By Costas Bocelli - Creator: Channel Trading Secrets
Have the markets finally gone taper deaf?After nearly six weeks of nagging chatter on the prospect that the Federal Reserve may soon begin pulling back the reins on their monthly QE asset purchase program, have we finally come to the point where the markets have simply gone numb?
Take yesterday’s eagerly anticipated minutes from the Fed’s most recent policy statement three weeks ago. The minutes actually revealed that roughly half of the 19 members are in favor of winding down the program as soon as possible!
Yet Wednesday’s session was one of the least volatile days since indexes hit record highs back on May 22 -- the day the Fed Chairman first hinted that QE may soon be headed for the exit door.
Not only did all the indexes finish nearly flat on the day, but the Dow Jones Industrial Average and the S&P 500 have retraced most of the taper sell-off and are now roughly 1% away from hitting those all-time highs again. In fact, if we look at the Russell 2000 small-cap index, it did just make another all-time high.
Russell 2000 hitting all-time highs as US economy gains momentum...
Why, you might ask, is the small-cap sector leading with strength? The answer is very simple: Most of the constituents in the index derive their revenues and earnings directly from the US domestic economy, which has been a global leader in strength among the larger developed economies around the world.
As we just closed the books on the second quarter, perhaps markets have finally accepted the fact that life after taper will eventually have to happen. Now don’t get me wrong, we’ve definitely seen a global re-pricing occur as interest rates, currencies and emerging market fixed-income assets have made sharp adjustments on the taper revelation.
But if you’re searching for clues to where markets may be headed next, the catalyst squarely lies with earnings season, which just kicked off this week when Alcoa (AA) reported earnings and revenue that barely topped downwardly revised expectations.
The aluminum giant led things off with "a bloop single" as they saw an uptick in demand from the autos and airlines sector for their silvery flimsy metal.
But material producers in general are still ailing from over capacity and low raw materials demand.
And if we look at the estimates for the entire S&P 500, expectations for the second quarter are pretty low. Analysts are expecting operating earnings growth to come in anywhere from 0.7% to 2.9% when compared to the second quarter of last year. And revenue growth expectations are even more anemic, as a 1% increase (year/year) is the consensus on Wall Street.
So why are the indexes holding up so well, especially faced with the fact that the Bernanke Put is now seen as having an expiration date?
The answer lies in the faith that the clean-up hitter is going to come through and not only drive in Alcoa’s bloop single, but produce some market driving RBI’s.
What I mean by this is that, even though the market expects overall quarterly earnings to produce lackluster results, the financials are expected to step up to the plate and deliver some towering fly balls as earnings for the sector are expected to rise over 16% in the reporting quarter.
That’s a tall order to have to rely upon, and if it were not for the expectation of strong financial sector results, S&P 500 earnings estimates would be slashed and reflect a negative earnings per share growth rate of about 2.5%.
Now with the stock indexes approaching record highs again after the June swoon, we’re at a critical juncture of technical resistance, and with it comes a major inflection point. The market is either going to break out and send stock prices further into the upper deck... or it will soon rollover and send the bulls back to the dugout.
Tomorrow will be a big day as the number four and five-hole hitters on Team Financial Sector report results before the market opens in the morning.
JP Morgan Chase (JPM) is the largest investment bank, with heavy exposure in the underwriting of equity and fixed-income products. The bank is expected to earn $1.43 per share, which is an 18% increase in profits from a year earlier. Revenue is also seen growing by double-digits at $24.96 billion versus $22.18 billion in the second quarter of 2012.
Wells Fargo (WFC) is the largest mortgage originator of home loans and has the direct pulse of the housing and consumer lending market. With the yield curve steepening, it’s a double edged sword as net interest margins will rise and increase future profits... but may also dampen overall loan demand as consumers must contend with rising costs in financing debt. Management’s comments on the recent spike in longer-dated interest rates will be telling.
Wells is expected to earn 0.92 per share, which is a 12% increase from a year earlier. However revenue growth is seen as coming in close to unchanged from the second quarter of 2012 at $21.17 billion.
The bottom line is that the market has regained its footing and is now up against a major inflection point.
With the Fed signaling that it would prefer to wind down their stimulus program, the near-term catalyst is earnings season, and likely the path of the financials will lead the way forward -- whether it’s to new record highs or another pullback soon coming around the hot corner.
JPM and WFC are coming up to the plate, while Citigroup (C), Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) are on deck and all report next week.
Follow the banks, and they’ll likely tell you which part of the ballpark we’re headed to next.
 |
Costas began his trading career in 1998, at Gateway Partners, an Equity Options Trading Specialist Unit on the Philadelphia Stock Exchange (PHLX). During his successful tenure, and though unprecedentedly volatile trading levels, Costas boldly and adroitly navigated the global "financial meltdown" that saw the downfall of the hedge fund and of Long Term Capital, and the Russian Currency Crisis. Having achieved the coveted Senior Equity Options Market Maker position for his firm, Costas eventually left to join a proprietary trading desk, where he successfully makes markets for large customer and institutional orders. In addition to his more than 7 years of experience as an options market maker, Costas has also trained and educated many junior traders on option theory, risk analysis, and strategy. His passion is helping self-directed investors achieve all of their financial goals through a clear, practical understanding of the power of options and of the many benefits of trading in a proven systematic way. |
OUR PRINCIPLES |
1. Our Customers
I think it was Frank Sinatra who once said, 'If you think customers are not important try doing business without them for a while.'
Although he was referring to another singer who didn't like to sign autographs, he could have been talking about any customer in any business.
In our offices here in Delray Beach we keep that quote posted on the wall just to remind us how fortunate to have you as part of our family.
2. No Hidden Agendas
Please forgive the populist tone here, but the sheer audacity of what some brokerages pawned off as "research" in the 90's was stunning. As a result, the New York State Attorney General forced many of them to fund separate independent stock research firms.
We here at the Institute for Individual Investors have no interest in the "conflict of interest" business (we've seen what it does to people.) We do what we do because we enjoy it and we're good at it. Therefore know that we will never accept any payment, in any form, to recommend the shares of any company. Period.
Our goal is to not only provide you with our unbiased opinions, but to also bring you behind the scenes and show you exactly how we form those opinions. Knowledge is your best defense in the investing battlefield.
3. Information You Can Understand
In addition to the research and educational courses we offer, we try to present our facts in a way that will help you understand the rationale behind our thinking.
It is our hope that during the course of our relationship you will gain a more sophisticated framework for making investment decisions both as an investor and as a businessperson. We believe that the more educated you become, the more likely it is that you will appreciate and recommend our work.
4. We Will Always Admit Our Mistakes
Only fools never admit and learn from their mistakes. Good investors are not born they're forged. It's that simple.
5. Real Wall Street Experience
Everybody we hire to teach and inform you will actually have real investment experience.
Need I say more? Well, I will. Why?
Because many of our "competitors" aren't real investors - they're marketers and journalists pretending to have the real world experience that separates the men from the boys.
© 2013 Institute for Individual Investors, LLC.
55 NE 5th Avenue, Delray Beach, Florida 33483, USA
North America: 877-489-2666
International: 561-272-2919
Fax: 561-272-6040
Customer Service Email: support@ifii.com
www.ifii.com
Privacy Policy | Disclaimer | Update your Profile, Unsubscribe, & Update Preferences
Whitelist Us
No comments:
Post a Comment
Keep a civil tongue.