The S&P 500 finished the week in a move at or near volatile levels for the fourth consecutive week. Friday closed at the session highs and 1.95 percent higher, just short of the two percent or greater finish research considers volatile. The rebound was not enough to cover the four session losses earlier in the week and the index slipped 0.81% lower for the week. Although the index saw no volatile finishes during the week, Tuesday’s and Thursday’s sessions fell to volatile levels intraday before rebounding to a less than volatile finish. The index has finished lower in 40 of the past 70 sessions.
The S&P 500 weekly chart pictured above shows the index continued in a drop that fell below the previous low, but stopped short of the lower support line. Drops from resistance found at the lower trend line in the past have generally fallen to or through the lower support line. Although the index rebounded from the recent low, it is still very likely a subsequent drop could reach or fracture the lower support line. If the index was to fall below the lower support line and find resistance in a rebound back to it, chances are high the index could fall to crash potentials.
The world indices again saw a large increase in daily volatile moves during the past week’s retreats. Europe’s indexes saw the bulk of the volatile moves. The Europe exchanges saw 21 volatile moves on Monday, all but one fell lower. Tuesday saw 12 volatile declines and Wednesday saw five in volatile rebounds. Thursday saw 22 volatile moves with all but one finishing lower. Friday saw 16 volatile moves, with 13 in volatile moves higher.
Europe’s PIIGS were hit very hard this past week, several continued steeply lower after seeing significant price direction changes in the prior week. Even after a volatile 3.04 percent rebound on Friday, Greece shed 9.84 percent for the week and catapulted to the largest year to date loss on the world indices. Italy shed 4.32 percent for the week and had reached the second largest year to date loss before slipping to the fifth spot after the volatile 4.20 percent rebound on Friday nearly halved the week’s losses. Spain slipped 6.77 percent and finished the week with the eighth largest year to date loss. That index saw five straight volatile sessions, with gains of 2.79 percent Wednesday and 2.24 percent on Friday keeping it from seeing an even larger weekly loss. Portugal shed 7.21 percent for the week. It saw a relatively modest 1.73 percent rebound Friday break an eight session string of losses. Ireland shed 4.65 percent for the week, but rebounded from more dismal levels as a volatile 3.01 percent rebound Wednesday and 0.95 percent move higher Friday pared losses.
Europe’s stock market declines were not limited to the PIIGS. Germany’s DAX Composite shattered support it had found near 9300 in three previous drops on Aug 24 at 9338.20, Sept 29 at 9325.05 and Jan 20 at 9314.57 during the past week. The week’s 3.43 percent loss also propelled it into the ninth largest year to date loss seen on the world indexes. France’s CAC 40 Index broke to new lows in the steep leg down that began in late November, the latest part of an overall downtrend that began from April highs. It saw three volatile finishes as it shed 4.89 percent during the past week. London’s Financial Times Index fell to new lows in its latest downturn. The FTSE saw three volatile finishes as it lost 2.40 percent during the week.
Asia’s indexes saw lower levels of overall volatility than Europe, but China’s stock markets were closed this past week in celebration of the Chinese New Year. Given the outcome in most of the world’s markets during the past week, it seems likely overall volatility could have been much higher with the Chinese markets open. Many of the Asian indexes that were open saw volatile conditions including Australia’s ASX that broke to new lows in its downtrend from April highs. India’s Bombay Stock Exchange Index shed 6.62% for the week as it slipped into a bear market. Japan’s Nikkei 225 broke steeply lower as it broke to new lows from the June highs. The Nikkei started the week with a small gain, but saw losses of 5.40 percent Tuesday and 2.31 percent Wednesday and after finishing unchanged on Thursday shed 4.84 percent Friday. The past week’s drop of 11.10 percent moved it into the seventh largest year to date loss on the major world indices.
The Americas saw only one to three indexes with volatile finishes through the first four sessions, with nearly all finishing lower. Although many reached volatile levels intraday in two or more sessions during these four days, they rebounded to close at less than volatile levels. Friday saw four volatile finishes; two were in the US and all four finished higher.
