Rotation, rotation, rotation. The hallmark of a strong market. As the indexes marked time most of this week, we saw a healthy rotation. Overbought groups fell back or rested, while new groups emerged. Friday was not a fun day for those investing in the technology space as a minor blowup in Google (GOOG), and a major blowup in Microsoft (MSFT) put pressure on all parts of the technology space. But as investors left that area they moved to others - more on that below. Markets were in the red most of the day but a late day surge pushed the S&P 500 up 0.16% while the NASDAQ pared some losses to finish down 0.66%. For the week the S&P 500 'rested' by gaining 0.71%, while the NASDAQ fell 0.35%. Interesting tidbit with 20% of the S&P 500 companies data in on earnings:
So far, one-fifth of S&P 500 companies have reported quarterly results, with 65 percent of companies posting earnings above estimates. If all remaining companies report earnings in line with forecasts, earnings will be up 2.9 percent from last year's second quarter.
Let's post some longer term charts for the indexes today - we mentioned the bull flag on the indexes, the S&P 500 held its yesterday while the NASDAQ failed to hold its flag - obviously that continued today based on what the indexes did. But bigger picture we can see with the S&P 500 a mega rally with one moderate drop between late May and late June of 6-7%. That area is shaded in yellow and marked a break of the dotted purple line which connects the lows of 2013. That was regained a few Fridays ago on the monthly employment data and since then it's been a time to be constructive again. Throughout 2013 we've had rallies of about 6 weeks before a minor correction of 2-3% hits, so based on the start date of this rally of late June that would take us through another 2 weeks or so - if we mimic the past of course.
The NASDAQ has been influenced much more by Apple (AAPL) which has had a rough year so until late it was lagging other indexes. We have some near term issues now with some of the high profile misses (which ruin their individual charts) but this index is also full of biotech companies which have been the stars of 2013; that helps offset some of the mess in technology. .
Microsoft (MSFT) was hit terribly hard, in one of its worst days in years. You can see on the long term chart it actually broke below support created by the highs of early 2012. Below that are the highs of fall 2012. It is going to take some time to repair this level of technical damage. Many people read through the report and extrapolated weakness into many parts of the PC market so just about anything PC related was hit.
Microsoft took a big write-down on its highly touted but poorly adopted Surface tablet last quarter, causing the company to badly miss Wall Street analysts' profit expectations. The Redmond, Wash., based software giant said Thursday that its fiscal fourth-quarter net income rose to $5 billion, or 59 cents per share. Analysts polled by Thomson Reuters forecast earnings of 75 cents per share. Sales rose 10% to $19.9 billion, also falling far short of the $20.7 billion analyst had forecast. Results were negatively impacted by a whopping $900 million write-off of Microsoft's Surface RT inventory. Microsoft recently knocked $150 off the price of the tablet, which debuted in October and initially sold for $500. It is the first PC designed by Microsoft, but the company says its own devices will become a big part of the company's strategy going forward.
So the technology ETF (XLK) which looked so promising early in the week, ended up being the dog of the week. Again, during earnings season we have binary outcomes and when heavyweights such as Intel and Microsoft get hit this type of ETF is going to take a dive.
But back to the theme we began with - rotation. We had big wins in energy, industrials and healthcare today. Earlier in the rally it had been consumer discretionary, technology, and financials.
The energy ETF (XLE) was helped by major component Schlumberger (SLB) which reported earnings ...
The industrial ETF (XLI) was helped by major component General Electric (GE) which reported earnings...
The healthcare ETF (XLV) was helped by major component Johnson & Johnson (JNJ) which seemed to go up just for the heck of it...
Let's end with the precious metals which continue to be in no man's lands - silver might be one of the more amazing stair step down charts I've seen.
And gold can't get out of its own way - at minimum we need to see a move over the 50 day moving average to have any hope of a change in trend.