Category: US & Canada

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An earnings season only a pessimist could love – The Globe and Mail

With more than 25 per cent of S&P 500 companies having reported their first-quarter results, 80 per cent have exceeded analysts’ consensus profit estimates – a record pace, and well above the historical average of 62 per cent.

….The record “beat rate,” as earnings trackers call it, can’t gloss over the fact that earnings forecasts have been in decline for months – leaving expectations so low that topping them is a dubious achievement……..Major earnings-tracking services such as Factset, Thomson Reuters Research and S&P Capital IQ expect S&P 500 year-over-year earnings growth of between 4 and 4.5 per cent for the quarter ended March 31. That would be the weakest profit growth in more than two years.

via An earnings season only a pessimist could love – The Globe and Mail.

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Durable-Goods Orders Fall – WSJ.com

March orders for nondefense capital goods excluding aircraft, which economists consider a proxy for business investment, fell 0.8%. The weakness extended to a host of categories, including machinery, computers and primary metals. Economists cautioned that special factors likely made the report appear somewhat worse than the underlying trend. First, the December expiration of a government tax credit for business investment caused many companies to move ahead new orders, which translated into artificial weakness in the early-year figures.

via Durable-Goods Orders Fall – WSJ.com.

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Apple AAPL correction

Apple with its massive market capitalization holds significant sway over the Nasdaq 100. Its monthly chart reflects a strong bull trend, with 63-day Twiggs Momentum holding above zero since early 2009, before a massive 50%+ gain over the last 3 months. Bearish divergence on 13-week Twiggs Money Flow warned of strong resistance and the stock is now signaling a correction.
Apple Monthly Chart

Are we going to see a short correction followed by another surge, or is this a full-blown correction back to the long-term rising trendline?  The daily chart already shows a bullish hammer candlestick, hinting at reversal.

Apple Daily Chart

When we break the day down into 30 minute candles, however, we can see retracement encountered a new resistance level at $575. Breakout would indicate a rally to $600, but not necessarily the end of the correction, while reversal below support at $568/$570 would signal another decline and test the lower trend channel around $550.

Apple 30 Minute Candlesticks

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Watch out! Is the Fed pushing us into another bubble? – Fortune's deals blog Term Sheet

The Fed’s actions have kept Treasury bond prices high (while keeping the government’s interest costs low), but the fundamentals do not support the high valuations, given the fiscal mess we are in. Sooner or later, the bond bubble will burst. History has shown that a structurally weak economy combined with a fiscally irresponsible government propped up by accommodative central-bank lending always ends badly.

….The biggest beneficiaries of loose money, are our profligate elected officials who refuse to come to grips with budget deficits and an exemption-laden tax code. As long as Treasury can borrow cheaply to paper over the real problems, politicians can demagogue about overspending (GOP) or undertaxing (Democrats) while dodging their responsibility to work together to fix our problems.

via Watch out! Is the Fed pushing us into another bubble? – The Term Sheet: Fortune’s deals blog Term Sheet.

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Ex-Fed Kohn: 'Huge Risk' US Won't Take Steps On Debt, Deficit By Year End

NEW YORK -(Dow Jones) – There is a real danger U.S. authorities won’t take the necessary steps to fix the country’s debt and deficit problems between the elections and the end of this year, former Federal Reserve Board Vice Chairman Donald Kohn said Monday. “What’s required to put the fiscal deficit on a sustainable path are some difficult decisions having to do with entitlement spending and taxes in the United States,” Kohn said at the Europlace forum……. Kohn added the U.S. political system has become “soap opera-ized” with such a huge gulf between the country’s political parties there is a real risk debt and deficit will continue to grow past the end of this year.

via Ex-Fed Kohn: ‘Huge Risk’ US Won’t Take Steps On Debt, Deficit By Year End.

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Canada: TSX 60

Canada’s TSX 60 index found support at 675. Follow-through above 700 would suggest the correction is over, while 21-day Twiggs Money Flow respecting zero would strengthen the signal. Target for a fresh primary advance would be 775*. Failure of support at 675, however, would warn of another test of primary support at 650.