The past week saw nearly all the major world stock market indexes in declines. Indonesia was the only of the world’s major stock market indexes to finish Friday with a year to date gain. All of the ten largest world economies have at least one major stock market index that has fallen to crash levels.
The major US Index charts of the S&P 500, Dow Jones Industrial Average, NASDAQ, New York Stock Exchange and Russell 2000 show that all broke steeply lower in the past week, similar to the earlier break lower. The indexes continued to see a widening gap of the 50 EMA below the 200 EMA.
All eclipsed the lowest close in the earlier leg down and fell to the lowest closes in over a year. The Russell 2000 and NYSE fell to closes not seen since June 2013. The Dow Jones finished the lowest since Feb 2014. The S&P had the lowest close since April 2014 and the NASDAQ the lowest since Oct 2014.
The recent rebound failed as it broke above the 13 EMA and none of the indexes were able to hold more than two consecutive closes above the 13 EMA in that rebound. All saw a rebound Wednesday fail at, near or below the 13 EMA and most finished the session with a loss after retreating. The indexes all retreated deeply in the following session. Friday’s rebound fell well short of the 13 EMA on all the indexes. The deeper retreat off failures at the 13 EMA makes it seem possible resistance could build around the 13 EMA. Retreats below the 13 EMA are often very bearish. If this resistance builds, short rebounds to or above the 13 EMA are possible, but those rebounds could turn at, near or return rather quickly back below it.
The indexes are nearing oversold conditions, yet it seems possible they could hold in or near oversold conditions for the time being. Many stocks are in downturns that seem likely to fall deeper before finding support.
Breaks of long standing support levels continued at fairly high rates in the S&P 500 and S&P 400 during the past week. These support breaks are bearish and add large potential downside to retreats as most are far above the next strong support level. Although it is not unlikely these stocks could find temporary support at minor support levels in these falls and rebound briefly, chances are very high the drop could continue to the lower strong support levels in subsequent retreats. The two indexes have seen a fairly steady increase in the numbers of breaks of long standing support levels since the first of the year. It seems possible others could break through these support levels in current declines. The increases in the numbers breaking through strong long term support levels make a deeper drop on these indexes seem likely.
Although the majority of indicator stocks remained in overall downward moves, some had rebounded fairly strongly recently. Many of these rebounds turned abruptly lower over the past two weeks. Most fell quickly below the 13 EMA and have since found resistance in rebounds at that level. Most now appear to be trending back towards previous lows in trends beneath the 13 EMA.
Economic data around the world continued to be somber. Many countries continue to see slowing economic conditions and many are talking of using stimulus to revive faltering economies. The Federal Reserve did not raise interest rates during last week’s meeting. Although some see this as a bullish indication, considering that rates are still near nothing, it shows the Fed has serious doubts about the US economy. The Fed sited global economic slowdowns that are putting the US economy at risk and the falloff in fourth quarter US GDP growth as reason for concern and not raising rates.
Earnings are also soft. US companies are not the only ones having earnings problems. It is not just currency exchange rates causing the slowdown. Earnings problems are not limited to the Energy Sector either. Many companies are seeing very large decreases in sales. Slowed or retreating earnings outside the US are also common. Like a majority of the US companies, many around the world are using cost savings techniques that are only likely to worsen overall economic conditions.
During the past week S&P 500 constituent Hormel Foods (HRL) stock split 2 for 1. That data below was adjusted to reflect this change. The S&P 400 saw two constituent changes in the past week. These changes are also reflected in the data presented below. The past week’s earnings reports were probably the best overall of the earnings season so far. Yet the best still appears bleak.
The following earnings update may not include all constituents that reported earnings during the past week and it could include some that reported earlier. Earnings were found for 65 of the S&P 500 constituents that reported fourth quarter earnings. These constituents reported total earnings that were $1.22 higher than they reported the same quarter a year ago. This represented a 0.06 percent increase of the index’s total trailing twelve month earnings from a week ago and an average increase of 0.52 percent in the TTM earnings of those constituents. There were 36 constituents that reported earnings greater than the same quarter of a year ago, five the same as a year ago and 24 reported earnings below the same quarter of a year ago.
