.  That is the most aggressive selling we have seen above 2110.  Is that resistance level firming up?  Right after the open the VIX got below 12.  It worked well as a sell signal again today.

The futures stuck their head above the resistance line and once again failed to stay there.  Looking pretty choppy there. 

I suspect this long trading range is about to come to an end.  Over the last couple of weeks the volume has picked up with most days being above average.  People are increasingly taking action.  That should lead to one side getting overrun soon.  That could easily cause a stampede.  This may  not be a sleepy Aug.  The bears need to see a close below 2087.  The bulls need to see new highs and demonstrate the ability to stay there.  I think that is going to be a tall order.

This is a pretty interesting article.  The Revenue Recession

What do General Motors, JPMorgan Chase, Microsoft, IBM, Proctor & Gamble, Citigroup, Johnson & Johnson, Coca-Cola, Oracle, and Caterpillar all have in common?

1) They are among a long list of S&P 500 companies with negative year-over-year revenue growth.
2) They are not in the Energy sector.

With 80% of companies already reported, S&P 500 sales are on pace to decline (year-over-year) by 3.1%, the second consecutive quarter of negative growth.

But it is not just the stronger Dollar that is to blame. Nominal GDP growth in the U.S., at 3.3%, is the slowest on record for an expansion. In fact, we have seen many recessions with higher nominal growth than this. It should hardly come as a surprise, then, to see corporate profits slowing as well.

Of the companies that have reported thus far, 48% have shown negative year-over-year revenue growth. Of these, 142 companies are outside of the Energy sector.

The problem is a combination of the drop in oil, the rise in the dollar and slow growth.  That slow growth is world wide.  I don't know how often we get revenue declines without going into a recession.  The last two times it happened we had one.


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