Market Overview

Thursday Already? Earnings Week Is Too Much Fun!


RUT WEEKLYWheeeee, what a ride!

The Russell is one of our key shorts (using TZA calls) and you can see on Dave Fry's chart how resistance at the 950 line has not been futile so far.  If it does pop – it's a clear signal for us to run with the bulls again but so far, it's going pretty much the way we thought as we had QE from the Fed in November and QE from the BOJ in December and they were both good for 100-point runs on the RUT but now what?  

On the S&P we've gone from 1,400 to 1,600 so also 100 points twice but 100 on the RUT is a much bigger percentage than 100 on the S&P – hence both the RUT's relative outperformance and relative danger of a precipitous fall should some of the bad stuff (and here's a dozen items to mull over) be realized.  

So, what next?  Our formula dictates that $1Bn of stimulus buys one S&P point for one month and the Fed is pumping in $85Bn a month (1,485) and the BOJ is contributing $75Bn a month (1,590) and, as long as that keeps coming, we should be able to maintain these levels but that assumes that 1,400 is justified without the support.  So earnings do matter – we need to see that stocks today are not worse off than they were when the S&P was trading at 1,400 – where we were last year at this time.  

4-24-2013 5-39-25 PM trailingThere's the rub.  So far, earnings have not been spectacular, with only 56.9% of the reporting companies beating earnings and an atrocious 44.1% beating on Revenues or, to put it more accurately, 55.9% of the companies MISSED or were just in-line on revenues compared to last year, when the S&P was 14% lower.  

What then, are our mitigating factors?  Well, there's all that FREE MONEY the CBs keep pouring in.  And what have companies been doing with all this cash?  Have they been hiring workers?  NoNoNo – that's what small businesses do.  Big Businesses buy back their own stock and pay dividends to the top 1% so they can pay what is still a 15% tax on dividends rather than capital gains on the stock appreciation.  Even AAPL is playing that game now – becoming the biggest dividend-paying stock of all time
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Posted-In: Futures Markets


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