Interesting SP 500 Pattern Noted, and Throwing Out Some Stats for Readers

Doing some navel-gazing on the charts this weekend, here was one interesting pattern noted within the SP 500 the last 8 weeks. Maybe it will get me on a TD Ameritrade commercial for pattern recognition:

SP 500 Weekly Returns (source: Telechart – technical analysis software)

week of 9/4/15: -3.40%

week of 8/28/15: +0.91%

week of 8/21/15: -5.77%

week of 8/14/15: +0.67%

week of 8/07/15: -1.25%

week of 7/31/15: +1.16%

week of 7/24/15: -2.21%

week of 7/17/15: +2.41%

week of 7/10/15: -0.01%

week of 7/2/15: -1.21%

The returns cited are from Telechart’s “weekly” charting mode. It is highly like these returns DO NOT include dividends, etc. and is simply the change in the SP 500’s opening and closing levels from Friday to Friday of each week.

Readers have to go back all the way to early July ’15 to see a break in the above pattern.

The pattern – if it remains constant – tells us we could see a mildly positive week in terms of the SP 500 return for the post-Labor day trade, ending Friday, September 11, 2015.

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Per Factset, the first two months of the quarter saw a 2.70% decline in the SP 500 bottom-up EPS estimate. Here are the moving average compares:

  • past 4 quarters: -4.10%
  • past 20 quarters: -2.5%
  • past 40 quarters: -3.40%

Jeff Miller, in his excellent “Weighing the Week Ahead” blog post published every Sunday morning, wondered aloud in the title if we’ll see a bump in year-end estimates. From the slower rate of current revisions, which, in my opinion is probably due to easier Energy and US dollar comp’s which begin in Q4 ’15, analyst might be less inclined to take estimates lower, given the pounding the SP 500 estimates have taken over the last year.

The point of this post being that with analysts are “less negative” in Q2 ’15 looking forward, with the exception of that 5-year average.

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Per Factset, if Energy is excluded from Q2 ’15 revenue and EPS estimates, actual Q2 ’15 core earnings grew +5.9% and revenue +1.5%. I gave readers a taste of the revision madness this week, with this blog post. Truly, I could drive readers crazy stripping this or that out of the SP 500 earnings growth calculation, but i think it gives readers a better picture of what is an undue influence on SP 500 earnings growth, for good or bad.

The pressure is coming from three sectors: Energy, Basis Materials and surprisingly to me anyway, Industrials. Boeing (BA) and United Technologies (UTX) are two names owned for clients, and although Ford (F) and GM (GM) are technically consumer discretionary stocks, I think of them as Industrials.

Ford’s 71,000 in August ’15 F-series truck sales was the strongest month since 2006, and yet Ford finished lower 1.3% on the week.

For investors with a 12 – 24 month time horizon, and given the dollar’s strength (for which the compare’s start to get easier shortly), I think Industrial stocks offer some of the best risk-reward in the SP 500.

Long F and GM for clients.

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Per Bespoke. and according to AAII data, bull market sentiment has now been below its bull market average of 23 straight weeks, and below 40% for 27 weeks. Going back to 1987, per Bespoke there have only been two other periods where bullish sentiment was below 40% for 27 or more weeks. Bullish sentiment amongst newsletter writers has now plummeted to its lowest levels since the depths of the Financial Crisis, also per Bespoke.

In my opinion, that is a major positive. i do think we need to test or re-test some key technical levels, but sentiment is one of the best contrarian indicators in the market today.

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Have to include two final links from two of my favorite bloggers, i.e. Josh Brown (@reformedbroker) and his thoughts on China here. As was mentioned above with Industrial’s, the “return to the global growth trade” is one trade I’ve had consistently wrong since the March ’09 bottom. Josh puts perspective on that theme. Ryan Detrick comments on Friday’s US jobs reports and 9 things you need to know about the report. With the upward revisions to the back numbers, I thought the August jobs report was in-line. Nothing more, nothing less.

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Thanks for reading this Labor Day Weekend. Hope you found something of interest to you.

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