The Week Ahead: Mosaic, Retailers to Report Quarterly Results!
The Game Plan: Sideline Monies To Come Into Play!
Stock Market: Keep Pushing The Pedal!
Wall Street: Oh! Cyprus, Cyprus, Cyprus!!
by Ian Harvey
March 25, 2013
Stocks could break through to all-time closing highs in the week ahead - provided a resolution to the fiscal woes of Cyprus satisfies investors.
Assuming Cyprus's troubles are solved; investors will turn their attention to economic data due during the holiday-shortened week, with equity markets closed on Friday for the Good Friday holiday.
The data will include orders for durable goods orders and pending home sales for February as well as the final reading of fourth-quarter gross domestic product.
With earnings season several weeks away, only nine S&P 500 companies are expected to report quarterly results in the week ahead, including discount retailer Dollar General Corp (DG) and video game retailer Gamestop Corp (GME).
• ‘The Past Week’
• ‘The Upcoming Week’
• ‘The Economy’
• ‘Overseas Influence on the Stock Market’
• ‘Earnings and Company News’
• ‘A List of Key Events’
• ‘The Spotlight on Certain Companies’
• ‘Sentiment Effect on Stocks’
• ‘The NYSE Composite’
• Bull Market To Continue Through 2013
• Earnings Expectations for 1st Quarter
• The Ides of March and Its Effect on the Stock Market
• A List of Companies Reporting
• ’A Stock Market Resilience For March According To History’
• Stock Market Correction Ahead - Providing Buying Opportunities!
• Stock Market Expectations in 2013
The worry about the Cyprus is the psychological knock-on effect of the credible possibility of some (country) saying ‘Cyprus got out, now they are on their own, they devalued their currency, they don't have to go through austerity'.
What is going to stop Greece from doing the same thing? And therefore you begin a domino effect!
Similarly, investors had reacted harshly to proposals by European officials to tax depositors - including those protected by depositor insurance - to fund the bailout. That sparked some selling on the idea that such a plan could set a precedent for dealing with other troubled euro zone economies, and set off bank runs across the continent.
• The Dow Jones Industrial Average (DJI) slipped 0.01 percent, to close at 14,512.03, for the week.
Hewlett-Packard was the best weekly performer on the Dow, while Cisco sagged.
• The Standard & Poor's 500 Index (SPX) dipped 0.24 percent, to finish at 1,556.89 for the week.
The S&P 500 posted its second weekly decline this year after uncertainty in Cyprus and a contraction in euro-area manufacturing reignited concern about the region’s debt crisis. The U.S. equity benchmark has still climbed 9.2 percent this year and is within 10 points of its record set in 2007.
Among key S&P sectors, consumer staples closed higher for the week, while materials slumped..
• And the Nasdaq Composite Index (COMP) erased 0.13 percent, to end at 3,245.00 for the week.
All three indexes are up between 7% and 11% so far in 2013.
CBOE Market Volatility Index (VIX) ), widely considered the best gauge of fear in the market, finished Friday session down 0.42 points, or 3%, to close at 13.57.
The VIX gained 20.1% on the week.
U.S. stocks rose Friday on optimism that officials in Cyprus will reach a deal on the weekend to rescue the nation's troubled banks.
Cyprus is facing a Monday deadline to come up with €5.8 billion in order to secure a €10 billion bailout from the European Union and International Monetary Fund.
Talks between Russian officials and the Cypriot government broke up early Friday, with no agreement on a cash infusion that could help the island nation skirt a default. Nearly a third of the money in Cyprus' outsized banking sector is from Russian depositors.
While a default is potentially disastrous for Cyprus, it wouldn't necessarily destabilize the European economy on its own. But investors are watching to see how the situation is resolved and if it could set a precedent for larger economies that may face similarly dire straits in the future.
The island nation accounts for a fraction of euro zone economic output, and yet the wrangling over a 10 billion euro ($13 billion) bailout package kept markets on edge throughout this past week. The S&P 500 fell for the first time in four weeks, with weakness linked to uncertainty overseas.
The prospect of similar action against Italy, Spain, or Greece is the contagion that worries the markets. A late headline from the Financial Times on Friday suggested the same confiscation could happen in the UK. New talks got underway Friday, which once again helped to support the markets, but the crisis will continue to be in the headlines in the week ahead.
The impact on the German Dax was minimal; it still shows a clear uptrend, and is up almost 33% since the June 2012 lows. This is about 12% better than the S&P 500 over the same period. Both show solid uptrend’s, and it would take a convincing break below the February lows to weaken their outlook.