Projections for fourth quarter earnings decreased from those of a week ago. The S&P 500 constituents that have not yet reported fourth quarter earnings saw their current quarter projections decrease by 50 cents. There were six constituents that had a fourth quarter projection increase while 21 saw decreases. Those that had already reported fourth quarter earnings prior to the current week saw a 71 cent reduction in first quarter earnings projections. There were 23 constituents with increases and 85 constituents saw decreases.
The S&P 500 constituents saw current year earnings projections increase by $18.46 compared to a week ago. There were 107 constituents that saw their current year projection increase while 152 saw decreases. The constituents that saw fiscal year changes are reflected in this data and appeared to adversely affect this week’s outcome.
There were 59 constituents that reported their fiscal fourth quarter earnings and as a result changed current year earnings to 2016 or 2017 from 2015 or 2016. The change of fiscal year earnings resulted in earnings that were $23.48 higher than the projections in the just completed year. There were 49 that saw increases and 10 saw decreases. The three largest increases accounted for an increase of $10.05 while the total of all decreases were $5.89 lower. There were two Energy Sector constituents in these decreases and they were the largest decreases accounting for $2.89 of the total decrease. The largest increase of $5.87 was due to a recent merger that resulted in the constituent’s addition to the index. Several of those constituents that previously guided lower saw current year projects slip, but additional downside in earnings projections of many those that guided lower seems likely.
Most of the constituents of the S&P 500 have reported earnings for the current quarter. As can be seen in the weekly reports, most of the constituents also report fiscal year ending results during this quarter. Based on the 2015 yearend total of projected current year earnings and the total of the current year projection of the constituents in the index at those times, to this point this high rate of fiscal year turnover has only added 1.14 percent to the projected earnings growth in the coming year. These projections are only 2.84 percent above the end of year projections in 2014.
Based on the projections of the week ending Feb 13, 2015, the constituents reported earnings that were 3.42 percent lower than those projections on Feb 12, 2016. The Feb 12 earnings were also 3.16 percent lower than projections on the week ending Feb 14, 2014 of the same week two years ago. The current year earnings projections are 1.42 percent lower than the same week a year ago and 1.05 percent lower than the same week two years ago.
Constituent changes have weeded out many of those with poor earnings during these time frames. Constituent mergers have in effect added several companies to the index’s earning total. Yet earning increases are at anemic levels and actual earnings are coming in well below those projected earlier. To add to the problem, many of the current projections still appear too high compared to company guidance.
The companies that continue to be the darlings of those providing projections, that have failed to meet these projections year after year after year, could easily wipe out the current year’s expected increase, just by performing as they have every year in the past five years. What is really scary is these companies did poorly meeting projections even in times of overall constituent earnings growth and under much less competitive conditions.
The S&P 500 saw 388 constituents that finished the week below their 200 DMA, compared to 385 a week ago. There were 407 constituents that finished the week either below their 200 DMA or less than one dollar above it, compared to 404 a week ago. There were 385 constituents that finished the week with a 200 DMA in decline compared to 363 a week ago.
The S&P 500 saw 408 constituents finish the week greater than ten percent below 52 week highs, compared to 407 a week ago. There are 70 constituents that finished the week less than five percent from 52 week lows, compared to 100 a week ago. There were 16 constituents that saw new 52 week highs while 150 constituents reached new 52 week lows during the week. The stocks that reached 52 week highs during finished the week with an average P/E of 21.34. The average even weighted TTM P/E of the index fell with the index price to 17.59.
There were 327 of the S&P 400 constituents that finished Friday beneath their 200 DMA, compared to 339 a week ago. The index finished Friday with 343 constituents either below or less than one dollar above their 200 DMA, the same as a week ago. There were 321 constituents that had a 200 DMA in decline, compared to 305 a week ago.
There were 347 of the S&P 400 constituents that finished the week greater than 10 percent below 52 week highs, compared to 346 a week ago. There were 59 constituents that finished the week less than five percent from 52 week lows, compared to 88 a week ago. The mid-caps saw 10 constituents reach new 52 week highs while 118 fell to new 52 week lows during the past week. The S&P 400 finished the week with an average TTM P/E of 17.89.
