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Todd Harrison: Mapping the Stock Market's Four Primary Metrics
It's time to take the temperature and read the tea leaves.
Todd Harrison    

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

It's a brand new day on the corner of Wall and Broad as the stock market has sprung higher out of the opening gate. 

Taking a deep breath and a step back, this is what I'm seeing as we chew through the four primary metrics that determine the price action for stateside markets:

Fundamentals:

On Friday, FactSet updated its earnings stats for S&P 500 (INDEXSP:.INX) companies and there was a surprise -- we are seeing a sizable increase in companies beating sales expectations.

For the 74 companies that have reported second-quarter earnings, 73% have beaten consensus revenue estimates, up from 53% in Q1.  If this number can hold, it will be the highest such reading since FactSet began tracking this data point in Q3 2008, and way above the four-year average of 57.2%. The beats themselves are also a larger magnitude than usual. Companies are reporting sales 1.43% above estimates versus the four-year average of 0.57%.

Health care, information technology, and financials are showing the biggest revenue growth increases relative to expectations, while energy and utilities are the notable underperformers. Interestingly, in terms of price performance, energy and utilities have been the best sectors of 2014.

Unfortunately, the large percentage of beats hasn't moved the needle for Index-wide growth. As of June 30, estimated revenue growth was 3.0%, and current blended growth (which incorporates actual reports with estimates for companies that have not yet reported.) 

On the plus side, tech and financials are levered to economic activity, and the big driver within health care is biotech, a growth industry.

And the underperformers, energy and utilities, in some ways represent burdens on individuals and businesses.

One quarter does not a trend make, but in a vacuum, this bodes well for the bulls. This market is commonly knocked as benefitting from cost cuts, share buybacks and dividends -- not genuine economic demand.  Low single-digital revenue growth isn't much to get excited about, but an underestimated state of demand side hasn't been discussed much.

Technical Analysis:

S&P: Playing, playing in the band between 1950 and 1985; a break either way will trigger stops.


Click to enlarge

Russell 2000 (INDEXRUSSELL:RUT): Stuck in the middle with you, between the 200-day (1142) and the 50-day (1155).


Click to enlarge

NDX (INDEXNASDAQ:NDX): Acne Alert above 3945; past resistance is future support.


Click to enlarge

BKX (INDEXSP:BKX): Home on the Range between BKX 70 -72. As go the piggies, so goes the poke.

Gold (NYSEARCA:GLD): Another pennant formation is forming; these patterns tend to reconcile in the direction of the overall trend. Of course,geopolitical events will color this price action, so keep that in the back of your crowded keppe.



Structural:

You know the drill; government sponsored liquidity, zero interest rates, TINA (there is no alternative). This has been going on for year,s and while I believe the "other side" of this grand experiment will usher in profound comeuppance that very few people are positioned for -- excess breeds excess -- credit markets continue to act well (high-yield is a bit jiggy, Treasuries are a bit extended, and the rest of the credit market remains relatively tame. (H/T Michael Sedacca).

Psychology:

We've touched on the current state of psychology in recent columns. There's a chase for yield -- and the requisite compression in volatility -- as well as "short synthetic puts" via over-writes and buy-writes. The VXO (INDEXCBOE:VXO) recently registered an all-time low, while bullish sentiment notched the second-highest level on record a few weeks back. We're a kitten's whiskers away from those levels, but not in the historical scheme of things.

And of course, there's social mood, which we've discussed plenty (here and here, for example). Once upon a time, when markets were free, social mood and risk appetites shaped the price action. We live in a different world now with a different "market," but this warrants a mention with perhaps the world's largest asterisk. I mean, we're at all-time highs; how many of you really feel like we're at all-time highs? 

If successful trading and investing is capturing the disconnect between perception and reality, I'll let you decide where we are in light of the current chasm.

