Wrapping Q2 earnings

99% of S&P 500 companies have reported Q2 earnings.  Here are a few quick hitters:

Only 51% of companies beat sales estimates, the five year average is 57%

Year over year revenue declines in the S&P 500 are expected to continue until 2016.

The Industrials were the first sector to really lag outside of energy and materials.  In this quarter, Industrials were the ONLY sector where earnings growth came in below expectations.

Consumer Discretionary continues to surprise to the upside.  It's no coincidence Consumer Discretionary ETF XLY sits at 52 week highs relative to the S&P 500?

It seems like the market isn't rewarding earnings beats this quarter, and the data backs it up. Earnings expectation beaters have seen only half as much 'earnings bump' as the last 5 years.

Natural gas producers SWN, RRC (also obviously not a pure nat gas play, but note CVX) came in with some of the worst earnings misses in the S&P 500.  

More from Factset 

Top Trading Links: labor day

It was another up and down week in the markets. Is this a bottoming process or a downside continuation setting up? That’s the big question for markets across the globe.

We’ll examine that and more in this week’s ‘Top Trading Links’.

MARKET INSIGHTS

It’s shaping up to be a rough September, if the first day of the month is any indication. The environment is absolutely there for an awful month. Bulls need to respect risk.

Are we close to a bottom?

In the short term, @MarkArbeter notes the consolidation pattern in the major indices. To end the week, we dipped below it the lower bound of the triangle. Stocks appear to be setting up to re-test the lows this week. Also note how the market would have none of the pre-holiday seasonal strength trend.

We’ve seen a pretty hearty correction of late. Are stocks cheap? via @CharlesSizemore. The answer? A resounding NO.

@CiovaccoCapital charts out the numerous bottoming processes of the last 25 years. Obviously, we’re not that close to one yet.

THE FED

@MktOutperform notes that when the VIX spikes over 40 in the last ~30 years, the Fed has refused to rock the boat by raising rates. The question is, why would that change now?  (see graphic to right)

@cullenroche explains why a rate hike shouldn’t even be considered right now. His argument is extreme and suggests that a rate rise may further exacerbate the global economic slowdown. This flies in the face of the zero interest rate policy (ZIRP) leads to global overcapacity argument. Maybe the overcapacity argument is over hyped.

@bill_emmott looks at the disaster that seems to be EVERY emerging market. The key theme here is NOT JUST the drop in commodity prices, but a lack of political leadership, economic structure and stability.

 This show of relative strength in cash could be a huge change in the market. Does anything else signal a bear market like this? Hat Tip to @snyder_karl.

What happens after a crash via @JLyonsFundMgmt:

I think the reason why Dave suggests this is because in tough times dividend stability is an extension of balance sheet stability. Also, the balance sheet is just a much more critical piece to the puzzle than excess cash flow.

@allstarcharts thinks energy is set to outperform the broad markets going forward. This chart caught my attention and price action in various stocks suggests investors are stepping in. Relative out-performance doesn’t suggest prices will go up, but it’s still time to do some work on the group.

@EvergreenGK discusses the potential ripple effects of the Yuan’s devaluation. This is a much bigger deal to financial firms across the globe than we really understand right now.

@calculatedrisk breaks down the August jobs report. The numbers are solid underneath the ugly surface, but cracks are apparent. Remember that the market is a discounting mechanism and it’s likely once again a step ahead of the economy.

MARKET OPERATOR INSIGHTS

”There has been no psychological correction” via @davebudge.

@chicagosean sat down with Dr. Brett Steenbarger in the latest Stocktwits #TheMustFollowPodcast. Here are a few of my notes:

• Traders don’t achieve inconsistent returns not just because of emotional ups and downs, but because markets are inconsistent. We have to understand different market environments.
• Pattern recognition is a function of the amount of observation and the degree of focus during that period of observation.
• When volatility expands it’s normally due to an increase of market participants in the market.
• In any career field, effort is correlated with success.
• However, smart work is more important than hard work.
• The majority people who fail in markets have not found an edge.
• Confidence is earned.

Live life how you want to trade via @steenbab.

”If possible, give yourself time to make decisions since research shows that emotions are short-lived and humans typically go back to “baseline states” after some time” – via Fastcompany.com

 @millennial_inv shares a list of 25 books that helped him think deeper and differently.

Jim Harbaugh is all the rage in the college football world these days. He’s an elite performer and many of his principles can be translated into success in the markets.

Sometimes, you just have to live to trade another day. Cold streaks, changing markets; It happens to all of us. Via@MercenaryTrader

Charlie Munger is the one of the most well rounded thinkers in the investing world. @trengriffin has shared an excellent collection on him with ‘Charlie Munger Week’. Be sure to check it out.

NEWS & RESEARCH

China’s government is doing whatever it takes to keep stocks afloat. Including buying stocks every afternoon. Check it out:

Why we should use Synthetic Biology to modify crops.

