Black Monday 2011, Revisited

Posted on | by Todd | Leave a Comment on Black Monday 2011, Revisited

Just over  six years ago, August the 2nd 2011 to be exact, the US Congress avoided a Sovereign default and finally reached an agreement to raise the US debt ceiling from $14.29 trillion to  $15.77 trillion.

The legislation was called the “Budget Control Act of 2011”, and was signed on the same day by President Barack Obama.

During the negotiations, credit agencies, Moody’s, Fitch and Standard and Poor’s all advised lawmakers that the US AAA credit rating was going to be reviewed regardless of the debt ceiling legislation.

After the market closed on Friday, August 5th, several rating agencies downgraded the US credit rating to AA+ .

This triggered a massive selloff on Monday, August 8th,  where The NASDAQ Composite Index fell 174.72 points (-6.90%), the SP 500 Index shed 79.92 points (-6.66%), and the Dow Jones 30 Index lost 634.76 points (-5.55%).

The aggregate loss on the day was over $1 trillion.

As the chart below illustrates, the fall out from the 2011 debt ceiling crisis led to the SP 500 losing 208 points, or 16.1% in just 6 trading days.

The US Congress and the White House have already commenced discussions about raising the debt limit from the current level of $19.80 trillion, with a September 29th deadline.

Considering the market’s inflated valuations based on tax cuts and infrastructure spending, domestic issues with consumer credit and autos loans, and the escalation of geopolitical risks, we suggest caution that this time the US equity market sell off could be much greater.

 

SP 500 August 2011.

 

Chart Update – Dow Jones Index

Posted on | by Leon Hinde | Leave a Comment on Chart Update – Dow Jones Index

The chart below of the Dow Jones Index illustrates the selling pressure that is now building, in what has to be viewed as an overpriced market, relative to the risks which lie ahead.

The short-term momentum indicators have turned negative and we remain cautious on banks, property developers, consumer discretionary & companies that are trading on bubble level PE ratios.

Chart – Dow Jones
Chart – Dow Jones

 

Algo Sell Signal – Goldman Sachs & General Electric

Posted on | by Leon Hinde | Leave a Comment on Algo Sell Signal – Goldman Sachs & General Electric

Our Algo Engine has triggered a sell signal in Goldman Sachs.

We maintain a negative outlook and advise running a stop-loss should the price action trade above the signal high of $235.

Chart – GS

Following the Algo Engine short signal in General Electric, the price action continues to carve-out lower levels.

Should we see GE trade down to $22, we would consider this price target as an oversold and  providing a suitable entry point for new long exposure.

Chart – GE

 

 

 

 

US Credit Card Defaults On The Rise

Posted on | by Todd | Leave a Comment on US Credit Card Defaults On The Rise

US media reports suggest the US economy is flashing a warning sign that could mean US is headed for a downturn.

Credit card companies are starting to grow nervous as the net charge-off rate, or the percentage of loans that credit card issuers write off as a loss, has just hit its highest level in four years, a continuation of several quarters of the rate rising.

The trend hit all major card issuers and is starting to eat into bank earnings. The current rate is 3.29%, but it is still a long way from the peak hit in 2010 of 10%.

The rate had dropped for 24 straight quarters during the recovery, until a reversal in recent quarters.

The “cause and effect” logic is that once credit card defaults begin to rise, the default rate on mortgages also begins to rise, which is a much bigger problem for the US economy.

Credit Card Default Rate  

 

Boeing Lifts The Dow In July

Posted on | by Todd | Leave a Comment on Boeing Lifts The Dow In July

The Dow Jones 30 Index posted its 5th consecutive new record high close today at 21,891.

During the month of July, the Index gained 570 points, or 2.6%.

As the chart below illustrates, 310 of those 570 Dow points were generated by one stock: Boeing.

Boeing shares climbed over 24% during the month of July from $197.75 to $246.00. In just the last 5 trading sessions, Boeing shares rose 16% from $212.50 to $246.00.

Since the Dow is a price-weighted Index, a higher point value, or Beta, is assigned to higher priced stocks.

Boeing

Google Shares Drop On Lower Income

Posted on | by Todd | Leave a Comment on Google Shares Drop On Lower Income

Shares of Alphabet, parent company of Google, are down over 3% to $967.00 in aftermarket trade.

After the close of trade today, the tech giant posted a 27.7% drop in quarterly profit compared to a year ago.

The company beat expectations on both the top and bottom line with earnings of $5.01 per share on $26 billion in revenue, compared to earnings of $4.49 per share on $21.5 billion a year ago.

However, a dip in net income from $4.88 billion a year ago to $3.50 billion this quarter offset the better-than-expected earnings.

Our ALGO engine triggered a buy signals on Alphabet on June 30th at $908.00. We will look for initial support at or near the $945.00 level.

Alphabet (Google)

 

Dow Hits All-Time High As “Short Interest” Drops To A 10-Year Low

Posted on | by Todd | Leave a Comment on Dow Hits All-Time High As “Short Interest” Drops To A 10-Year Low

As both the Dow Jones 30 and the S&P 500 rose to new all-time highs this week, daily trading volume was 20% lower than the 3-month average and “short interest” in stocks fell to the 2007 lows.

Short interest is defined as the total Dollar value of stocks which investors have “sold short”, which they don’t own, with the idea of making a profit after buying them back at a lower price.

The combination of seeing the Dow and SP 500 rise to new highs on lower volume, and contracting short interest, is an illustration of a technical “short covering” rally.

Seeing index prices at new highs on lower volume suggests that “new money” is not coming into the market and that stock prices will revert lower after “short sellers” have taken their losses.

This technical combination doesn’t always trigger an immediate sell off in stocks. However, the market condition of “higher highs on lower volume” is often cited after a material correction in the market occurs.

As US earnings season goes into full swing next week, we’ll continue to watch the price/volume correlation and the potential impact on the market.

 

US Earnings Preview: JP Morgan, Citi and Wells Fargo

Posted on | by Todd | Leave a Comment on US Earnings Preview: JP Morgan, Citi and Wells Fargo

Before the US market opens later today, JP Morgan, Citigroup and Wells Fargo will report their Q2 results.

After last year’s post-election rally, these stocks and others in the financial sector have been trading in wide ranges.

However, over the last few weeks, bank stocks have rallied after the results of the FED’s “stress tests”, a push higher in short-term rates and hopes of further government de-regulation.

For Q2, JP Morgan is expected to report earnings of $1.57 per share, up 2 cents from last year on revenue of $24.8 billion. Wells Fargo is expected to report earnings of $1.02 per share, which is up 1 cent from last year on revenue of $22.3 billion. Citigroup is expected to report earnings of $1.21 per share, which is 3 cents below last year on lower revenue of $17.3 billion.

Our base case for the US banks is that trading revenues will be trending lower for the remainder of the year and the current levels look fully-valued with risk to the downside.

JP Morgan

Citigroup

Wells Fargo