We're at the end of 2018 and there have been numerous big movers, significant technical events, earnings preview and notable corporate news! This article covers a brief rundown of this week's top U.S. Market pivotal movement written by the head of our North American Research Desk, Gary Christie.
In the short-term, we remain bearish S&P 500 (SPX) as the index remains under pressure since it broke below its 200-day moving average. Prices are approaching the 50% fibonacci retracement level from the swing low of 1810 and record high of 2940. Our stop-loss is set at 2510. We anticipate further downside towards 2380 and 2300 in extension.
On a longer time horizon (weekly chart), the SPX remains bearish with a stop-loss set at 2601. The index broke below its 50-week moving average. Prices are approaching the 50% fibonacci retracement level from the swing low of 1810 and record high of 2940 which may provide support slightly above the 200-week moving average.
The VIX, a measure of market fear, broke above Oct highs and is now trading at levels not seen since Jan 2018. As long as the VIX remains above 24.55, further pressure on U.S. Indices can be expected.
The Dow Jones Transportation index remains under pressure as the index tests April 2017 lows.
The Russell 2000 index was hit the hardest in the week. Look for key support to hold at 1265. We tightened our stop loss to 1350 as this is key resistance from 2017. Only 14.45% of the stocks in the S&P 500 are trading above their 200-day moving average, a level not seen since early 2016.
Regarding the sectors, the worst performing stocks were in the Retailing (-9.96%), Energy (-8.96%) and Technology Hardware & Equipment (-8.74%) sectors.
We advise continued caution on North American equity markets until we establish a basing pattern.
On the economic data front, annualized GDP decreased to 3.4% in a third estimate in 3Q (estimated 3.5%) from 4.2% in 2Q. Also, housing starts increased by 3.2% MoM to 1.256M units in November (estimated 1.228M) from 1.217M in October. Building permits jumped by 5% MoM to 1.328M in November (expected 1.26M) compared to 1.265M a month earlier. In other news, initial jobless claims increased to 214k in week ended December 15th, lowe than estimates of 215k, from 206k in the prior week. Finally, the Federal Reserve raised the federal funds rate to a range of 2.25% - 2.50% as widely expected. However Fed official's median forecast implied that there will be two more rate increases in 2019, down from three times estimated in September. Meanwhile, 2019 GDP growth forecast was lowered to 2.3% from 2.5% and inflation forecast was cut to 1.9% from 2.0%.
On the Corporate Front, PGE (PCG -12.53% WoW to $22.75) dropped as the California Public Utility Commissions alleged that the Co violated the natural gas pipeline safety rules and falsified records.
We had some big movers last week. Here's a look at the 7 most notable:
Twitter (TWTR -23.86% WoW to $27.31) traded lower as it unveiled that it fixed an issue related to one of its support forms and realized that the IP addresses used may have had tied to state-sponsored actors in China and Saudi Arabia, according to Bloomberg. Recently, Citron Research tweeted that the Co has become the "Harvey Weinstein of social media", referring to the Amnesty International study that shared the idea that the Co is a toxic place for women. Citron Research is expecting the stock to drop towards its price target of $20.
Xerox (XRX -20.94% WoW to $19.33) fell as its long-term rating was cut by Moody's to "Ba1" from "Baa3" with a "negative" outlook. Besides, the Co printed a new 52w low.
Fedex (FDX -14.18% WoW to $158) reported 2Q adj. EPS of $4.03 (estimated $3.94) vs. $3.18 a year ago on revenue of $17.8B (forecasted $17.69B) from $16.31B in the prior year. Net income on an adj. basis advanced by 24.7% YoY to $1.08B. The Co sees FY adj. EPS in a range of $15.5 - $16.6 (expected $17.37). Besides, the Co printed a new 52w low.