The iShares Dow Jones Transportation (IYT) closed over 1% lower last week, and a further correction may give us an opportunity in the trucking stocks. Trucking is currently the weakest of the five industry groups that make up the Transports.
There are no signs of a top yet for IYT. First good support sits between $107 and $108.76.
The chart below shows four major sectors that have underperformed the Spyder Trust (SPY) since the 2009 low.
The most surprising for most will be the Select Sector SPDR Health Care (XLV), which is up just over 85%. It has held up quite well during the market corrections, and broke through 12-year resistance last year.
Meanwhile, Select Sector SPDR Materials (XLB), Select Sector SPDR Energy (XLE), and Select Sector SPDR Consumer Staples (XLP) have lagged the SPY by 10% to 15% since 2009.
Of these, the only real star performer last week was the Select Sector SPDR Consumer Staples (XLP), which was up 2%. Most of the other sectors were down, led again by the Select Sector SPDR Materials (XLB), down 2%, and the Select Sector SPDR Financials (XLF).
Earnings Reports for the Past Week
Only a few companies released results this past week, but they were disconcerting. Oracle Corp (ORCL), the world's No. 3 software maker, fell well short of revenue expectations. FedEx Corp (FDX), the second-largest U.S. package delivery company, cut its forecast for the year.
According to Thomson Reuters data, of the 491 companies in the S&P 500 that have reported quarterly earnings, 69 percent have topped analysts' expectations, compared with 62 percent since 1994 and 65 percent over the past four quarters.
Growth expectations remain weak, a reflection of underwhelming management guidance and tough comparisons -- the first quarter of 2012 remains the high point of quarterly earnings since the current earnings cycle got underway in 2009. These tough comparisons are particularly pronounced in the Finance sector, which is expected to experience an earnings decline after many quarters of double-digit growth. The outlook for Tech is even weaker and fairly widespread, which would come after the sector’s underwhelming results in the previous quarter.
The May crude oil contract was about as choppy as the stock market last week. Prices rose on Monday, Wednesday, and Friday and were lower Tuesday and Thursday. The price of crude oil closed down just slightly for the week.
The technical pattern suggests a bottom was made early in the month. Crude does have a seasonal tendency to bottom in February and then rise through the early summer. The OBV is acting stronger than prices, and a strong close above the $98.50 level would break trend line resistance (line a).
The outlook for the SPDR Gold Trust (GLD) has improved. The weekly OBV is now testing its WMA.
With gold currently trading 15% below its September 6, 2011 peak, the chart below provides some long-term perspective on the bull market in gold that began back in 2001. As the chart illustrates, the pace of the 12-year bull market has increased over time. Over the past 18 months, however, the price of one ounce of the yellow metal has declined more than at any point since 2008. In the end, this latest pullback has resulted in gold coming right back to support of its six-year accelerated uptrend channel.
Economic Reports in the Past Week
There was more positive data on the housing sector last week, even though the NAHB Housing Index dropped from 47 to 44. Housing starts improved a bit, and the chart looks quite strong.
Housing starts broke through resistance (line a) in late 2011. They are continuing to make higher highs above support (line b). Existing home sales were also strong last Thursday, as they jumped 0.8%.
Strategists Approach to the Stock Market
Strategists have been raising their 2013 S&P forecasts:-
• Morgan Stanley's Adam Parker turned bullish for the first time since 2010, having raised his 2013 S&P forecast from 1,434 (last November) to 1,600.
• Also joining the bulls was Meredith Whitney, who is well remembered for her headline-grabbing warning about the municipal bond market.
• Two other institutional strategists raised their targets for the S&P 500 to 1,625, from 1,575 and 1,600 respectively.
• And on Friday morning, an analyst predicted that the Dow would reach 25,000 by 2017.
Obviously the stock market has not completed a top, as the intermediate-term technical outlook is still positive.
So far in 2013, the only place to be has been the stock market. The 2013 Performance charts show that the Spyder Trust (SPY) is up just under 9%, while crude oil is about flat. The SPDR Gold Trust (GLD) was down over 3% so far this year, as was the iShares Barclays 20+ Year Treasury ETF (TLT).
• The Conference Board’s March Consumer Confidence, which is expected to decline from February’s 69.6 level.
• The ‘headline’ Durable Goods Orders is expected to be up +4.6% after the 4.9% decline in January. New Home Sales are expected to pullback from January’s 437K seasonally adjusted annualized rate.
• The Jobless Claims data has been moving the favorable direction lately, with the 4-week average now at its lowest level since the recovery got underway. It will be interesting to see if this positive trend gets further confirmation from the claims data that morning.
• The Q4 GDP is expected to be revised higher from 0.1% to 0.6%, while the Chicago PMI is expected to remain comparable to February’s 56.5 level.
