Market Reverse and End Day Positive

Today’s Notes: 

Another mixed reaction to a positive data point in the broad markets? The ISM Services number was much better than estimates and that reversed a negative open. The concerns were… Russia/Ukraine again. The worries remain as to how much and when this will impact further sanctions by the US and Europe. Nerves are still jittery relative to the future and investors lack a willingness to over commit at this point.

There were some positive moves in healthcare up 0.6%, utilities up 0.7%, energy up 0.5% and basic materials up 0.4%. On the downside retail dropped 0.5%, transports lost 0.2%, financials were down 0.5% and telecom was flat on the day.

The market is still consolidating near the highs and looking for a catalyst for the upside. Today started with plenty of negative sentiment, but found buyers willing to step in on the lows and push the indexes back into positive territory. The key for is patience and until the direction is defined willing to let this unfold further before committing capital to the risk of stocks.

Chart to Note:

Banks continue to be a drag on the broad markets and now are in position to break support and move lower. SKF is starting to look like a better play than owning the sector.


Notes to Note:

  • ISM Services rose to 55.2% which is the highest level in six months. Analyst expected 54.2% for April and the surprise move gave negative markets a bump back to the upside on Monday.
  • Thomson Reuters stated that 379 companies have reported from the S&P 500 index, 68% have topped Wall Street earnings estimates, and 51% have beaten revenue projections. Earning growth is at 4.5% thus far, with Utilities up 21.9% and Telecom up 14.2%, showing the biggest gains by sector thus far. Healthcare was 11.2% and still very respectable with double digit growth. Energy was the worst down 27% and Financials were down 13%.
  • The 24 out of 30 blue-chip companies that have already reported are showing a 3.3% decline in first-quarter earnings, setting up the third year-over-year decline in earnings out of the past four quarters, says FactSet data. 
  • Crude oil continues to decline to support at $36 on USO. That is the 200 DMA as well and a break lower could spell ugly for the sector. Today the blame went to the fear of further slowdown in China. This offset the fear of slowing shipments from Russia in consideration of the Ukraine conflict. Downside pressure remains the challenge for the sector short term.
  • One analyst calls for short on the Homebuilders (XHB). The chart shows a downtrend since the high in February with a test of support at the $30.65 level. Worth watching if this breaks below support and confirms the downtrend. Target would be $28.56.
  • PFE – posted earnings that beat expectations, but missed on revenue, fell 2.5% on the day. Back to support and on watch list to hold.
  • CMG – upgraded to outperform by Raymond James pushes the stock up 2.5% and shows a bottom reversal and back above the 200 DMA. Could trade up to $530 resistance on the news, but needs to overcome the cost increases for food. This one is interesting relative to the outlook.
  • MON – jumped 2.2% on analyst upgrade and comments. Nice reversal on the chart and Move above the $115 level gets attractive again.
  • FXP – short China ETF was the top performing ETF in our scan today breaking above the 50 DMA.
  • EMLP – energy infrastructure ETF broke to a new high as sector remains one of the top performers since the December low.

Final Note: The markets are still uncertain on direction. The overhang of Russia/Ukraine is a challenge for the global markets and oil delivery. Without further clarity near term it remains a negative catalyst potential for the markets. Economic data has been improving versus the winter reduced growth in February and March for the US economy. The challenge comes in the continuance of growth at a reasonable level. Until the picture clears it will remain a focus for investors.