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real time with a FREE 14 day trial to Buzz & Banter.
< Previous
  • 1
Next >
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Todd Harrison: Mapping the Stock Market's Four Primary Metrics
It's time to take the temperature and read the tea leaves.
Todd Harrison    

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

It's a brand new day on the corner of Wall and Broad as the stock market has sprung higher out of the opening gate. 

Taking a deep breath and a step back, this is what I'm seeing as we chew through the four primary metrics that determine the price action for stateside markets:

Fundamentals:

On Friday, FactSet updated its earnings stats for S&P 500 (INDEXSP:.INX) companies and there was a surprise -- we are seeing a sizable increase in companies beating sales expectations.

For the 74 companies that have reported second-quarter earnings, 73% have beaten consensus revenue estimates, up from 53% in Q1.  If this number can hold, it will be the highest such reading since FactSet began tracking this data point in Q3 2008, and way above the four-year average of 57.2%. The beats themselves are also a larger magnitude than usual. Companies are reporting sales 1.43% above estimates versus the four-year average of 0.57%.

Health care, information technology, and financials are showing the biggest revenue growth increases relative to expectations, while energy and utilities are the notable underperformers. Interestingly, in terms of price performance, energy and utilities have been the best sectors of 2014.

Unfortunately, the large percentage of beats hasn't moved the needle for Index-wide growth. As of June 30, estimated revenue growth was 3.0%, and current blended growth (which incorporates actual reports with estimates for companies that have not yet reported.) 

On the plus side, tech and financials are levered to economic activity, and the big driver within health care is biotech, a growth industry.

And the underperformers, energy and utilities, in some ways represent burdens on individuals and businesses.

One quarter does not a trend make, but in a vacuum, this bodes well for the bulls. This market is commonly knocked as benefitting from cost cuts, share buybacks and dividends -- not genuine economic demand.  Low single-digital revenue growth isn't much to get excited about, but an underestimated state of demand side hasn't been discussed much.

Technical Analysis:

S&P: Playing, playing in the band between 1950 and 1985; a break either way will trigger stops.


Click to enlarge

Russell 2000 (INDEXRUSSELL:RUT): Stuck in the middle with you, between the 200-day (1142) and the 50-day (1155).


Click to enlarge

NDX (INDEXNASDAQ:NDX): Acne Alert above 3945; past resistance is future support.


Click to enlarge

BKX (INDEXSP:BKX): Home on the Range between BKX 70 -72. As go the piggies, so goes the poke.

Gold (NYSEARCA:GLD): Another pennant formation is forming; these patterns tend to reconcile in the direction of the overall trend. Of course,geopolitical events will color this price action, so keep that in the back of your crowded keppe.



Structural:

You know the drill; government sponsored liquidity, zero interest rates, TINA (there is no alternative). This has been going on for year,s and while I believe the "other side" of this grand experiment will usher in profound comeuppance that very few people are positioned for -- excess breeds excess -- credit markets continue to act well (high-yield is a bit jiggy, Treasuries are a bit extended, and the rest of the credit market remains relatively tame. (H/T Michael Sedacca).

Psychology:

We've touched on the current state of psychology in recent columns. There's a chase for yield -- and the requisite compression in volatility -- as well as "short synthetic puts" via over-writes and buy-writes. The VXO (INDEXCBOE:VXO) recently registered an all-time low, while bullish sentiment notched the second-highest level on record a few weeks back. We're a kitten's whiskers away from those levels, but not in the historical scheme of things.

And of course, there's social mood, which we've discussed plenty (here and here, for example). Once upon a time, when markets were free, social mood and risk appetites shaped the price action. We live in a different world now with a different "market," but this warrants a mention with perhaps the world's largest asterisk. I mean, we're at all-time highs; how many of you really feel like we're at all-time highs? 

If successful trading and investing is capturing the disconnect between perception and reality, I'll let you decide where we are in light of the current chasm.

