Professor’s Comments April 27, 2016
Posted by OMS at April 27th, 2016
Stocks were mixed yesterday. The Dow rose 13 points, closing at 17,7990. That NASDAQ dropped 8 points to 4,888. Volume was on the NYSE moderate, coming in at 94 percent of its 10-day average. There were 78 new highs and only 4 new lows.
Yesterday’s action continued to develop the small Head & Shoulders pattern on the 15 min bars. The right shoulder of this pattern is our Hockey Stick Pattern that projects a move to the 17,550 level if 17,850 is broken. So continue to watch 17,850. If the Dow moves below this level now, it will start to turn many of the indicators on the cockpit negative.
Yesterday’s action actually turned The Tide back to positive after being neutral for several days. So we still need to be cautious. Right now, all of the breadth indicators that make up The Tide are at a point where they can easily turn negative.
And even though The Tide turned back to positive, the Dean’s List turned neutral as QID, the inverse index ETF for the NASDAQ 100 made its first appearance on the List in months. So now IF The Tide turns negative, I’ll start to buy QID.
After the market closed last night, Apple (AAPL) announced its fiscal 2016 second quarter earnings. The results were not pretty. The company reported a quarterly net income of $10.5 billion, or $1.90 per diluted share. These results compare to a net income of $13.6 billion, or $2.33 per diluted share, in the year-ago quarter. The results caused the stock to drop over 7 points to 96.75 in pre-market trading.
Since the DMI on APPL turned negative on 19 April the stock is now down over 10 points. Hmmm?
I mention Apple’s revenue today because it’s one of the things I’m watching during this reporting season. As you know, I consider revenue to be far more important than earnings when it comes to evaluating companies.
So for this reporting season in general, most companies appear to be beating estimates on earnings that were lowered significantly, but are missing significantly on revenues. And like I said, of the two, revenues are a much better tell than earnings. That’s because when things start to get really bad, a decrease in revenues causes a company to cut its dividends.
So now that Apple has reported, it might be a good time to look at what other companies are reporting on revenues and dividends during this reporting season. Dividends are not widely tracked or reported by the media, but when looked at in total, they can provide a much broader perspective on what’s going on with companies and the overall economy.
Since the beginning of the year, the decrease in revenues being reported by companies in the S&P500 was so large that it caused almost 200 of the companies to reduced dividends by over $31 Billion. That’s huge!!! Dividend cuts are last thing a company wants to announce mostly because it is a sign that the company is having cash flow problems. Also, many retirees depend on a stock’s dividend, and when it’s cut, it usually results in a lot of selling as investors move money to look for higher yields. So the fact that so many companies are reducing their dividends tells us a lot about the overall health of the market. It’s a really Big Deal!
Just to put this in perspective, this dividend reduction is the highest since the Great Depression. And it’s not limited to the gas and oil sector as the list of companies that are cutting dividends includes big banks, biotech, technology, and even REITs.
It’s just another reason I’m watching the 17,850 level on the Dow and waiting for the indicators to turn negative.
That’s what I’m doing,
h
Market Signals for
04-27-2016
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
SUM IND | POS |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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Category: Professor's Comments