It's the middle of October, 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 U.S. Market pivotal movement written by our North American research desk.
The S&P 500 closed flat on the week. Stocks remain down sharply for the month. The Dow and S&P 500 declined more than 4 percent this month, while the Nasdaq is down almost 7%. In the short term, We turned bullish on the S&P 500 as the index tests the 200-day simple moving average as support. The RSI just broke above its 35 level from its prior oversold reading of 18. A rebound remains in play towards 2873 which corresponds to our stop-loss on a weekly chart and the swing high of Jan 26th.
We advise Caution on the Russell index as it remains under pressure below 1600 to test October lows.
The VIX turned bearish below 23 as it looks to retrace back down to normality around the 14.5 level.
The Russell index remains under pressure below 1600 as it tests October lows.
Regarding the weekly sector performance, the worst performing stocks were in the Consumer Durables & Apparel (-3.53%), Semiconductors & Semiconductor Equipment (-2.72%) and Retailing (-2.35%) sectors while the best performing stocks were in the Household & Personal Products (+6.83%), Food, Beverage & Tobacco (+3.89%) and Real Estate (+3.21%) sectors.
On the corporate front:
Alcoa (AA +8.21% WoW to $38.6) reported 3Q adj. EPS of $0.63 (estimated $0.30) vs. $0.72 a year ago on revenue up 14.35% YoY to $3.39B (forecasted $3.31B). Net loss reached $41M vs. net income of $113M in 3Q17. The Co cut its FY guidance on global aluminum demand to a growth of 3.75% - 4.75% from the prior forecast of 4.25% - 5.25% and revised its FY estimate for global aluminum deficit lower towards 1M - 1.4M metric tons vs. prior view of 1.1M - 1.5M.
United Rentals (URI -15.06% WoW to $117.12) unveiled that 3Q adjusted EPS rose 45.8% YoY to $4.74 (estimated $4.57) and adjusted Ebitda increased 20.5% to $1.06B (estimated $1.02B) on revenue of $2.12B (estimated $2.02B), up 19.8%. Rental revenue rose 21.2% to $1.86B. The Co raised full-year adjusted ebitda guidance to $3.765-3.815B from $3.715-3.815B previously and total revenue view to $7.77-7.87B from $7.64-7.84B. Besides, the Co printed a new 52w low.
Textron (TXT -12.79% WoW to $56.75) posted 3Q adj. EPS from continuing operations of $0.61 (estimated $0.76) vs. $0.65 a year ago on revenue of $3.2B (forecasted $3.5B) compared to $3.5B in the prior year. Net income jumped 254% YoY to $563M. The Co sees FY adj. EPS from continuing operations in a range of $3.2 - $3.3 (expected $3.33).
Activision Blizzard (ATVI -10.49% WoW to $69.75) fell as sales for its much anticipated game, Call of Duty: Black Ops 4, sold 8.3M units worldwide ($500M) in its first three days of release, missing Jefferies' expectations of 10M copies sold, according to Bloomberg.
IBM (IBM -8.34% WoW to $129.1) announced 3Q operating adj. EPS of $3.42 (estimated $3.4) vs. $3.13 a year ago on revenue of $18.76B (forecasted $19.08B) from $19.15B in the previous year. Gross margin remained unchanged YoY at 46.9%, lower than expectations of 47.3%. The Co expects operating adj. EPS in FY2018 of at least $13.8. Besides, the Co printed a new 52w low.
United Continental (UAL +9.04% WoW to $87.43) reported 3Q adj. EPS rose 36% YoY to $3.06 (estimated $3.10) on operating revenue of $11B (estimated $10.97B), up 11.2%. Passenger load factor rose 1.6 percentage points on year to 86.0% while Passenger Revenue per Available Seat Mile (PRASM) jumped 5.8%. The Co raised full-year adjusted EPS view to $8.00-8.75 (estimated $8.21) from $7.25-8.75 previously and sees full-year capacity growth at 4.9%. In other news, the Co was raised to "buy" from "hold" at Deutsche Bank.
