U.S. Markets- Week in Review


Gary Christie


September 24, 2018



Min Read

What's new in U.S. markets? Get up-to-speed quickly with our brief rundown of last week's key market movement written by our North American research desk. It only takes five minutes to learn about the biggest movers, significant technical events, earnings preview and notable corporate news. 


The S&P 500 gained 0.85% for the week, with the Nasdaq ending the week slightly negative. The real story was the strong performance of the DOW closing up 2.25% on the week.




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On the economic data front,  Initial jobless claims reached 201k in week ended September 15th (estimated 210k) from 204k in the previous week. In addition, the Philadelphia Federal Business Outlook increased to 22.9 in September (expected 18) vs. 11.9 in August. The Bloomberg Consumer Comfort Index improved to 60.2 in week ended September 16th from 59 in the prior week. In addition, the Leading Index improved by 0.4% in August (estimated 0.5%) vs. 0.6% in July. Finally, existing home sales remained unchanged MoM at 5.34M in August (expected 5.37M). 


We remain bullish the S&P 500 with a cautious tone as the index sits at record highs inside a rising wedge pattern. Our stop-loss pivot is set at 2873 to match the previous record high set back in January. Our short term targets are set at 2971.75 and 3000. The rising wedge pattern is a warning sign of a possible market top forming. Look for a close below the 20-day simple moving average to confirm the bearish wedge pattern. A small pullback is warranted at these levels before a continuation higher beyond the record high. The RSI remains above its 50 level supported by a short-term rising trend line indicating positive momentum is still in play.   


70% of S&P 500 stocks are trading above their 50-day moving average. Historically when this level reaches the 75% to 80% zone there has been a dip in the markets.


The VIX is now bullish above key support at 10.45. We anticipate a gradual increase in volatility as we are currently at historic low levels. A pullback in the markets is anticipated within the next few weeks as we approach VIX support.


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Looking at relative strength of the majors, The DOW vs the Nasdaq index had been underperforming throughout the year until this month where the ratio broke above the long term declining trendline. For the month of September, the DOW leads all U.S. indices. Technology stocks have been under pressure and this trend may continue until the end of the year. 


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Notable technical events:  


50D MA cross over: Booking Holdings (BKNG +0.46% to $1956.74), Chevron (CVX +1.43% to $121.13).


Relative strength stock/S&P500 50D MA cross under: NetFlix (NFLX -1.14% to $361.19).


Key corporate news,  


On the corporate front, Texas Instruments (TXN +4.45% WoW to $110.05) boosted its quarterly dividend by 24% YoY to $0.77 (estimated $0.75) and announced that its Board has authorized a repurchase of an additional $12B of its common stock over time. 


Adobe Systems (ADBE -5.03% WoW to $260.88) has entered into a definite agreement to acquire Marketo, the cloud platform for B2B marketing engagement, for $4.75B. The transaction is expected to close in 4Q2018. 


McDonald's (MCD +2.77% WoW to $165.3) raised its quarterly dividend by 15% to $1.16 and boosted its cash return to shareholders to $25B for the three years ending 2019.


Red Hat (RHT -9.57% WoW to $134.62) reported 2Q adj. EPS of $0.85 (estimated $0.82) vs. $0.77 a year ago on revenue of $822.7M (forecasted $828.1M) from $723.3M in the previous year. Net income diminished by 10.5% YoY to $86.9M. The Co released its 3Q guidance of adj. EPS at $0.87 (estimated $0.92) and expects revenue to range between $848M and $856M (expected $862.1M). Finally, the Co sees FY adj. EPS at $3.45 - $3.49 (forecasted $3.47) and revenue reaching $3.36B - $3.4B (expected $3.4B).


Bank stocks like Citigroup Inc (C +5.12% WoW to $74.15), JPMorgan Chase (JPM +3.83% WoW to $117.85), Bank of America (BAC +2.17% WoW to $31.03), Goldman Sachs (GS +2.66% WoW to $235.34) and Morgan Stanley (MS +2.53% WoW to $49.41) were the top movers of the S&P500 as the 10-year and 30-year yields rose to the highest level since May 18th. 


Copart (CPRT -18.9% WoW to $52.58) reported 4Q adj. EPS of $0.42 (estimated $0.48) vs. $0.35 a year ago on revenue of $449.2B (forecasted $448.5M) from $378.6M in the previous year. Net income jumped 56% YoY to $109.7M. 


Unumprovident (UNM +9.78% WoW to $40.51) has finalized its reserve review for its long-term care block of business and expects to boost its long-term care GAAP reserves in 3Q2018 by appx. $590M after-tax ($750M before-tax).


