The past 2 sessions we have had key reports from the likes of Intel (INTC), IBM (IBM), Qualcomm (QCOM) and the like. The theme is the same – there are warts but with lowered expectations these companies are doing enough to placate investors. Many of these names were diverging far worse than the market about a week ago when Cummins warned and took many global multinationals down. Again, on Wall Street the game is set a bar at X and beat it – and the market seems to reward it. Qualcomm even had an issue with guidance and is being rewarded so you just never know how the market will react. What we are seeing is a lot of misses on the revenue lines of these companies as revenue is impossible to play games with – whereas EPS is beating. Anyone who has worked in accounting for a public company, or analyzes these income statements quarter after quarter can see the all the levers that can be pulled to squeeze out an extra penny or three in EPS, especially with these huge conglomerates with operations globally.
Bottom line is "it's enough" in this market. Maybe in 2 weeks and/or at higher prices it would not be, but at this particular point it is.
Yesterday the S&P 500 touched the highs of early July before being pushed back slightly. This morning it appears we will make another attempt to go up and through that 1375 level. As important the index has broken through the trendline connecting the highs of the past few months so we have 1 of the 2 conditions fulfilled – making a new higher high would be the next. It would be preferable not to do this on a "gap up" but that seems to be how it has often been done the past 3+ years. Keep in mind IBM will have an outsize effect on the DJIA today as it's a price weighted index so any move by IBM moves the DJIA far more than say Cisco.
The U.S. dollar has finally come in a bit but still within a context of a constructive chart… and bonds don't look much different. It continues to be very strange to see the U.S. market do ok with the bond market so strong.
Turning to equities if we want to see a sustained move up and not one that is going to be facing a substantial pullback a week from now (the pattern of July) it would be nice to see semiconductors and transports to confirm this rally. Semis had a big move yesterday due to the Intel earnings but at this point it was the 'reversion to mean' trade – a lot of oversold stocks dead cat bounced into or closer to resistance areas. Many broken charts here and you want semiconductors – which are a leading cyclical indicator – to be a leadership group. This is a quite bad chart, but perhaps has formed a double bottom.
Meanwhile transports also have bounced to a degree but are not a leading sector by any means. While the S&P 500 has been creating higher highs on each bounce since early June, transports have done the opposite. We have been getting reports from some of the railroad companies early in earnings season and it's a mixed bag. Quite a few are dependent on coal shipping which has been poor, but automotive shipments and to a lesser degree building materials are helping. Some of the trucking companies have had a tougher go of it however.
Since mid June we've had a series of 5-7 day rallies followed by 5-7 day selloffs. Very whippy action and still very difficult to find consistent leaders – stocks get bashed down then rip upward in violent fashion. Something more calm with pullbacks that are less severe would be more constructive but at minimum we are seeing higher lows on each pullback and if the S&P 500 can break over 1375, higher highs since early June.
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