Preview of earnings & macro data 6/25-6/29

Unreal to know that after this week, we will be halfway through 2012 and heading into another round of earnings, time sure does move fast…

On that note, we begin to preview a semi-busy week ahead. I will be heading across the pond to England on Thursday evening to take a couple summer classes, while keeping my fingers crossed may be able to see some Olympic action in London. Six weeks over there, then its back home for less than a week, then back to school for fall semester, once again, time flies.

In looking where the S&P has moved this week (some wild moves, but was expected on the back of Bernanke’s comments and further monetary policy) we were relatively unchanged, down half a percent. Investors and traders were hoping for QE3 but got an extension of operation twist instead. The Fed will now sell short-term bonds and buy long-term bonds to drive yields down, which will last throughout the rest of this year. When all is said and done, Operation Twist I and II will span a total of 16 months. Once again, not solving any of the problem, but just buying time until the end of the presidential election.

I mentioned in my last post about watching 1,349 in the spoos, we got there and seemed to be resistance (1,357 is last wks hi). Since we broke down Thursday after a Goldman put a short position on to 1,285 and Moody’s putting out an onslaught of downgrades after the bell, we broke through many support levels, including 1,333 in the S&P cash (H/T to Steve Grasso on CNBC for pointing that out), we can now use the 1,349 as resistance again. The next support level I am eyeing is 1,314 at the close on June 14^th, beginning a mini-rally. My thoughts are we will slowly melt down to here, possibly under 1,300 in the spoos, but watch Thursday evening/Friday cash session we could reverse quick to get those end of the quarter/month markups in (last June we rallied 50 pts into the close of the month).

Above a chart of the S&P futures

We have a moderately busy week for macro data:

Monday:

-10:00AM EST New Home Sales Prev. 343K  Consensus 350K

   - Measures the number of newly constructed homes with a committed sale. With the amount of housing data we got last week, clearly we have not seen a bottom yet and this is still a very sluggish sector. Notice in chart below we still continue to bump along the bottom.

-10:30AM Dallas Fed Manufacturing Prev. -5.1 Consensus 0.0 (range -11.5 to 2.0)

   -With the Philly Fed printing a very disappointing number, I would not be surprised and am leaning toward a lower than -5.1 print.

Tuesday:

-9:00AM EST S&P Case-Shiller Home Price Index

   -20 City M/M  Prev. 0.1%   Consensus 0.4%   (range 0.2% to 1.0)

   -20 City y/y Prev -2.6%   Consensus -2.3% (range -3.1% to -1.6%)

-Chart below shows a slight uptick, but still very weak.

-10:00AM EST Consumer Confidence Prev. 64.9 Consensus 63.5 (Range 58.0 to 66.3)

   -A survey of 3k households in the US to see the individual attitudes toward economy. With the wild swings and disappointing data  we have gotten the past few weeks, I would not be surprised for this to go under 60, bringing us back to Dec. ’11 lows. (Seems to track the S&P pretty well)

-10:00AM EST Richmond Fed Manufacturing Index Prev. 4 Consensus 5 (Range -2 to 5)

   -Weighted avg. of business conditions in Richmond area (shipments 33%, new orders 40%, and employment 27%) Surprising that only a few months ago this was near 17, but worsening market conditions in other cities have driven down this index as well. Expect more disappointments.

Wednesday:

-8:30 AM EST Durable Goods Orders

   -New Orders M/M Prev. 0.2% Consensus 0.4% (Range -1.0% to 1.0%)

   -Ex transportation Prev. -0.6% Consensus 0.8% (Range -0.5% to 1.5%)

-This is a measure of new orders with domestic manufacturers for immediate or future delivery. Notice the slow bleed to below 0% (growth slowing) could very well happen in the next few coming months, definitely think it will happen this year.

-10:00AM EST Pending Home Sales Prev. -5.5% Consensus 1.2% (range -1.6% to 4.0%)

  -From last month’s disappointment, we are expected to finally see some signs of relief, from existing home sales.  

