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Market Flash: Earnings, Data a One-Two Punch

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January 27, 2015

More than a few export-heavy U.S. companies—we’re talking icons like Caterpillar (CAT) and Proctor & Gamble (PG)—blamed dollar muscle and soft commodities prices for crimping global sales in earnings reports issued late Monday and earlier today.

With bulls reeling from that news (no surprise perhaps but the degree of currency sting was big), a surprisingly wimpy durable goods orders report fell in Wall Street’s lap. Durable goods virtually negated an upbeat consumer sentiment reading. The combined impact triggered a more than 300-point tumble for the Dow Jones Industrial Average (DJIA) as screens flashed red across the blue-chips. The broader S&P 500 (SPX) turned tail from a failed attempt at major resistance (figure 1) and fell nearly 1.5% at one point. Now here’s something interesting: despite the tumble in stocks, the expected stampede into the relative “safety” of bonds is really more like a trickle. Is this an indicator of an impending correction in stocks? Something to keep an eye on.

Market reaction may have more to do with what participants can’t see. First, strong-dollar impact continued in the current quarter and some companies warned for the full year. Second, the biggest news may not have even hit yet: Apple (AAPL) issues its results post-bell and the Federal Reserve sheds light on interest-rate policy Wednesday.

SPX Rejected. The SPX has retreated from formidable resistance at the mid-January peak of 2,064 and has pulled back significantly from its 50-day moving average at 2050. In the short-term, bulls look to defend support hold at the 2021 line.

FIGURE 1: The S&P 500’s climb has stalled this week at major resistance at the mid-January 2,064 peak. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Action Much Louder Than Words. Orders for durable U.S. goods plunged 3.4% in December, the fourth decline in the past five months and much worse than the skinny 0.1% consensus rise expected among Street economists. What’s more, durable-goods orders for November were revised to show a 2.1% decline instead of a drop of 0.9%. Transportation led the decline in December, dropping 9.2%. Orders for core capital goods —a measure of business investment— fell 0.6% in December for the second straight month. Now, released at the same time, the Conference Board's measure of consumer confidence jumped to its highest in seven years. Hear that deafening “So what?” on Wall Street? I’ve argued before that durable goods and retail sales figures (actual results) make better measures of consumer moods than direct questions about consumer moods (It’s as if consumers are lying on their dating profile, you know?).

Can Apple Shine? All attention swings to this big report after hours. Can Apple prop up the rest of the market? Will this global giant also disclose a currency crimp in global sales? It looks to be a potential mover as pre-report options trading tracked on TD Ameritrade’s thinkorswim® platform reveal short-term options positioning for a just over 6% expected move (that’s in either direction) in AAPL shares after tonight’s earnings.*

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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