Q1 Earnings – How Bad ?

Investor’s first read – Daily edge before the open
S&P 500:2,066
Nasdaq Comp4,891.:
Russell 2000: 1,108
Tuesday: April 5, 2016 8:58 a.m.
Recently it became obvious that the stock market and price of oil were in lockstep with the trend of the U.S. dollar. When the latter went up the market and oil went down and vice-versa.
Many things influence the direction of the stock market and commodities which are priced in dollars, but in the absence of other factors the dollar will have an impact.
For what it’s worth, the Commodities Futures Trading Commission’s (CFTC) data indicates that “bets” that the dollar will strengthen has fallen to the lowest level since July 2014, when the dollar began a 17% run, meaning the pros expect it to drop further.
That would bode well for oil and stocks, but this extreme reading arouses my contrary instincts – how could so many people be right ?
The hedge funds are shorting oil for the first time in two months, according to Bloomberg.com. Seems there is doubt the price freeze agreed to by Saudi Arabia, Russia, Venezuela and Qatar is in ineffective if Iran does not go along. A meeting held in Doha, Qatar on April 17 will shed more light on the future of a global surplus.
The stock market has been getting its marching orders from both the direction of the price of oil and the U.S. dollar.
In one week, Q1 earnings will begin to flow and are projected to be down, as are Q2 earnings. It doesn’t get more fundamental than earnings, yet other issues have dominated the attention of the Street so far this year.
April could be the “decider” on whether 2016 is a bear market year, or just a volatile one with big swings up and down as we near the November election.
FactSet Research’s April 1 forecast revised Q1 earnings down to minus 8.5% (-3.7% ex energy) from a plus 0.8% projected in December. Of 121 company’s Q1 guidance, 94 have issued lower estimates. Currently, estimates for 2016 as a whole vary by source, but the trend appears to be downward revision.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
This supports my December forecast of an ugly January, a rough year as a whole, but with several buying opportunities.
The market has been in a consolidation phase for four days and based on pre-market futures trading will add a fifth.
Most of the buying in recent days after a 14% run has been institutions buying as Q2 begins. The real test will come as earnings begin to roll in.
The minutes from the Federal Open Market Committee (FOMC) meeting will be released tomorrow at 2:00 p.m., but won’t be followed by a press conference. The Street does not expect major news.
We are in a saw-toothed, sideways consolidation phase that could last a week or two.
Forecasts for earnings have been revised downward since December.
SUPPORT “today”: DJIA: 17,586; S&P 500:2,047; Nasdaq Comp.:4,843.
RESISTANCE “today”: DJIA:17,703; S&P 500:2,059; Nasdaq Comp.:4,880.
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of March 31, 2016, a reasonable risk is 17,664 a more extreme risk is 16,560. Near-term upside potential is 18,102
 STATUS OF MARKET: Neutral – but vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 25% – 45%. Consider 75% now
 KEY FACTORS: Outlook for Q1, and 2016 earnings questionable.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
**Stock Trader’s Almanac
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.