A convergence of technological advancement is occurring that could accelerate the practicality of robotics.

Another look at more Blockchain potential uses:

Motorists will save 1.4 Billion dollars at the pump this year versus Labor Day last year.

Thanks for reading!

Rotation Report: At the beach

The markets did a whole bunch of bouncing wihtin ranges this week.  Here are a bunch of charts that caught my eye and some broad commentary.  Enjoy the long weekend.

Market Musings

What price patterns 'look like' tend to drive your emotions, but what really matters is the levels.  This issue has been especially relevant in the recent market volatility.  There are more market participants paying attention and trading off of these 'looks'.

There are now more bulls than bears according to the latest AAII individual investor sentiment poles.  This aligns with the sharp roll-over in the market.  Bulls are trapped and hopeful.

Last week, Gatis Roze noted prior bear markets and their eventual bottom.  One thing that stood out was divergences between price and volatility via VIX and ATR.  Watch those indicators when we do hit fresh lows.

Charts

The 200 day moving average in the S&P 500 is now pointing lower.  Call it 'official downtrend territory'.

Dana Lyons noted that we've seen 3 90% volume down days in the last two weeks.  That immense selling pressure tends to suggest relief in the short term.  However, we could have said the same thing after the second 90% down day.  It's an incredible stat, but i'm not sure how much value we can derive from it.

Cash relative to the S&P 500 has broken a multi year downtrend.  What's a bigger sign of a bear market than this?

The Smoothed Arms index has broken to highs not seen since the last bear market in 2011.  It's more confirmation conditions have changed.

Breadth Oscillator smoothed NYMO has reached the 0 bound.  If a fresh wave of selling occurs next week, it could be VERY strong.

What's leading?  What's lagging?  Let's take a look at Ryan Detrick's excellent Market Scorecard

What stood out Friday?  Weakness in the housing group and relative strength in the airlines.


Around the Globe:

Emerging Markets are just lagging everything and there still appears to be more relative weakness ahead in the intermediate term.

The S&P 500 is one of the best houses in the global markets neighborhood.

Miners are trying to hold up.  There may be a short term trade in the space, but the falling 50 day moving average is catching up fast.

The same can be said for energy stocks.

Biotech, like many groups is wedging for a large move.

Consumer Discretionary continues to outperform the market

Gold has two very different looks on two very different time frames.  First, the daily chart seems pretty mediocre.

Second, the weekly is holding an interesting level.

Trade 'em well!

Harbaugh Day

Jim Harbaugh makes his debut as Michigan's football coach tonight.  He's a quirky guy, yet extremely successful, and that's made him somewhat of a rockstar in the coaching ranks.

Harbaugh is also a very quotable guy with a ton of principles he constantly shares that are necessary for success.  Here's a look at a few quotes and how they relate to markets and life in general.

Working

"Realistic expectations for life are expecting to be better today than we were yesterday, be better tomorrow than today.  That's a plan for success, just work."

Does this need any further explanation?  If you want to be great at anything you have to bust ass all day every day.  You can't just work hard though, you need to deliberately practice to assure day to day improvements.

"Don't talk about it, be about it."

Most successful people don't talk about doing this or that, they just shut the hell up and work.  Talkers tend to get stuck on talking.

"Attack each day with an enthusiasm unknown to mankind"

You're going to be much more productive if you have a positive attitude.  You're going to be happier and have a much more positive effect on people as well.  

Perspective

"Everything is a possibility."

This falls in line with 'hope for the best, prepare for the worst'.  Anything can and will happen in trading and investing.  It's important to think in terms of probabilities and respect all scenarios.

"What will happen will happen, what won't happen won't happen."

We can't predict the future.  

"I have a memory like an elephant, I never forget."

You can't forget the past, we have to burn prior mistakes into our minds so we don't repeat them.

"I reduce a lot of drag by not choosing what I have to wear every day."

We only have so much decision making capacity.  Don't drain it on the small stuff.

"Who's got it better than us?  No-body"

Context is important on this one.  If you're doing what you love every day, what more can you ask for in life?


Thanks for reading and Go Blue!

Labor Day Plays

There are quite a few positive developments in individual stocks on a swing trading basis.  With Labor Day two trading days away & positive seasonality trends surrounding holidays, it's worth a look.  

Here a few that caught my eye and a couple names that i'm playing on the long side.

BLUE tested the rising 200 day moving average once again as momentum firmed.

The excellent combo of the lower bollinger band and rising 200D provided a great long trade opportunity while the world exclaimed the sky is falling.

HRTX turned last week's resistance into support.  I bought it today to swing trade long against the consolidation lows. ~35

OLN 'scarily' fell to 52 week lows.  Momentum has diverged and it wouldn't be surprising if this was a false move lower.  Time will tell.  I'm long.

CVGW tested the base breakout area successfully as buyers stepped up today.

Trade 'em well!