Twitter (TWTR -5.38% WoW to $28.5) fell during trading hours after a MoffettNathanson analyst cut the Co's price target to $21 from $23 and warned that expenses are expected to rise later in 2018 and 2019 given its "dire need" to improve the safety of its platform and its video initiatives, according to Bloomberg. In other news, the Co dropped as TechCrunch reported that a bug may have sent users' private direct messages to the Co's developers without authorization. The issue started in May 2017 but was only resolved once the Co discovered it on September 10th 2018. 


Fedex (FDX -3.18% WoW to $247.32) reported 1Q adj. EPS of $3.46 (estimated $3.8) vs. $2.51 a year ago on revenue up 11.75% YoY to $17.1B (forecasted $16.87B). The Co raised its FY guidance on adj. EPS in a range of $17.2 - $17.8 (expected $17.37) from the previous forecast of $17 - $17.6. 


General Mills (GIS -6.89% WoW to $44.46) announced 1Q adj. EPS unchanged YoY at $0.71 (estimated $0.64) on net sales up 8.6% YoY to $4.09B (forecasted $4.12B). Gross margin on an adjusted basis decreased by 160bps YoY to 33.6%, lower than expectations of 34.3%. The Co reaffirmed its FY2019 targets including adj. EPS growth between remaining flat and increasing by 3% vs. FY2018. 


Union Pacific (UNP +4.82% WoW to $164.99) unveiled its Unified Plan 2020 which consists of implementing "Precision Scheduled Railroading principles". This initiative is expected to help the Co reach its 60% operating ratio goal by 2020. According to Bloomberg, the PSR principles are taken from the "railroading legend" Hunter Harrison. 





U.S. Earnings Preview for next week



On Tuesday in after-hours, Nike is expected to report 1Q EPS of $0.625 vs. $0.57 a year ago on higher revenue of $9.9B from $9.1B in the previous year. Recently, the Co's price target was boosted to $100 from $90 at Guggenheim. From a chartist point of view, the RSI is above 50 while the MACD is positive and above its signal line. The configuration is positive. Moreover, the stock is trading above both its 20 and 50 day MA (respectively at 82.36 and 80.09). Nike is currently trading near its 52 week high reached at 85.85 on 19/09/18. We are looking at the next target of $90.4 with a stop-loss of $82.2.



On same day, Cintas is likely to post 1Q EPS of $1.8 vs. $1.48 a year ago on revenue of $1.7B vs. $1.6B a year earlier. From a technical point of view, the RSI is below 50 while the MACD is below its signal line but remains in positive territory. The MACD must penetrate its zero line to expect further downside. Moreover, the stock is trading under its 20 day MA (213.71) but above its 50 day MA (208.68). Finally, Cintas has penetrated its lower daily Bollinger band (210.62). Cintas is currently trading near its 52 week high reached at 217.34 on 07/09/18. We expect to reach our lower target of $201.5 with a stop-loss set at $217.2. 



On Wednesday, CarMax is awaited to announce 2Q EPS of $1.22 vs. $0.98 last year on revenue of $4.6B compared to $4.4B in the prior year. The Co was recently cut to "sell" from "hold" at Morningstar. Looking at the chart, the RSI is above 50 while the MACD is positive and below its signal line. The stock could retrace in the short term. Moreover, the stock is above its 20 and 50 day MA (respectively at 78.29 and 76.4). CarMax is currently trading near its 52 week high reached at 81.67 on 22/06/18. The stock is likely to hit our target of $82.5 with a stop-loss set at $76.8.



On Thursday, Carnival is anticipated to unveil 3Q EPS of $2.31 vs. $2.29 last year on revenue of $5.8B from $5.5B in the previous year. Recently, the Co was downgraded to "hold" from "buy" at Morningstar. Technically speaking, the RSI is above 70. It could mean either that the stock is in a lasting uptrend or just overbought and therefore bound to correct (look for bearish divergence in this case). The MACD is above its signal line and positive while the configuration is positive. Moreover, the stock is above its 20 and 50 day MA (respectively at 62.68 and 60.49). Finally, Carnival is trading above its upper Bollinger band (standing at 66.32). Our next target is set at $69.9 with a stop-loss set at $65.1. 

Gary Christie

Head of North American Research
Gary has over 15 years in financial markets. Prior to joining TC, he served as an equity & derivatives specialist with TD Bank and Bank of America. Gary is regularly quoted in Bloomberg News, conducts many education and market outlook webinars for investment institutions all over the world and has been a guest speaker at the New York Traders Expo.
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