Market Update

I have been going through watchlists all morning and keep popping back to NFLX's earnings, an absolute sham and wondering if Wall St. is actually going to buy this, I don't think so.

The issue at hand is pro-forma add-backs and write-offs which have been an increasingly large part of earnings, in fact JPM was actually better off on an earnings basis with the Billions of legal costs. I'm not an accountant and there's a hundred and one ways to make an earnings statement something other than what it actually is. I lament the days of simple guidance undershoots like AAPL use to do all of the time when Steve Jobs was around. AAPL would always guide on the very low side and then come with a blazing beat, it was what I called the "Scottie Effect". Remember Scottie from Star Trek who would always tell Captain Kirk that it would take 60 minutes to repair the warp drive when he knew he could do it in 30 minutes and come out like a rose? That was essentially what AAPL was doing and that was far easier to track than what companies are doing now, which incidentally, the last time they did it to this extreme was the Lehman era/financial crisis.

While I don't want to go off on a rant about something I'm not an expert on, the bottom line is these pro forma addbacks are not earnings in ANY sense, but rather accounting adjustments meant to boost the bottom line. The percent of Non-GAAP addbacks which has boosted S&P earnings to obscenely fake levels again, has not been higher since Lehman while actual SPX GAAP earnings have seen a significant decline for Q4 (the last complete earnings season), in fact they are at multi-year lows, while with the Non-GAAP addbacks, they are at new highs, it's a massive slight of hand and one NFLX pulled off or tried to on their earnings miss yesterday of EPS of $.38 vs. consensus of $.63 with the highest quarterly cash burn rate ever at $126 million just for Q1.

NFLX found their add-back and it was the impact of FX to its bottom line!

From the earnings, 

"Our strong performance led to overall operating income that exceeded our projections ($97m actual versus $79m forecast). Net income was negatively affected by currency-related transaction losses included in other expense; excluding these forex losses, Q1 EPS would have been $0.77 vs. our $0.60 forecast and our actual EPS of $0.38."

At $33.7 million was nearly 150% greater than the actual earnings, resulting in a non-GAAP EPS of $0.77.

FX impact! REALLY?

In any case, the charts will tell the story, but you really have to look in to these Addbacks to earnings if you really want to understand the amount of total and utter deceit these companies are using to boost their bottom line in a most devious way.

As for the market, I was looking at UNG which saw some volatility on the release of Natural Gas Inventories this morning, I'll try to get to that. There was a build of  63bcf with a prior of 15bcf. However in looking at them I noticed something I had seen near term in oil, and started looking at the energy sector and saw the same trend, I believe XLE is going to come down and as a result, as I had warned about a swing move several weeks back, a lift in USO/Energy would mean a lift in the market, such as we saw yesterday with the Energy sector leading.

Here's the correlation near term...

 The SPY in green and the Energy sector in red (XLE). Note the close correlation.

On a longer term view of 60 min, you can see the obvious impact of the energy sector to market swings...

 SPY green vs XLE red on a 60 min chart.

So far all good, easy to see the correlation, the problem for the broad market comes when you look at the daily chart.

SPY in green/XLE in red, there's a fair amount of catching down to do and this is just but one reason internals look so bad vs the market in some cases with nearly 50% of the market of stocks already in a bear market.

I'll try to get a more meaningful Energy post out. In the meantime as I have been going through watchlists and the market as a whole, it's been a bit strange, maybe dull as far as signals this morning.

I did notice HYG rolled over, this is an important move for Leading Indicators as it relates to our market analysis for the move since the April 2nd forecast and one that HYG's 3C charts have been forecasting.

Things are starting to pick up a bit more now, but have been rather dull all morning. Since yesterday's NYSE TICK posted a channel buster which is a "seemingly" very bullish move, note "seemingly"...

Whether intraday or a daily chart, whether applied to TICK or the SPX or AAPL, the channel buster concept is the same and one of our fractal concepts you can put in your tool box and use just about anywhere. The TICK as predicted after the channel buster, broke below the lower end of the channel (this is current as of this capture).


As for the averages, you can probably see why I haven't posted much, there hasn't been much to post as evidenced by the price action alone which is in line with the tighter range of a reversal process which was forecasted really last week, but in a more specific (example) way early this week..

 SPY 1 min slightly leading, but nothing even worth posting.


As was the case as of a couple of days ago, it's still the case that anything after the 1 min charts for the most part with a couple of exceptions, looks similar to this, very bad, very leading negative, implying what the outcome is going to be, but in such a low position it's difficult to use for intraday forecasts. SPY 2 min chart...

 The QQQ 1 min has been just as boring all morning, right in line with price action which is in line with the kind of lower volatility, tighter range price action I warned we'd likely see in a reversal process.

 IWM 1 min intraday has the same boring, non-descript look.

I don't think there's anything wrong with the indicators as they have not shown any strong signals intraday and the market has not made an interesting moves intraday, I believe it's just what we were to expect from a reversal process.

However the 15 min SPY chart I suspected may have broken and finally went negative with all of the other major averages, has.

 Here's a look at it within the trend and why it's in line signal was so important and why its divergence is so important, it is 1 of the 3 major indications I have been looking for to develop and it has.

As for that reversal process, if you remember the examples I drew out earlier this week in on Tuesday,IMPORTANT Market Update then the chart below shouldn't look very surprising as it was what was forecast Tuesday (actually last week for the "Week Ahead").

 The Hammer support of Tuesday's close, the Shooting star long upper wick of yesterday's close, both pointing toward the next day price action, but more than that, forming the tighter, lateral range.

Take another look...

The same SPY daily chart.

Please check the post linked above with examples, don't forget the head fake possibility or even probability in the reversal process, as of yesterday's SPX close...

EXACTLY at the MArch trendline. In the examples it was the reversal processes' range if it became too obvious that might create a head fake move, the kind of move that would be useful for puts in the broad market and likely most of the stocks on the watchlist,  however there's a clear new trendline, the March SPX trendline that is even more noticeable now, this is the one I'd watch for a head fake and that is the best price-based timing signal we have, please see the examples linked here, IMPORTANT Market Update from Tuesday on the subject as well as the "Understanding the head fake move" articles linked at the top right of the members' site always.

Although it has been dull, THIS IS THE KIND OF MARKET I ALWAYS WARN ABOUT. You may recall, "It's like the kids in the room next door being a little too quiet, YOU KNOW THEY ARE UP TO SOMETHING". Don't get complacent in the dullness.