Index

* Target calculation: 725 + ( 725 – 675 ) = 775

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US: S&P 500 and Nasdaq 100

The S&P 500 continues to test support at 1350/1370 after penetrating its rising trendline. Recovery above 1400 would indicate another advance, but declining 13-week Twiggs Money Flow warns that support is likely to fail, with a correction to 1300. In the longer term, respect of 1300 would indicate the primary up-trend is intact, while failure would signal trend weakness.

S&P 500 Index Weekly Chart

The Nasdaq 100 breached its (secondary) rising trendline, indicating a correction back to the primary trendline at 2500. Declining 13-week Twiggs Money Flow indicates selling pressure, but respect of the zero line would suggest that the primary up-trend is intact, presenting a possible buying opportunity for the more adventurous.

Nasdaq 100 Index

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Fedex tests double top neckline

Bellwether transport stock Fedex recovered above the neckline at $88, after completing a double top reversal, but continues to test support at that level.  Reversal below $88 would confirm a primary down-trend, warning of slowing activity in the broader economy. Declining 13-week Twiggs Money Flow indicates continued selling pressure.

Fedex

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Not Exactly a Miracle, but U.S. Debt Levels Are Falling – Floyd Norris – NYTimes.com

Floyd Norris: To get some idea of what needs to be done now — and what the result will be — the McKinsey institute points to two incidents in the early 1990s that got little attention at the time in the United States. Those were the bursting of real estate bubbles in Sweden and Finland. Details differ, but in each country there were two distinct phases of deleveraging.

“In the first,” the McKinsey institute said in an analysis published early this year, “households, corporations and financial institutions reduce debt significantly over several years, while economic growth is negative or minimal and government debt rises.” That is certainly what has happened in the United States.

The second phase is the good part, the institute said. “Growth rebounds and government debt is reduced gradually over several years.”

In this country, the deleveraging process has some way to go, with many foreclosures still pending, but it is at least possible that economic growth is beginning to accelerate. It is clear that the United States has made a lot more progress in cutting consumer debt than has been made in either Britain or Spain, two other countries that suffered from falling real estate prices.

via Not Exactly a Miracle, but U.S. Debt Levels Are Falling – Floyd Norris – NYTimes.com.

Comment:~ Before we congratulate ourselves on escaping from the clutches of the Great Recession, let’s not forget that government debt is growing at an unsustainable rate of $1.2 trillion/year. That is likely to slow sharply after November elections, causing a “double-dip” contraction. The deleveraging process has only just begun.

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Forex: Canadian Loonie and Aussie Dollar

Canada’s Loonie continues its narrow consolidation, having withstood falling crude oil prices over the last two weeks. 63-Day Twiggs Momentum holding above zero indicates a primary up-trend. Breakout above $1.01 would signal a primary advance to the 2011 high of $1.06*. Failure of support at $0.995 is less likely but would warn of a correction to primary support at $0.95.

Canadian Loonie

* Target calculation: 1.01 + ( 1.01 – 0.96 ) = 1.06

Weaker commodity prices are dragging the Aussie Dollar lower. On the weekly chart we can see the Aussie testing medium-term support at $1.02. Respect of the zero line by 63-day Twiggs Momentum suggest a strong up-trend. In the longer term, breakout above $1.085 would offer a target of $1.20*.

Aussie Dollar

* Target calculation: 1.08 + ( 1.08 – 0.96 ) = 1.20

On the daily chart, the Aussie Dollar is testing resistance at $1.045. Breach of its descending trendline indicates that the correction has weakened. Recovery above $1.045 would indicate the start of a fresh advance to test the 2012 high of $1.085.

Aussie Dollar

The Aussie Dollar is also retracing for another test of support against the South African Rand — at R7.90/R8.00. Momentum has fallen sharply and failure of support would warn of a correction to the long-term ascending trendline, around R7.50.

Aussie Dollar/South African Rand

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