Jan 25 – After this week’s market wrap with Ryan Puplava, Financial Sense Newshour speaks with legendary market technician Ralph Acampora who says we received a Dow Theory sell signal last year and explains what that means for the current rally in stocks from the late December lows. Next, energy expert Robert Rapier gives an update on oil, natural gas, and the wider energy market.
It was an interesting week in earnings because under normal circumstances I think the bulls would have had a successful week due to a positive reaction to semiconductor earnings and some big Dow names like IBM, United Technologies, and Proctor & Gamble. Let’s talk about that first and then I’ll give you two reasons why that market didn’t do better than it could.
Starting with Big Blue IBM, they beat earnings by 5 cents and raised this year’s guidance on earnings by 10 cents to 13.90, though their revenues were down 3.5% y/y. About a week ago, Redhat’s 8-k filing showed its shareholders approved the deal. Several firms increased their price target on IBM.
United Technologies beat earnings by 42 cents and crushed revenues on 15% growth. On call they said their segment profit is expected to grow faster than sales, and free cash flow is expected to outpace earnings.
Proctor and Gamble was interesting. They said China revenues were up 15%, India up 16% and e-commerce organic sales were up 30% with no sign of slowdown in China.
Looking at the semiconductors, which have leading indicator status given their wide use in industrial applications, we have Lam Research, Xilinx, Teradyne, and Texas Instruments all up after their reports of better than feared guidance and better than expected earnings. I dug in a little to Texas Instruments earnings and found that while the industrial and automotive segments declined in the quarter, communications sales were up 20% ahead of 5G and that has positive implications for Qualcomm, Broadcom, Nokia, Juniper, and Xilinix.
Alright let’s look at two reasons I think the response, though very good, was kept in check. First, the market is technically overbought. I’ve read several technical pieces this week from well-known technicians Pring, Murphy, Hill, and more who are of the opinion a second bottom is still needed. We’ve run up against long-term resistance in a long-term downtrend. At one point the market was up 13% from the lows in a month so it’s not surprising to see a bit of a cap on the positive news right now.
Secondly, we still have bearish economic news coming in this week. On Tuesday, the market reacted negatively to news China’s growth is slowing with growth only up 6.6% for 2018. The IMF cut its 2019 global growth forecast to 3.5% and 3.6% in 2020. On the heels of the reported decline in Chinese exports last week, Japan reported a 3.8% decline in exports which came from its flash PMI report. Speaking of flash PMIs, the US decelerated in manufacturing and services, as did Europe. Europe was down to 50.5 on manufacturing, and Japan was down to flat at 50. Yet the bears were unable to break this rally’s strength on that news.
To finish the week, I read a WSJ article the Federal Reserve may be getting close to the end of its balance sheet normalization. Stating further that they will maintain a larger-sized balance sheet than it expected when it began quantitative tightening. Well we already knew as much from previous Powell comments this month. But it was interesting because while stocks were basically flat through the volatility this week, commodities had a great run on the balance sheet news.
Finally this week, President Trump announced a short-term deal to fund the government until February 15, which came shortly after a shortage of air traffic controllers caused the Aviations Administration to halt flights into LaGuardia Airport in New York. It’s thought if an agreement isn’t met he may just move forward with national emergency funding.