Earnings and Company News in the Week Ahead
The first quarter 2013 earnings season has gotten underway, though it will take another three weeks for the reporting cycle to heat up.
• Dollar General has posted higher profits recently as the discount retailer continues to add new stores and has been stocking better-known brands on it shelves. The company has also been experimenting with bigger stores and refurbishing old ones.
Analysts surveyed by Thomson Reuters expect the company to keep up its streak with its fiscal fourth quarter report on Monday. Its peer Five Below Inc. (FIVE) is also reporting in the week ahead.
• Meanwhile, Mattress Firm Holding Corp. (MFRM) already warned of a sharply weaker fiscal fourth-quarter, saying in December its traffic growth was soft.
• Additional retailers reporting include Children's Place Retail Stores Inc. (PLCE), Fred's Inc. (FRED), GameStop Corp. (GME) and Gordmans Stores Inc. (GMAN).
• Red Hat Inc. (RHT), a provider of open-source software, has continued to record strong sales growth, though rising costs have dinged its bottom line recently. Its fiscal fourth-quarter earnings, though, are expected to rise slightly. It will join a few others in the tech world, including Research In Motion Ltd. (BBRY) and Progress Software Corp. (PRGS).
• Also, Mosaic Co. (MOS), one of the world's largest potash and phosphate fertilizer producers, is expected to post a healthy rise in earnings Thursday.
• Pinnacle Foods Group Inc.--maker of many well-known packaged and frozen foods brands, including Birds Eye, Duncan Hines and Mrs. Butterworth's--is expected to launch its initial public offering next week.
The New Jersey-based company, which is backed by private-equity firm Blackstone Group LP (BX), plans to offer roughly 29 million shares set to price between $18 and $20 each.
Blackstone acquired Pinnacle in 2007 in a roughly $2.16 billion deal and will continue to own a majority of its voting shares after the IPO.
Pinnacle intends to trade on the New York Stock Exchange under the symbol "PF."
• American Airlines parent AMR Corp. (AAMRQ) will seek bankruptcy court approval of its proposed merger with US Airways Group Inc. (LCC), an $11 billion deal that would create the world's biggest airline.
The merger, which the bankruptcy court will review Wednesday, would take AMR out of the Chapter 11 restructuring it launched in November 2011 and mark an about-face from the company's original strategy of exiting bankruptcy on its own.
A List of Key Events for the Week Ahead
All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
• Earnings: The Apollo Group (APOL) and JA Solar (JASO)
• No major reports for Monday
• Earnings: The Children’s Place (PLCE) and SAIC (SAI)
• February’s Durable Goods Orders, • January’s Case-Shiller Home Price Index, • February’s New Home Sales reports, • Conference Board’s March Consumer Confidence.
• Earnings: Paychex (PAYX), PVH Corp (PVH), and Red Hat (RHT)
• February Pending Home Sales data
• Earnings: BlackBerry (BBRY), legally still called Research In Motion, Game Stop (GME), and The Mosaic Company (MOS)
• Weekly Jobless Claims, • The March Chicago PMI and • The third read on Q4 GDP.
• The market is closed for the Good Friday.
• February Personal Income & Outlays report
International Economic Reports
Sentiment Effect in the Week Ahead
Last week, there was another shift in individual investor sentiment, as the bullish percentage dropped from 45.4% back to 38.9%. Most of this change reflected movement into the neutral camp.
The financial newsletter writers also became less bullish, declining slightly from 50% to 47.4%. However, the bearish percentage also declined a bit more, to 18.6%.
The NYSE Composite in the Week Ahead
Last week, the NYSE Composite dropped below the prior week's low, but closed at the upper end of the week's range. The week's low at 8,968 corresponded nicely to the February high of 9,004, which is the first good support.
There is more important support at 8,700, which was the late February low, and the rising 20-week ’Exponential Moving Average’ (EMA) is close by at 8,721. The weekly Starc band is now at 8,655.
The weekly NYSE Advance/Decline (A/D) line made another new high last week, which is bullish for the intermediate term. A year ago, the A/D line formed a trading range and then a divergence (yellow circle), which warned of the three-month correction that ended at the June lows.
Conclusion for the Week Ahead
The major market averages closed the past week lower despite Friday's nice rebound. There's still no new all-time high in the S&P 500, which is not a problem as many believe that this resistance will eventually be overcome, although the financial media will probably starting making loud predictive noises in regard to this in the week ahead and following.
There is a great deal of money sitting on the sidelines which is poised to get back into the market and send stocks to record highs.
This presents a short-term buying opportunity!