The S&P 500 has seen 279 constituents reach new 52 week lows since the first of the year. The S&P 400 has seen 254 constituents reach new 52 week lows since the first of the year. The two have combined to see 59.22% of their constituents reach new 52 week lows since the beginning of the year. Most of these lows are not just 52 week lows; but multiyear lows and some are all-time lows. The very high numbers reaching new lows in a very short time frame is a very bearish indication.
The featured and supporting indicators discussed below are not always correct, but they have been many times. Being so they are worth reading about and taking note of.
The 100 L, +2% H, -2% H, (+)/- 90 D and 90 E indicators are currently active. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The S&P 500 continues to show volatility even though there were no volatile events in the past week. The index saw two sessions fall to volatile levels intraday before each rebounded to finish at less than volatile levels. It also saw a session rebound to very near volatile levels. The S&P 500 fell to a low that was lower than that in the previous cycle’s retreat. It also saw a close at the lowest levels in over a year. The index rebounded strongly on Friday, but the rebound fell short of the 13 EMA. Wednesday’s session rebounded to the 13 EMA before being turned lower and finished at a loss. The previous cycle high broke briefly above the 13 EMA before turning sharply lower. It is not uncommon for resistance to build near the 13 EMA during downward moves. There appears to be many good reasons to believe a deeper drop could be underway.
The S&P 500 opened lower Monday at the session low and dropped to a low of 1828.46, finding support above the upper half of 100 L at 1800 before rebounding to finish at 1853.44 and within the 1850 to 1865 MRL. Tuesday opened lower but covered that gap in a move to the session high of 1868.25 which found resistance outside a likely area and fell back to a close of 1852.21 again within the 1850 to 1865 MRL. Wednesday opened higher and continued to 1881.60 before finding resistance within the lower half of the 100 L at 1900 and falling to a low of 1850.32 with the retreat covering the gap at the open before closing at 1851.86 with both falling inside the 1850 to 1865 MRL. Thursday opened lower at the session low of 1847.00 and fell to 1810.10 before finding support in the upper half of 100 L at 1800 and finishing at 1829.08 and was the only session of the week not to finish within the 1850 to 1865 MRL. Friday gapped higher to the session low of 1833.40 and finished at the session high of 1864.78 and back within the 1850 to 1865 MRL resistance.
Monday left an opening gap lower and Friday left an opening gap higher. The gap higher on Jan 22 was covered during the past week. Gaps lower on July 22, Dec 2, Dec 7, Dec 8, Dec 30, Dec 31, Jan 5 and Jan 6 remain open. Although all of these gaps are likely to be filled at some point, current conditions make it seem possible some of the gaps lower could remain open for some time.
The (+)/-90 D indicator that became active on Oct 21, 2015 appears to have bearish potential. It has performed as follows to this point in the standard format of highest close / lowest close / last close: +4.50 percent / -9.40 percent / -7.64 percent. This indicator entered its expiration period on Thursday. It will expire in 12 trading days.
The -2% H indicator did not see a correct indication during the past week but again saw two sessions that had intraday lows reach volatile levels. Tuesday’s intraday low fell 2.74 percent below the previous close before rebounding to finish above volatile levels at 1.42 percent. Thursday’s session dipped 2.25 percent but finished with only a 1.23 percent loss. Supporting volatility indicators continue to hold within extreme levels and some edged slightly higher again in the past week.
The +2% H indicator did not see a correct indication in the past week, but Friday’s session finished near volatile levels with slightly over a 1.95 percent gain. The last two volatile moves were in higher finishes and have yet to see an offsetting move lower. Although the index has seen four sessions reach volatile levels during intraday declines, none finished at volatile levels or close enough to volatile levels to fit past guidelines of an offsetting move that finished near volatile levels.
