Sloppy Earnings Could Slow Yesterday’s Rally

Author Larry Berman

Posted: 26 Apr 2012 re-posted from etfcm

A few sloppy earnings reports from XOM and UPS could take some steam out of yesterday’s rally, but we still look to a test above 1400 as a reasonable risk in the next few days. For those that are shorter-term in nature, look to establish trading shorts if we make the test and close back below 1398 (61.8% retracement of 1422-1357 decline).

European banks are under pressure again today as Deutsche Bank’s earnings miss, weaker economic sentiment in Europe (really, what a shock!), and watching Spanish and Italian bond yield trickle up towards 6.00%. It is clear the earnings momentum trade is getting exhausted and small cap growth (IWO) is showing continued evidence of distribution. We anticipate a larger corrective phase in the coming months taking the S&P 500 back towards unched (1257) on the year. Recall that was the closing level in 2010 and 2011.banks



Indicators Suggest Bears are Beginning to Control the Tape

Author Larry Berman

Posted: 10 Apr 2012 re-posted from etfcm

Small cap growth as measured by IWO continues to show signs that we have at least begun the next distribution process. It tells us little about how low a correction can take us. We do know that when small cap growth leads the corrective process, it likely resolves to the down side in due course. Of course, we are facing the beginning of earnings period that has the lowest expectations in a few years in terms of growth, so that either means that the high margins have reached a pinnacle or global growth is notably slowing.

The VIX closed above the falling 50-day average for the second time in the past month, which suggests that the bears are beginning to take control of the tape compared to the first few months of the year. A close below 1371 (2011 high) would be a confirmation that the high of the year has likely been seen. A close below the rising trendline 1369 and the 50-day average in the same area would suggest a larger correction towards 1290-1300 is likely.

Hope for TSX Rests in Mining, Oil & Gas in Coming Months

Author Larry Berman

Posted: 2 Apr 2012 re-posted from etfcm

The fact that Canada added 80K+ jobs matters little to the TSX. The TSX works based on what is happening other places in the world and a weak US NFP report is far more important to the TSX than Canada’s “job gains.” If the much anticipated correction for the S&P 500 is about to unfold in the coming months, then the TSX does not stand much of a chance unless oil & gas and mining stocks start to lead. We think gold stocks stand a very good change of bouncing back in the coming months, but the banks, insurance companies, and the energy stocks, significantly less.

That said, the energy stocks are now relatively cheap compared to the TSX and very cheap compared to the banks, so probably a little rotation will be seen in the coming weeks and months into some of the higher energy dividend payers. If we are correct and the European banks are due for another summer of discontent, our banks will likely suffer some collateral damage.


Today on Berman’s Call: Earnings Season Does Not Have High Expectations

Author Larry Berman

Posted: 9 Apr 2012 reposted from etfcm

Investors are about to turn their attention back to Q1 earnings, which are the weakest in several quarters. The trend in the past few months have been towards more downgrades of 12-month forward earnings than increases. If we backed out technology, earnings growth for the quarter would be negative for the index overall on a Q/Q basis with the biggest weakness in telecom, materials, energy, and health care. This suggests the TSX will also see a rather poor quarterly earnings period given the much higher energy and materials exposure, although most of these Canadian stocks have corrected already, they have not in the US.

The one area we just cannot seem to reconcile well is the retail stocks. XRT is the ETF representing an equal weight index of US retailers. The chart show that US retail stocks are 30% above their 2007 peaks, which is hard to reconcile compared to the unemployment picture and massive debt hangover and housing stress. So with expectations on the low side, that could mean some surprises, but the fact that stocks have been relatively strong heading into the earnings season, the good news is probably already factored in. Expect volatility to pick up significantly in the coming months with uncertainty levels so high and debt concerns brewing again in Europe.


Canadian Banks and Stress of the Housing Sector

Author Larry Berman

Posted: 28 Feb 2012 reposted from etfcm

Bank earnings start off with a slightly better than expected result, but there does seem to be at least some concern about the forward outlook. There appear to be notable stresses developing in Canada’s housing sector that are bound to have an impact on the banks in the coming years. The CMHC is about full on their loan books, and housing is simply becoming unaffordable for a conventional type mortgage. How many young couples have $100K or more needed for a down payment?

More important today and tomorrow is what the S&P 500 does at its 2011 high of 1371. There is obviously some hope that the ECB delivers another monster tranche of LTRO (QE), so there is room for some disappointing ‘sell the news’ type event as well.

Gold and silver look poised for a breakout type trade and all will know how badly gold and silver stocks have lagged their bullions. There are lots of potentially offsetting factors for the TSX, which should limit the upside in the coming weeks and months. We still see 13,000 as a reasonable target to take money off the table.

Apple blows past expectations in first post-Steve Jobs report

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