First off, it appears the market is making up for the relatively low down-day yesterday. All indices are in the green and the VIX is rolling back, again. Gold is lower and the Russell 2000 is sporting a 1% gain. As well, the market finish yesterday demonstrated, again, that the buyers are still in the game, even if some trepidation remains.
- The bears can’t be happy that the economy is growing at a decent clip, earnings are at all-time highs, interest rates remain low, and inflation is not a concern.
The problem the bears have is that the data on all fronts keeps coming in on the positive side. Improvement is coming on all fronts, economically and in earnings, and yet …
- I don’t know when but I think we’ve crossed that line from an overheated market to one that is dysfunctional and off the rails.
The above is still a prevalent thought about the market. I would like to know, though, what exactly is “off the rails.” Can anyone who believes in the above please explain to me how this market is either dysfunctional or broken? Is it because it keeps defying the predictions predicated upon charts and mathematical calculations? For example, here is one I wrote about a week ago Monday.
- The Dow is past the point where all possible standard time spans from 10/4/11 have expired. As for 11/25/11, all possible standard time spans from this low have expired except one; an extended basic advance (929-968 days). It forecasts a high in the time period from June 11 to July 20. July 20 is this Sunday which means if the 2009 bull market top wasn’t already seen on 7/3/14 then it should be expected this week.
Okay, so here we are. As of this moment, the Dow is not far from the new high of 17138 set on July 17th. The 20th has come and gone, so if the Dow gains just a few more points, it will have made a new high, which would then make the current prediction “expire.” This, of course, will then create a new window for a new prediction, and on we go.
- Everywhere you turn today, you will find an article about bubbles forming, overvaluations, macro concerns, the next crisis, etc. All of which draw the same conclusion… investors will see a repeat of the 2008 Credit Crisis and stocks will get smoked again.
As I said, the fundamental problem the bears have is economic growth and improved earnings are happening, and that is simply not a recipe for disaster.
Three more stellar earnings reports came in today, which is making the bears’ case even more difficult to make.
- Chipotle crushes estimates and lifts same- store sales by a whopping 17%, showing that consumers are still willing to pay up for a burrito.
- Texas Instruments (TXN) reported Q2 earnings per share of $0.62, which was above the FactSet consensus estimate of $0.59.Revenues for the quarter were reported at $3.29 billion, which was also above the estimate of $3.27 billion. The company guided EPS for Q3 to a range of $0.66 – $0.76 versus the consensus estimate of $0.67.
- United Technologies (UTX) reported Q2 earnings per share of $1.84, which was above the FactSet consensus estimate of $1.74. Revenues for the quarter were reported at $17.19 billion, which was above the estimate of $16.89 billion. The company guided EPS for the full year to a range of $6.75 – $6.85 versus the prior range of $6.68-$6.85 and the consensus estimate of $6.85.
Now, get ready because you are going to read something unexpected from me, something so un-bullish it might make your head spin. Okay, well maybe not that powerful, but it is out of the ordinary for me to suggest we could see a big correction coming in the fall. I know, I have said time and again, we should expect another big autumn in the market, but something is going on that concerns me.
- Did we forget the Fed’s bond-buying program that once prompted so much finger-pointing is going to end in October?
Normally, I would simply rail against the idea that the market cares about this. I would have said that the market long ago gave up on worrying about this. I would have said that because I would have been railing against the breathless media for pounding the fear behind this event. The problem is and the concern I have is that the breathless media has not even been mentioning the end of QE. The question is this – is the end of QE baked into the market already or is the market going to freak out when the breathless media, the talking heads, and the celebrity analysts crank up their engines and take off down the road toward oblivion?
If the latter is true, then maybe, and I do say maybe, earnings and economic data, the fundamentals, just might get run over by the fast moving cars filled with negativity. This is one I am not sure about, at least not yet, so keep an eye of the market as it relates to this coming event.
Trade in the day; invest in your life …
