ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Market Conditions and Recommendations 2015 03 29

Updated on April 28, 2015

Market Indexes

The S&P (2,061.02) and the DOW (17,713) both closed higher FRI, but down for the week. The S&P failed to clear a new high in the latest wave, and is nearing the latest low (2,040). Breaking below that would confirm the start of a down trend. S&P has had 3 straight closes below it’s 50 day moving average, a confirming indicator for a down trend. However, volume for every day during the week was below the 50 day mov avg for volume. So, there s still not a lot of conviction in this market.

The DOW did close below the previous low, and has 3 straight closes below it’s 50 day moving average. These are signals that the DOW is in a confirmed down trend.

Ratio of PUT premiums to CALL premiums (1.06 now vs. 0.84 last week) indicate option traders are pricing in more risk to the downside (ie. expect prices to fall).

P/E Ratio for the DOW is at 15.5.

Price-to-Book Value of DOW is at 4.96.

While the P/E ratio does not look overvalued to me from a long-term perspective, the combination of both of these reaching new 12 month highs indicates some overvaluation. Key would be whether earnings can continue to support these valuations. Any indication of a slowdown in earnings will have an outsized negative impact on the market.

Economic News and Commodity Prices

Oil is at $48.35, but was trading above $50 WED, THUR and FRI, before dropping 5% on FRI. Oil had been stabilizing around $50, but strengthening dollar (on news of interest rate rise) has lowered prices. We have seen increased volatility in oil prices, and global tensions could provide some support for oil prices.

Durable goods orders that were reported WED led to a drop in the markets. Durable Goods Orders (FEB) showed a decrease of 1.4% vs. expected increase of 0.4%.

Final GDP numbers for the 4th Qtr were reported FRI. Final 2.2% annualized growth vs. 2.4% expected. The markets did not react much to this news. The 2.2% was the same as the reported number 1 month ago, but some economists were expecting some revision upward.

Market Summary

Signs are pointing towards a correction. Slowing GDP growth (Durable Goods Orders, strengthening dollar, geopolitical tensions, etc…) could begin taking a toll on earnings. The technical are also starting to point to a down turn in the markets. However, volume remains light – which shows that there is little conviction in the market. This could lead to fickle markets (ones that react to news and bounce around – increased volatility).

P/E Valuations don’t look too overvalued in light of earnings. However, any macroeconomic changes that could impact earnings could derail this uptrend and put tremendous downward pressure on the markets.

The shift in the Put premium vs. Call premium (1.06 vs 0.84 last week) shows that traders have begun to see more downside risk than upside potential. While a 1.0 is equal risk for either direction, and 1.06 is not too far off that mark, the shift from a positive basis (0.84) shows that sentiment is turning.

There will be more of a shift in the coming months out of stocks that will be most affected by interest rates. Another area to look at for downside risk is oil drillers. Oil drillers are required to report the value of their oil reserves each quarter. The value is based on a weighted average of oil prices for the period. For this past reporting quarter, the avg price for oil used to valuate reserves was around $93/barrel. Oil has traded well below that for all of this quarter, so there will be a lot of negative valuations being reported in the upcoming earnings season.

There is a definite short-term BEARISH bias here, and would look to take advantage of that. However, because of the lack of conviction (low volume), the markets could change quickly.

Technical Analysis

MSFT Stock Price $40.97 Trading below 20 and 50 day moving averages, A/D Calculation is negative and growing more negative, 5 day money flow index went negative.

XOM Stock Price $83.58 Trading below 20 and 50 day moving averages, 9 Day RSI went below 50 and is about to cross below 14 day RSI, A/D Calculation is negative, 5 day money flow index went negative.

FB Stock Price $83.30 Trading above 20 and 50 day moving averages, 9 and 14 day RSI both above 50, both increasing and 9 day is above 14 day.

BA Stock Price $148.85 Testing it’s 50 day moving average, 9 day and 14 day RSI are below 50 and 9 day is below 14 day (Crossed 3/26).

Option Recommendations - 2015 03 29 (Goal is for 50% increase)

BA PUT MAY $150 – Current Option Price $5.90

MSFT PUT MAY $41 – Current Option Price $1.33

XOM PUT MAY $85 – Current Option Price $3.41

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)