Thursday:

  -8:30 AM EST 3^rd and Final Read of Q1 ‘12 GDP

    - Real GDP Prev. 1.9% Consensus 1.9% (range 1.7% to 2.3%)

    - GDP price Deflator Prev. 1.7% Consensus 1.7% (range 1.7% to 1.9%)

-I expect this to be a bit below 1.9% consensus seeing that economic activity has slowed drastically since last read, could be as low as 1.5%

-8:30AM EST Jobless Claims Prev. 387K Consensus 385K (range 378K to 390K)

   -To me it looks like we have a straight shot to 400K in the coming weeks as long as the data continues to disappoint. The big number comes out next week.

-11:00AM EST Kansas City Fed Manufacturing Index Prev. 9 Consensus 4 (range -2 to 11)

Friday:

-8:30AM EST Personal Income and Outlays

-Personal Income M/M  Prev 0.2 % Consensus 0.3 % (range -0.2 % to 0.3 %)

-Consumer Spending M/M Prev. 0.3 % Consensus 0.0 % (range -0.3 % to 0.3 %)

-PCE Price Index M/M Prev 0.0 % Consensus -0.1 % (range -0.2 % to -0.1 %)

-Core PCE price index M/M Prev 0.1 % Consensus 0.2 % (range 0.1 % to 0.2 %)

-9:45 AM EST Chicago PMI Prev. 52.7 Consensus 53.1 (range 50.0 to 55.1)

  -We are in a tight range from 50-55, expect further downside as we get even closer to 50 and will eventually break below by the end of the slow growth summer.

-9:55 AM EST Consumer Sentiment Prev. 74.1 Consensus 74.1 (range 73.5 to 79.0)

  -Less accurate than consumer confidence, done by Univ. of Michigan in surrounding area, 500 households on financial conditions.

Important earnings for the last week of the second quarter:

Monday:

-Apollo Group

Tuesday:

-H&R Block

-Sealey

-Walgreens

Wednesday:

-General Mills

-Lennar

-McCormick

-Monsanto

-PayChex

Thursday:

-Accenture

-Family Dollar

-Nike

-Research in Motion

Friday:

-Constellation Brands

-Finish Line

-KB Homes

Looking at General Mills, they have been a very stable and defensive name to own right now. With revenue and income growing 20% y/y, their demand will be stable enough to continue to grow. Important to note they too on an extra $1B in long-term borrowings in last quarters report, but should not be viewed as a big issue. Comparing GIS to Kellogg (K) and the S&P consumer staples, over a 10 year period (these are names to buy and hold generally, and I am a long-term investor) they have outperformed Kellogg and S&P Consumer staples. General Mills gives you a slightly higher yield at 3.1% compared to the consumer staples at 2.7%, but lower than Kellogg at 3.5% (higher yield in Kellogg due to underperformance in shares). I would be long GIS here, be a buyer of less than expected numbers, but would watch the $35 level if the report is very bad, a technical breakdown is possible at those levels. Analysts expecting 58c a share on $4.11B Revenue.

Another solid point to General Mills, they have increased their dividend every year since 2004 from 14 cents to currently 31 cents. Over that time, shares have also more than doubled up 54%.

Next I want to discuss Lennar and KB Homes. Both are homebuilders, and in my opinion, for the time being and probably the next several years, are the worst place to park your money. We have already discussed and seen the macro numbers for housing and there are no drastic signs that housing has made a turnaround. Yes, there may be some upward revisions due to seasonality, but the main point is, this sector will continue to drag, and so will these stocks. I am actually very surprised at how much these names have run up in the past 2 years on hope of a turnaround, not so much KB, but Lennar. (KB Homes does mote of their business in the south). I would be a seller of both, and would look more toward the home improvement names like Home Depot and Lowes.

Above a 6yr performance...speaks for itself…value trap at the least.

Nike I want to look at next. This has been a monster stock for the past couple years, but with most of their business coming from other countries, especially China, Nike may be running a bit out of steam. 100.00 was a key level to hold last week and it broke and closed below that, so on a technical basis, it is vulnerable for further downside. We got a death cross (50DMA below 100 DMA, see pic below) last Thursday; I expect a breakdown to the next level of 93.38 (Dec. ’11 low) then 90.28 (Nov. ’11)

Also looking At Family Dollar and Constellation brands for solid reports and would be long these names, might take a small long position in Constellation, I will let you all know via twitter @peter_eller10. Have a great week everyone, good luck trading.