Sunday, June 17, 2012

Weekly Macro and Earnings Preview 6/18-6/22

Previewing the week ahead following Greek elections which took place yesterday afternoon/evening, we are in for an interesting week:

The S&P is currently forming an inverse head and shoulders pattern with key levels marked in the picture. The white horizontal line would be my ultimate upside target to break out of the range (roughly 1,277) and possibly hit new highs in the coming weeks. Buy the rumor, sell the news. I am still bearish, but anything could happen. People were on edge waiting for Greece and their elections, now that that is over with and the “good” party won, there could be some short term euphoria, how long will that last? I’m thinking a couple days, maybe hours?

For macro news this week, we have a few announcements (Graphs obtained from Bloomberg):

-10:00AM EST NAHB Housing Market Index Prev: 29 Consensus: 29
    NAHB measures present sale of new homes, sale of homes expected in 6 months, and the traffic of buyers in new homes. The graph below shows the index is at a fove year high, but still bumping along the bottom.

-8:30AM EST Housing Starts
     -Starts Prev: .717M  Consensus .720M
     -Permits Prev: .715M Consensus .736M
These numbers are the starts of building/excavating of a new home. As we can see below since the housing bubble burst, this is down almost 75% from the peak. Any increase in this number is generally bullish for equities.

-12:30PM EST We get the announcement from Ben Bernanke and the FOMC about the Fed Funds Target rate. Prior and Consensus is 0-.25% which should stay in place until late 2014 as stated in several months prior.

-8:30AM EST Jobless claims Prev: 386K  Consensus 383K
   -Notice below slight uptick in claims these past few weeks as equities more down, these charts are known to be highly inversely correlated.

-9:00AM EST Flash PMI Manufacturing Index Prev: 53.9 Consensus 53.8
   -This is a new indicator, releases about a week before the actual results, gives a general preliminary reading on US manufacturing for the month.

-10:00AM Existing Home Sales Prev: 4.62M Consensus 4.57M
     -Keeps track of the home resale market (homes that are previously constructed, then sold) the graph below shows how we still have not bottomed yet, but in the process of doing so..hopefully..

-10:00AM EST Philadelphia Fed Prev: -5.8 Consensus: 0.5
   -Highly correlate with ISM manufacturing, anything negative signals contraction, chart below shows last couple readings have ticked below 0.

-10:00AM EST FHFA House Price Index  Prev: 1.8% Consensus: 0.6%
   -This week we get a slew of housing numbers, so watch these carefully, any sign of an uptick could be reversed down drastically, I still believe we have not hit bottom yet. This measures price of single family homes from data obtained from Fannie Mae and Freddie Mac.

-10:00AM Leading Indicators Prev: -0.1% Consensus: 0.0% 
     -Index of 10 economic indicators showing overall economic activity.

Preview of Earnings for the week ahead:

Barnes and Nobles
Discover Financial
Jefferies Group
Jabil Circuit

Bed Bath and Beyond
Red Hat

Rite Aid

Darden Restaurants
Carnival Corporation

Lets take a look at Discover (DSC)

The last few earnings reports have been fairly good, net income up 20% y/y. Comparing this to Visa (V), we can see that there is slight underperformance, but Visa has a wider market, their profit margin being up 10% y/y while DSC is about flat. I am bullish long term the credit card/debit card companies, people are generally using more plastic than paper today, so these companies will profit and that they have.

Below is a YTD performance of DFS, V and the S&P 500.

Notice the broader market is up 6% while DFS is up nearly 38%. Surprisingly, I still think that this has room to run, with a solid growing income stream and a 1.2% yield, I would be a buyer here before the report, even if it does surprise to the downside. Yearly EPS of 4.40 trading at 33.00 = a very low and cheap p/e multiple. I would not be surprised in the coming months to see some aggressive buying into DFS up toward the low-mid 40’s.

Next I want to look at a 100% domestic name, Darden Restaurants (DRI) all of their 1,860 restaurants which are composed of Red Lobster, Olive Garden, Longhorn Steakhouse, The Capital Grille and Bahama Breeze are located in the US. If you are a long the US dollar, this is a great way to hedge against international growth, as well as obtain a 3.3% dividend yield while you wait. Since these tend to be more of luxury restaurants, comparing them to Consumer Discretionary is the best indicator. They have outperformed nearly 2% YTD, while the XLY dividend yield is less than half of DRI’s. I can’t stress steady income streams enough in the amount of risk we are seeing recently, especially with Europe. Buy Darden to get 100% out of European exposure.

Last, looking a name I will be actively trading this week, Rite Aid (RAD).

Not looking at fundamentals here, but strictly a short-term trade if I can get it for the right price. Markets will probably flush down a bit this week on a flat week last week (futures drifting lower as I type Sun. evening). 1.00-1.10 looks to be where I want to enter, hoping for a pop up.

I will probably be back into the 3xDirexionETF’s again this week, broke even twice on TZA last week, and a great hedge. Downside to watch in the spoo is 1,323 (6/8 close) that would be our pivot, then 1,311.    1,300 held very solid last week, but that may not be the case this week.

Catch me on twitter @peter_eller10 for daily updates.

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