Micron Technology (MU -11.35% WoW to $30.32) announced 1Q adj. EPS of $2.97 (estimated $2.95) vs. 2.45 a year ago on net sales of $7.91B (expected $8.01B) compared to $6.8B a year earlier. Gross margin improved to 58.3% vs. 55.1% in the previous year while net income increased by 23% YoY to $3.3B. In other news, the Co was cut to "sector perform" from "outperform" at RBC. Besides, the Co printed a new 52w low.
Walgreens Boots Alliance (WBA -14.58% WoW to $67.26) reported 1Q adj. EPS of $1.46 (estimated $1.43) vs. $1.28 a year ago on net sales up 10% YoY to $33.79B (estimated $33.89B). Adj. gross margin reached 22.8%, in-line with estimates, vs. 24.2% last year while net income jumped 33.8% YoY to $1.1B.
Carnival (CCL -15.04% WoW to $47.86) posted 4Q adj. EPS of $0.7, in-line with estimates, vs. $0.63 a year ago on revenue of $4.46B (expected $4.44B) compared to $4.26B in the prior year. The Co sees 1Q adj. EPS in a range of $0.4 - $0.44 (forecasted $0.44) and expects FY adj.EPS in a range of $4.5 - $4.8 (estimated $4.69).
Conagra Foods (CAG -25.89% WoW to $22.15) announced 2Q adj. EPS from continuing operations of $0.67 (estimated $0.56) vs. $0.56 a year ago on net sales of $2.38B (forecasted $2.41B) from $2.17B in the previous year. The Co sees FY adj. EPS from continuing operations in a range of $2.03 - $2.08 (expected $2.13).
Earnings preview this week:
- D: On Thursday January 3rd, Dominion Energy is expected to report 4Q EPS of $0.94 vs. $0.91 a year ago on revenue unchanged YoY at $3.2B. In other news, the Co received approval for its $7.9B takeover of Scana with conditions by state regulators, according to Bloomberg, representing North America's largest pending utility deal. Technically speaking, the RSI is above 50 while the MACD is below its signal line and positive. The stock could retrace in the short term. Moreover, the stock is below its 20 day MA (74.74) but above its 50 day MA (73.26). We anticipate additional momentum towards $80.6 with a stop-loss of $72.6.
- LW: On Friday, January 4th, Lamb Weston Holdings is likely to announce 2Q EPS of $0.72 vs. $0.54 last year on revenue of $897.2M from $824.6M a year earlier. Also, the Co was recently downgraded to "neutral" from "buy" at Bank of America. Looking at the chart, the RSI is below its neutrality area at 50 while the MACD is below its signal line and negative. The configuration is negative. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 76.42 and 77.55). As long as prices don't break the stop-loss of $77.7, we are looking for a downside target of $68.6.
- LEN: On Wednesday January 9th, Lennar is awaited to post 4Q EPS of $2 vs. $1.29 a year ago on higher revenue of $6.6B compared to $3.8B in the prior year. In other news, Eminence Capital recently cut its stake in the Co while Omega Advisors removed the Co from its list of investments, according to Bloomberg. From a chartist point of view, the RSI is below 50 while the MACD is below its signal line and negative. The configuration is negative. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 41.91 and 42.3). Lennar is currently trading near its 52 week low at 38.23 reached on 15/11/18. We expect to reach a lower target of $35.2 with a stop-loss of $43.6.
- STZ: On same day, Constellation Brands is anticipated to unveil 3Q EPS of $2.09 vs. $2 last year on revenue of $1.9B from $1.8B in the previous year. The Co was initiated at "neutral" at UBS. From a technical point of view, the RSI is below 30. It could either mean that the stock is in a lasting downtrend or just oversold and therefore bound to retrace (look for bullish divergence in this case). The MACD is negative and below its signal line. The configuration is negative. Moreover, the share stands below its 20 and 50 day MA (respectively at 187.73 and 200.27). Finally, Constellation Brands is trading below its lower daily Bollinger band (standing at 168.87). Constellation Brands is currently trading near its 52 week low at 167.21 reached on 20/12/18. We believe additional pressure will bring the stock down to $155.5.