A slow week devoid of virtually any macro news - last night the biggest weekly geopolitical event concluded as expected, when Greece voted to pass the bailout bill which "the government does not believe in" just so the ECB's ELA support for Greek depositors can continue - is slowly coming to a close, as is the busiest week of the second quarter earnings season which so far has been largely disappointing despite aggressive consensus estimate cuts, especially for some of the marquee names, and unlike Q1 when a quarterly drop in EPS was avoided in the last minute, this time we won't be so lucky, and the only question is on what side of -3.5% Y/Y change in EPS will the quarter end.
When we noted the stock market’s weak internals yesterday, we weren’t sure if things could get any worse – and by how much – with the major averages still able to hold near 52-week highs. Well, the answers were “yes” and “a lot”... yesterday, July 20, 2015, was the thinnest new high on record in the U.S. stock market.
Apple is expected to be the largest contributor to earnings growth for the Information Technology sector for Q2 2015. The blended earnings growth rate (combines actual results for companies that have reported and estimated results for companies yet to report) for the Information Technology sector is 0.2%. Exclude Apple, and the sector would report a year-over-year decline in earnings of 6.0%.
With ugliness in AAPL and MSFT, Nasdaq has gapped almost 2% lower at the open - its biggest drop since January... So what else would one expect but an algo-driven buying panic at the cash open...
While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
Apple Plunges Despite EPS Beat On iPhone Sales Miss, Drop In China Sales, Weak Guidance And Strong Dollar WarningSubmitted by Tyler Durden on 07/21/2015 16:48 -0400
The company which was carrying the fate of not only the Dow Jones and the S&P 500 on its shoulders had taken the stairs up, and just took the elevator down.
Moments ago we got the latest BofA client flow update in which we were expecting to find that the "smart money", flush with cash, and taking advantage of the Greek "deal" would jump in on last week's biggest weekly market surge since October 2014 when Bullard hinted at QE4 and unleashed a buying surge. To our surprise we find that not only did "smart" money continue selling, but they were joined by the "smartest" money of all, hedge funds. And who did they sell to? Why retail investors of course... and corporate buybacks but that should go without saying.
USDJPY rolls over after the Fed revised IP lower and BoJ comments on inflation outlook, Johnny 5 decided "time's up," and stocks tumble...
... of the 6,657 days since 1965 when the S&P 500 closed up, Friday had the 6,627th worst breadth... the last 12 times this situation occurred, the S&P 500 was lower 3 weeks later each time by an average of 4%. Also of note, for what it is worth, this is the closest to a 52-week high the S&P 500 has ever been on any of the occurrences.
If yesterday's market action was boring, today has been a virtual carbon copy which started with the usual early Chinese selloff levitating into a mildly positive close, with the SHCOMP closing just above the psychological 4,000 level: the next big hurdle will be 4058, the 38.2% Fib correction of the recent fall. In the US equity futures are currently unchanged ahead of a day in which there is no macro economic data but lots of corporate earnings led by Microsoft, Verizon, UTX and of course Apple. Most importantly, some modest USD weakness overnight (DXY -0.1%) has helped the commodity complex, with gold rebounding from overnight lows, while crude has at least stopped the recent carnage which sent WTI below $50.
"Giddy up! The Four Horsemen of Tech", July 17, 2015 - "Google, Apple, Amazon, and Facebook -- helped push the Nasdaq to an all-time high Friday morning."
"Cramer's Four Horsemen Of Tech" - September 25, 2007 "Apple, Research in Motion, Google and Amazon.com are up 31% as a group since he recommended them back on June 6. Despite the market being down today, each of these four stocks hit new highs."
"The Four Horsemen Of The New Economy" - October 2, 2000 "More than any other collection of companies, Oracle, Sun Microsystems, EMC, and Cisco Systems represent the building blocks of Net business."
The Bloomberg Commodity Index tumbled once again today, hitting its lowest level since 2002. Stocks did not. We have seen this kind of 'deflationary' boom before... and it did not end well...
The power, if not necessarily the Truth, resides primarily with the bulls right now or at least it does in certain parts of the market. The NASDAQ broke out last week to new highs but the S&P 500 and even the more speculative Russell 2000 did not. The market’s advance continues to narrow, to concentrate among fewer and fewer names. Bulls will tell you that this is just a pause and the advance will broaden out. And if enough people believe that and there isn’t any convincing reason to sell, they might be right for a while. But at some point the rose colored glasses will come off and someone might wonder aloud why Celgene paid $7 billion for a company with trailing 12 month revenue of $4.5 million. Someone might wonder why Netflix is worth $48 billion and CBS is only worth $27 billion with more than twice the revenue, better margins, a higher ROE and the ability to produce positive cash flow. Until then it’s just a dream within a dream and somebody keeps hitting snooze on the alarm clock.