L-3 Communications (LLL +9.93% WoW to $215.23) announced its 3Q preliminary results with adj. EPS from continuing operations up 59% YoY to $2.85 (estimated $2.39) with sales up 10% YoY to $2.5B, in-line with forecasts. The Co raised its FY guidance of adj. EPS from continuing operations to a range of $10.2 - $10.3 (expected $10.01) from the previous forecast of $9.8 - $10. In other news, the Co and Harris Corp (HRS +9.08% WoW to $168.93) have agreed to an all stock merger to create the "6th largest defense company in the US and a top 10 defense company globally" which will be named L3 Harris Technologies. L3 shareholders will receive 1.3 shares of Harris stock for each share of L3 common stock. Shareholders in Harris will own 54% of the combined Co while L3 shareholders will own 46%. The deal is expected to close in mid-calendar year 2019. Finally, both companies broke above their 200-day moving average and reached their 52w high.
Procter & Gamble (PG +10.42% WoW to $87.3) announced 1Q core EPS of $1.12 (estimated $1.08) vs. $1.09 a year ago on net sales of $16.69B (forecasted $16.46B) compared to $16.65B in the prior year. Net income improved by 12.1% YoY to $3.2B. The Co maintained its FY19 guidance for organic sales growth to the range of 2-3% and for core EPS growth of 3-8% YoY.
PayPal (PYPL +7.28% WoW to $84.78) reported 3Q adj. EPS of $0.58 (estimated $0.54) vs. $0.46 last year on net revenue of $3.68B (forecasted $3.67B) compared to $3.24B in the prior year. Net income improved by 14.7% YoY to $436M while active accounts expanded by 15% YoY to 254M accounts. The Co boosted its FY guidance on adj. EPS to a range of $2.38 - $2.4 (expected $2.34) vs. prior view of $2.32 - $2.35 and raised the lower end of its FY forecast of net revenue to reach $15.42B - $15.5B (estimated $15.43B) compared to previous $15.3B - $15.5B.
Technical events on Friday:
50D MA cross over: American Express (AXP +3.78% to $106.73), Coca-Cola (KO +1.58% to $46.33), Exelon (EXC +2.44% to $44.13), General Electric (GE +1.45% to $12.56), Kraft Heinz (KHC +3.64% to $57.56), Procter & Gamble (PG +8.8% to $87.3), Southern Co (SO +1.74% to $45.07).
50D MA cross under: Medtronic (MDT -2.06% to $93.94).
Relative strength stock/S&P500 50D MA cross over: Mondelez International (MDLZ +1.85% to $41.8), PayPal (PYPL +9.42% to $84.78), UPS (UPS +1.53% to $116.49).
Relative strength stock/S&P500 50D MA cross under: NetFlix (NFLX -4.05% to $332.67), Target (TGT -1.61% to $82.02).
Here are some upcoming earnings releases to focus on:
On Tuesday, McDonald's is expected to report 3Q EPS of $2 vs. $1.76 a year ago on revenue of $5.3B from $5.8B in the previous year. An analyst at Keybanc has cut the Co's 3Q estimate of US comparable sales to +2.5% from +3%. Technically speaking, the RSI is above its neutrality area at 50 while the MACD is below its signal line and positive. The stock could retrace in the short term. Moreover, the stock is above its 20 and 50 day MA (respectively at 165.88 and 163.1). We expect to reach a higher target of $177.2 with a stop-loss of $161.8.
On same day, Caterpillar is likely to announce 3Q EPS of $2.85 vs. $1.95 last year on higher revenue of $13.3B compared to $11.4B in the prior year. The Board decided to maintain the quarterly cash dividend of $0.86 per share payable November 20th to shareholders of record at the close of October 22nd. From a chartist 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 148.3 and 144.35). Finally, Caterpillar is trading below its lower daily Bollinger band (standing at 133.45). Caterpillar is currently trading near its 52 week low at 129.4 reached on 19/10/17. We are looking for prices to go down towards $122.4 with a stop-loss of $141.3.
On Wednesday in the after-hours, Microsoft is awaited to unveil 1Q EPS of $0.961 vs. $0.843 a year ago on increased revenue reaching $27.9B vs. $24.5B a year earlier. According to the European Commission, the Co has won the unconditional EU approval to buy Github, the open-source software development platform. From a technical point of view, the stock broke below a rising trend line in place since July. We expect to reach lower levels towards $100.7 near the 200-day moving average with a stop-loss set at $112.85.
On Thursday, Celgene is anticipated to post 3Q EPS of $2.23 vs. $1.91 last year on revenue of $3.8B from $3.3B in the previous year. Looking at the chart, the RSI is below 50 while the MACD is negative and below its signal line. The configuration is negative. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 87 and 89.07). We expect the stock to trade lower towards $76.4 with a stop-loss of $87.4.