Bears might be back on top thanks to MSFT and Technical Analysis
I know I am starting to feel lonely here talking about retracement in the market, especially after a huge upside move in the US market today. So far earnings have been pretty good with a verythigh percentage of stocks beating expectations. Intel, Starbucks, McDonald's, Apple, IBM and Caterpillar are among the firms that are leading the market higher these days. It seems to be heading for higher level or maybe not ...
Tonight we just got the first wave of bad earning results. Microsoft, Amazon, American Express, Safeway are all below expectation. Microsoft actually disappointed greatly on the topline and the bottom line while American Express is showing slow down in credit card use and an increase in credit card losses. So why do I believe these few bad earnings could be the start of another wave of bad earnings. The simple fact that the US economy is based on consumption for 2/3 and Microsoft, Amex and Amazon are all related to consumers.
When looking at Intel it has competitive advantage in pricing and market share (AMD its rival reported earnings below expectation) and the company benefited greatly from the Netbook rise. However, Netbook is selling at $400 each while on average PCs sell at $800. It is half the price of a normal PC, which tells me people are not spending. Even Apple released bad sale numbers for its Mac computer. IBM is a service company not a consumer company anymore and benefited a lot from cost cutting so far as many companies are trying to implement better software to reduce cost. Caterpillar benefited from China's stimulus plan but it has seen revenue drop 24% in the US, which is better than Europe. And I could go on and on ...
McDonald's continues to outperform due to its cheap value meal while at the same time the grocery store company Safeway missed expectations. Once again it shows that people are trying to reduce their expenses as much as they can. Living in the US right now I can tell you that it is definitely more expensive to buy and prepare you own food than going to McDonald's. Meat is really expensive as well as fruits and vegetables, and if I was worried about money I would certainly spend more of my lunch and diner time at McDonald's these days. Starbucks is another story, it has first a really good brand name and second coffee is a good drink to fight against anxiety. Who has at least once in their life gone to get a coffee to relieve some stress? With unemployment and fear of being laid off at its highest level in more than two decades, I am sure there are many anxious people out there.
So now, that I have stated my view on the recent results I am going to move to Technical Analysis. You will find four charts below of the US indices and the Nikkei225. Even in the strongest bear market, there has been strong upside moves in the market. I think we are at a top of the upside move. And I am even more reassured when I see that everybody seems to feel the need to enter the market. Mutual Funds have their back against the wall with their high level of cash (sometimes up to 25%) since the indices are way above December 31st levels, especially in the Nasdaq and in the Nikkei225. They are obligated to enter in the market again because they have been wrong so far and they don't know what is coming next.
You can see in the charts below that except for the S&P500, the three other indices are at a resistance level. The S&P has broken the resistance a few days ago but is touching a resistance from its upward trend and it could be enough to start a nice retracement. I believe each index will go back first to touch the MA50 then the MA100. I don't know if it is going to be a violent retracement given the many optimist we have in the market. It is more than likely that people will fist believe a pull back is necessary in this upside move but if indices start to lose 5%-7% then they will start pulling out of the market very fast.
Have a good trading day and weekend
Tonight we just got the first wave of bad earning results. Microsoft, Amazon, American Express, Safeway are all below expectation. Microsoft actually disappointed greatly on the topline and the bottom line while American Express is showing slow down in credit card use and an increase in credit card losses. So why do I believe these few bad earnings could be the start of another wave of bad earnings. The simple fact that the US economy is based on consumption for 2/3 and Microsoft, Amex and Amazon are all related to consumers.
When looking at Intel it has competitive advantage in pricing and market share (AMD its rival reported earnings below expectation) and the company benefited greatly from the Netbook rise. However, Netbook is selling at $400 each while on average PCs sell at $800. It is half the price of a normal PC, which tells me people are not spending. Even Apple released bad sale numbers for its Mac computer. IBM is a service company not a consumer company anymore and benefited a lot from cost cutting so far as many companies are trying to implement better software to reduce cost. Caterpillar benefited from China's stimulus plan but it has seen revenue drop 24% in the US, which is better than Europe. And I could go on and on ...
McDonald's continues to outperform due to its cheap value meal while at the same time the grocery store company Safeway missed expectations. Once again it shows that people are trying to reduce their expenses as much as they can. Living in the US right now I can tell you that it is definitely more expensive to buy and prepare you own food than going to McDonald's. Meat is really expensive as well as fruits and vegetables, and if I was worried about money I would certainly spend more of my lunch and diner time at McDonald's these days. Starbucks is another story, it has first a really good brand name and second coffee is a good drink to fight against anxiety. Who has at least once in their life gone to get a coffee to relieve some stress? With unemployment and fear of being laid off at its highest level in more than two decades, I am sure there are many anxious people out there.
So now, that I have stated my view on the recent results I am going to move to Technical Analysis. You will find four charts below of the US indices and the Nikkei225. Even in the strongest bear market, there has been strong upside moves in the market. I think we are at a top of the upside move. And I am even more reassured when I see that everybody seems to feel the need to enter the market. Mutual Funds have their back against the wall with their high level of cash (sometimes up to 25%) since the indices are way above December 31st levels, especially in the Nasdaq and in the Nikkei225. They are obligated to enter in the market again because they have been wrong so far and they don't know what is coming next.
You can see in the charts below that except for the S&P500, the three other indices are at a resistance level. The S&P has broken the resistance a few days ago but is touching a resistance from its upward trend and it could be enough to start a nice retracement. I believe each index will go back first to touch the MA50 then the MA100. I don't know if it is going to be a violent retracement given the many optimist we have in the market. It is more than likely that people will fist believe a pull back is necessary in this upside move but if indices start to lose 5%-7% then they will start pulling out of the market very fast.
Have a good trading day and weekend