Earnings Recession

After moving ‘violently sideways’ for 15 months, where does SPY go from here?

There is a case to be made that Earnings have ‘troughed’ at -10% in this past Q1 2016. And if earning estimates stop going down–regardless of oil, regardless of the dollar–it may give Big Money serious consideration that the Earnings Recession is nearing an end. I’m not talking valuation of the stock market, but the inherit bullish momentum that can build if Big Money looks at the earnings decline, sees the trough, and assumes they also see a recovery 6-12 months out. THAT would attract some buying pressure, liquidity, short covering, hope…

EPS YOY 4-4-2016

This ONLY works if the FED stays out of the way. Maybe one little rate hike, but just one teeny-tiny one. Looking at rates in the rear-window, it’s very hard to believe anything robust is planned based on this chart. One of my guideposts was actually negative rates, but I am first a chartist and this stubborn downtrend in rates needs TIME to bottom and reverse. If prescient, we won’t see rates ‘challenge’ the status quo until it reaches 4% and that is years away.

TNX QTR

Other than the Bad Breadth case catching hold due to a big catalyst/event (Brexit, for example), I see SPY continuing to digest and make a run towards its highs in coming weeks, attracting the FOMO (fear-of-missing-out) crowd, right before it does a rug-pull. Next few weeks into May should continue to see IBB bounce plays and the illusion of small-cap/financials/corporate+junk bonds, even oil, stabilizing or catching a slight bid.

SPY Mo coppock

The market has a way of building up hope right before it smashes it on the rocks.