Earnings Season Scoreboard and More – BigTrends Weekly Market Outlook

While earnings have been a little hit and miss, the ‘hits’ continued to outpace the ‘misses’ by more than enough (details below) to drive the market higher over the last week. Indeed, though overall volume behind last week’s gains was simply, the bulls didn’t flinch at the entry into new-high territory.

Can we really expect more of the same now, especially with it being time to “sell in May and go away”, and here in the shadow of a 28% gain over the last eight months? We’ll serve up some answers below, right after a bigger-picture look at the economic data that’s been driving – and will drive – the stock market.

The Economy

We got a ton of economic data last week…. far too much to review all of it. Here are the highlights:

* On the real estate front, new homes sold at a better-than-expected annual rate of 300K (though that’s still pretty weak), yet the Case-Shiller home price index fell 3.33%. Pending home sales were up a nice 5.1% in March.

* Confidence-wise, the Conference Board’s measure bumped back up from 63.8 in March to 65.4, while the Michigan Sentiment Index was finalized at 69.8 for April…up from March’s 67.5, but still well under February’s peak of 77.5.

* On the jobs/incomes front, an alarming amount of unemployed workers are starting to file initial benefits claims; last week’s number was 429K, which was the third week in a row we’ve seen new claims levels roll in above the key 400K mark. Continuing claims, conversely, continued its trend lower, reaching 3.641 million two weeks ago.

* Personal income, however, was up 0.5% in March, while spending was up 0.6%.

Here’s all the rest, along with everything for the coming week.

Economic Calendar

What to (really) watch for this week:

* Monday: Auto and truck sales – has Japan’s parts disruption sunk in yet?

* Wednesday: Challenger job cuts and the ADP Employment change, which will be an omen of…

* Friday: the government’s official nonfarm payrolls added for April, and the corresponding current unemployment. Both outlooks suggest 200K new jobs (net) have been created in the last month, but that’s still not really enough to move the unemployment needle from the expected 8.8%.

We’ll also hear March’s consumer credit levels on Friday; more is better, ultimately, and we’ve seen estimates beat quite often in recent months.


So much for the “struggle to march into new high territory” theory. The S&P 500 (SPY) (SPX) advanced a solid 26.23 points (+1.9%) last week – on decent volume – to reach levels not seen since mid-2008…. and that was when we were on the way down.

The question is, should we trust this move? The answer: While it’s not unreasonable to expect a little pushback from the bears or perhaps a spot of profit-taking, the trend is the trend until it isn’t. In other words, yes, we have to assume things are bullish now (though it wouldn’t be crazy to preemptively lock in some gains).

The ‘new’ floor and line in the sand is 1340 (dashed, gray), which used to be the SPX’s ceiling; old ceilings have a way of becoming support, and vice versa. Besides, the key 20-day moving average line (blue) will be around that level by the time the bears could force a retest of it. If we see the bulls stop any pullback there and rekindle the uptrend, then full steam ahead. If not, then it may finally be time to pay the piper for the unfettered 28% gain since late August. Take a look.

SPX & VIX Daily Chart

Working against the market at this point are the amazingly-low CBOE Volatlity Index (VIX) (VXX) (VXZ) and the upper Bollinger band (purple), though even those two potential headaches aren’t certain to end the bullish run in a meaningful way.

The VIX still has room to fall, from the current level of 14.75 to – feasibly – the lower Bollinger band at 12.68. At that point, something will have to give, or something absolutely amazing will happen… the VIX will push into multi-year low levels. The latter isn’t likely considering the calendar and the environment, meaning the former possibility is the more likely of the two.

However, even then it becomes a question of degrees – how high would the VIX need to spike and how far would stocks need to fall before we get a virtual ‘reset’ and mini-capitulation? Frankly, it wouldn’t take much of market dip to get the VIX well ff these lows, so a pullback for stocks and a pop for the VIX doesn’t have to mean long-term doom. (See mid-March for an example.)

As for the Bollinger band, though it’s contained the rally since its inception, but hasn’t allowed the S&P 500 to race past it. In fact, Friday’s close of 1363.61 was as far above the upper band line the index has closed since the rally began, lending itself to the idea that the market is poised to be reigned-in at least a little now. It’s not yet a long-term worry though.

Bottom line – don’t mistake a minor correction for the beginning of a major one. The 100-day moving average line at 1299 would have to stop acting as support before we needed to really get bearish.

Sectors and Earnings:

Normally this is where we’d look at how different sectors are starting to lead or lag, and discuss which of these trends had some longevity. And, we’ll do that this week just like we always do. Since we’re in the heart of earnings season though, with about 2/3 of the S&P 500′s names having posted last quarter’s numbers, we wanted to offer up a quick scoreboard (by sector) of how earnings were shaping up so far for Q1 of 2010.

No surprises here… higher oil prices have been huge for Energy stocks (XLE). Income was up 43.3% on a year-over-year basis, with 72% of its stocks topping forecasts. Though only about 1/3 (eleven so far) of the Utility sector’s (XLU) stocks in the S&P 500 have reported first quarter’s numbers, that’s enough to know that the nearly-non-existent 0.9% increase in income bodes poorly for the remaining 2/3.

Here’s where we stand….

Q1-2011 Earnings Scoreboard, by Sector – as of April 29, 2011

As for how – or if – these earnings results have helped sector performance, in some cases it has and in some cases it hasn’t.

Since the March 16th low, the energy sector has remained pretty hot, but it hasn’t led the market. That honor belongs to the Healthcare (XLV) sector – a fairly new entry onto the leader board, but one with some staying power (despite mediocre results on the earnings scoreboard). Financials (XLF) are still dragging the bottom of the performance race, even though they’ve made a good showing when it comes to first quarter earnings results. Moral of the story? The ‘obvious’ logic doesn’t always pan out.

In any case, there’s no noteworthy budding trend evident on our performance-comparison chart this week.

Sector Performance Since March 16th, 2011

Trade Well,
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