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real time with a FREE 14 day trial to Buzz & Banter.
< Previous
  • 1
Next >
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

More From Todd Harrison
Daily Recap
Todd Harrison: Mapping the Stock Market's Four Primary Metrics
It's time to take the temperature and read the tea leaves.
Todd Harrison    

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

It's a brand new day on the corner of Wall and Broad as the stock market has sprung higher out of the opening gate. 

Taking a deep breath and a step back, this is what I'm seeing as we chew through the four primary metrics that determine the price action for stateside markets:

Fundamentals:

On Friday, FactSet updated its earnings stats for S&P 500 (INDEXSP:.INX) companies and there was a surprise -- we are seeing a sizable increase in companies beating sales expectations.

For the 74 companies that have reported second-quarter earnings, 73% have beaten consensus revenue estimates, up from 53% in Q1.  If this number can hold, it will be the highest such reading since FactSet began tracking this data point in Q3 2008, and way above the four-year average of 57.2%. The beats themselves are also a larger magnitude than usual. Companies are reporting sales 1.43% above estimates versus the four-year average of 0.57%.

Health care, information technology, and financials are showing the biggest revenue growth increases relative to expectations, while energy and utilities are the notable underperformers. Interestingly, in terms of price performance, energy and utilities have been the best sectors of 2014.

Unfortunately, the large percentage of beats hasn't moved the needle for Index-wide growth. As of June 30, estimated revenue growth was 3.0%, and current blended growth (which incorporates actual reports with estimates for companies that have not yet reported.) 

On the plus side, tech and financials are levered to economic activity, and the big driver within health care is biotech, a growth industry.

And the underperformers, energy and utilities, in some ways represent burdens on individuals and businesses.

One quarter does not a trend make, but in a vacuum, this bodes well for the bulls. This market is commonly knocked as benefitting from cost cuts, share buybacks and dividends -- not genuine economic demand.  Low single-digital revenue growth isn't much to get excited about, but an underestimated state of demand side hasn't been discussed much.

Technical Analysis:

S&P: Playing, playing in the band between 1950 and 1985; a break either way will trigger stops.


Click to enlarge

Russell 2000 (INDEXRUSSELL:RUT): Stuck in the middle with you, between the 200-day (1142) and the 50-day (1155).


Click to enlarge

NDX (INDEXNASDAQ:NDX): Acne Alert above 3945; past resistance is future support.


Click to enlarge

BKX (INDEXSP:BKX): Home on the Range between BKX 70 -72. As go the piggies, so goes the poke.

Gold (NYSEARCA:GLD): Another pennant formation is forming; these patterns tend to reconcile in the direction of the overall trend. Of course,geopolitical events will color this price action, so keep that in the back of your crowded keppe.



Structural:

You know the drill; government sponsored liquidity, zero interest rates, TINA (there is no alternative). This has been going on for year,s and while I believe the "other side" of this grand experiment will usher in profound comeuppance that very few people are positioned for -- excess breeds excess -- credit markets continue to act well (high-yield is a bit jiggy, Treasuries are a bit extended, and the rest of the credit market remains relatively tame. (H/T Michael Sedacca).

Psychology:

We've touched on the current state of psychology in recent columns. There's a chase for yield -- and the requisite compression in volatility -- as well as "short synthetic puts" via over-writes and buy-writes. The VXO (INDEXCBOE:VXO) recently registered an all-time low, while bullish sentiment notched the second-highest level on record a few weeks back. We're a kitten's whiskers away from those levels, but not in the historical scheme of things.

And of course, there's social mood, which we've discussed plenty (here and here, for example). Once upon a time, when markets were free, social mood and risk appetites shaped the price action. We live in a different world now with a different "market," but this warrants a mention with perhaps the world's largest asterisk. I mean, we're at all-time highs; how many of you really feel like we're at all-time highs? 

If successful trading and investing is capturing the disconnect between perception and reality, I'll let you decide where we are in light of the current chasm.

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real time with a FREE 14 day trial to Buzz & Banter.
< Previous
  • 1
Next >
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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