Although Friday’s session did not reach volatile levels, it finished at session highs and less than five hundredths of a percent from volatile levels. Had the last volatile finish been lower, Friday’s finish appears to fit within the guidelines seen during occasional offsets that do not finish at volatile levels. Even so it would be only considered a potential offset. If a normal volatile offset was seen later, it would not be considered the offsetting move. Offsets that don’t finish at volatile levels are rare, only seen a few times during the S&P 500’s existence. They appear to act as offsetting moves in these few occasions, but there is no conclusive evidence that they were the offsetting move.
Although the S&P 500 saw no volatile finishes in the past week, two sessions reached volatile levels intraday and one finished very close to volatile levels. Five sessions have reached volatile intraday declines but rebounded to finish at less than volatile levels during this presence of the 90 E and one session reached volatile levels in a decline during the fringe area of this indicator. The index has seen three significant price direction changes and five volatile finishes since this indicator became active.
The average daily volume increased 5.84 percent above the previous week’s finish. Volume was highest on Monday and lowest on Wednesday. The five day volume variance increased 5.92 percent to finish the week at 26.06 percent. Volume levels continued to hold within bearish levels.
Many index charts around the world are giving very bearish indications. Many of the world indices saw the deepest drops since developing downtrends off their highs. All of the world’s ten largest economies have at least one major stock market index that has reached crash levels.
The major world indexes saw a noticeable increase in the levels of daily volatile activity during the past week, although the Chinese New Year holiday undoubtedly muted the effects somewhat. Several finished with four or more volatile sessions and many had at least three. Many saw accelerated moves lower that began with significant price direction changes in the prior week and many were in streaks of five to ten straight losses at some point during the past week. Several had weekly losses near or in excess of ten percent before a volatile rebound on Friday. Although this rebound might seem bullish, volatile conditions are generally bearish in nature.
Most of the World’s indices have been in downtrends lasting over six months. Although many had only seen a small overall decrease prior to the New Year; many have broken steeply lower since. Many of the world’s indexes saw sharp declines in the past week; even many of those that did not have any volatile finishes saw large declines. Many fell to the lowest levels seen in well over a year.
Economic conditions continue to appear to be deteriorating. Worldwide growth is showing signs of slowing. Many Central Banks have given indications that economic conditions are likely to worsen. Many are considering economic stimulus to aid faltering economies.
Earnings growth is suffering. Overall earnings projections for the current year in the S&P 500 are lower than those given in the same week in either of the past two years. The actual earnings reported in the past week have also fallen well short of the same week projections in each of the past two years. Worldwide earnings do not appear to justify current stock prices. Although there are some stellar earnings reports, fewer reports are showing the earnings growth required to push these already overpriced stock prices higher. More and more companies appear to be having earnings problems and participating in cost saving activities that will only likely further worsen earnings problems.
Since the first of the year the current constituents of the S&P 400 and S&P 500 combined to see to over 59 percent reach new 52 week lows. The current downturn is again increasing the overall numbers and it seems likely these numbers could continue to increase. Many that have rebounded from trips to new 52 week lows earlier in the year look likely to continue lower still. The high numbers of stocks reaching new 52 week lows is very a bearish indication.
The S&P 500 continued lower in another significant retreat during the past week. This retreat occurred with the index still within the second large retreat from the 100 L at 2100. The S&P 500 has seen a large number of significant retreats off cycle highs since moving lower from the May high. The large number of significant retreats from cycle highs without recovering the first retreat is a bearish indication.
The S&P 500 appears to have fallen steeply lower from resistance in the lower trend line. This break lower occurred directly after a brief shallow break above the trend line failed and was followed by a steep move lower in the following two weeks. Seven of the 11 previous drops below the lower trend line have continued to or below the lower support line. Although not a certainty, conditions continue to make a retreat that breaks lower in this instance seem likely. Six of those seven previous retreats include: The near crash in 2011 that fell 19.39 percent, the crash in 2007 that fell 56.78 percent, the crash in 2000 that fell 49.15 percent, the near crash in 1998 that fell 19.34 percent, the near crash in 1990 that fell 19.92 percent and the crash in 1987 that fell 33.51 percent.
The 90 E is active and will remain active for an extended time due to overlapping expiration periods. It reached the midpoint of its active period on Thursday. This active period coincides with a time frame that has historically shown an increased likelihood of volatility. The 90 E indicator’s presence is potentially bearish. Many of the traits commonly seen during its presence are volatile. The indicator has shown eight occurrences of traits that are common during its current presence; five volatile market sessions and three significant price direction changes.
Most stocks have continued to hold within long or short term downtrends and many appear to be within moves lower in these trends. A large majority of the largest 900 publically traded companies have remained within bearish downtrends below their 200 DMA for an extended time. Many stocks have broken strong long standing support levels that make larger retreats seem likely.
The beat rate of current earnings projections is very high, but has been aided by earnings projections that have fallen right up to the time that earnings were reported. Well over 40 percent of the S&P 500 constituents reported earnings below those they reported a year ago. Many are also reporting much lower revenue. The latest S&P Dow Jones Indices data shows over 50% of the constituents that have reported current quarter earnings, reported a year over year decline in revenue. The report shows a $91 billion revenue shortfall from the same quarter a year ago. Last year’s fourth quarter was a very poor earnings quarter, making the high numbers missing year ago earnings and revenue very concerning. Based on the large numbers missing the very poor earnings quarter a year ago, and reductions in increases in those that are beating the year ago quarter, earnings appear to be getting much worse. Several that reported earnings better than a year ago, still missed earnings they had the same quarter two years earlier. Although many continue to blame poor earnings on the Energy Sector constituents, poor earnings are widespread and are being seen in every sector.
Companies are increasing characteristics that they tend to exhibit prior to larger downturns. Cost reductions are at high levels and increasing. Reductions in stock buybacks, reduced rates of dividend increases and an increase in dividend cuts have been seen. Many earnings reports in the past week included hundreds of millions to billions of dollars in cost savings and cost savings activities are spreading workdwide. The index has seen increases in the number of constituents that have negative TTM earnings along with a large increase in those that have seen quarterly earnings losses. Earnings reports seem to indicate the numbers reporting quarterly losses could also continue to increase in the current quarter. Earnings warnings and guidance make it seem possible this could continue into the next quarter.
Large increases in the numbers of stocks falling to 52 week lows, decreases in the numbers reaching 52 week highs, increasing numbers of indices within crashes, a break lower from resistance at the lower trend line in a steep retreat, current chart formations along with past timelines, increases in characteristics companies’ exhibit prior to larger downturns, softening economic conditions, worldwide stock overvaluations and continued lackluster earnings make it seem possible the S&P 500 could see a large retreat during the year, possibly reaching crash potentials.
The next likely resistance level above the 100 L at 2100 could be seen at the 2140 to 2160 MRL. Earlier highs on the S&P 500 could have seen the effects of this resistance level, but since the index has not yet reached this resistance level the index is still considered within the influence range of the 100 L. Therefore this resistance is not yet considered active. This resistance appears to have the potential to cause a significant pullback.
Please note there is no established resistance in the MRL levels before the index has reached these levels. Several instances have proven to hold resistance once reached and have shown resistance or support during subsequent retreats; however MRL levels that the index has not yet reached are only the most likely levels that resistance will be seen based on research. Back tests of the data used to project these resistance levels work well, but they are not always exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.
Have a great day trading.
Disclosure: Ron is currently about 55 percent invested long in stocks in his trading accounts and his rounded investment level remained unchanged from the prior week. During the past week he purchased two issues and reinvested dividends in three issues with the cost of these purchases partly offset by dividend payments. He will receive dividend payments from seven issues in the coming week and seven in the following week. If no further investment changes are made during this time frame, these dividend payments would not change his rounded investment level.
Disclaimer: The information provided in the Stock Market Preview is Ron’s perception of the current conditions and what he thinks is the most probable outcome based on the current conditions, the data collected and extensive research he has done into this data along with other variables. It is intended to provoke thought of the possible market direction in his readers, not foretell the future. Ron does not claim to know what the stock market will do. If the stock market performs as expected, it only means he is applying the stock market history to the current conditions correctly. His perception of the data is not always correct.
The opinions expressed by Ron are his own and may or may not reflect those of byteclay.com. This article is not intended to provide investment advice; but instead to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.