Market Preview: Earnings from DowDuPont, Kraft, and the Trade Deficit

August may have arrived with the Fed, but investors can’t leave for the month just yet. As expected, the Fed left rates unchanged Wednesday afternoon, but the first paragraph of the Open Market Committee statement used some form of the word “strong” four separate times. The consensus is that Chairman Powell wants to leave no room for ambiguity: The Fed will raise rates again in September at its next meeting.

More earnings are on tap for Thursday as investors parse earnings from CBS (CBS) and DowDuPont (DWDP). CBS will draw more attention than usual with the recent sexual misconduct allegations against CEO Les Moonves. Mr. Moonves is expected to take questions from analysts on the company’s conference call. Analysts will be watching DowDuPont to see if revenue can keep pace with earnings at the chemical maker. Recent reports indicate that cost cutting is more responsible for earnings than increasing revenue. Investors would like to see revenue growth more in line with the industry average.

As for economic numbers, the market will parse the Jobless Claims report on Thursday morning. There will likely be a great deal of conversation about how “strong” the numbers are after the Fed Statement. Factory Orders will also be released at 10am. Friday attention will turn back to trade as the U.S. Trade Deficit numbers are released. The deficit will widen, as goods numbers, already released, showed the deficit growing. The question will be how wide the deficit is when services are added.

Friday will also see earnings from Kraft Heinz (KHC) and Dish Networks (DISH). Sales at Kraft Heinz fell over 3% in the U.S. last quarter. Analysts are looking for another decline this quarter, so any positive news could move the stock up. Dish investors will be looking for any news on progress toward building a 5G wireless network. The company has billions of dollars in spectrum it purchased several years ago from bankrupt sellers. The spectrum will be taken from the company by the FCC in a little over a year-and-a-half from now if the company does not show it is being used.

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This Is Telling Me the Market May Take a Break

Last month, I showed you how lots of stocks had been participating in upside moves, not just the FANGMA – Facebook Inc. (Nasdaq: FB), Apple Inc. (Nasdaq AAPL), Netflix Inc. (Nasdaq: NFLX), Google/Alphabet Inc. (Nasdaq: GOOGL), Microsoft Corp. (Nasdaq: MSFT), and Inc. (Nasdaq: AMZN) – heavyweights.

Now, I’ve likened breadth, which I’ll tell you a little more about, to my “canary in the coal mine.” And by far my favorite way to see whether the canary starts to feel queasy is by watching the cumulative advance/decline line.

As a quick reminder, this indicator starts with a daily breadth number. Breadth is the number of stocks on the New York Stock Exchange that closed higher than yesterday minus the number that closed lower. That’s where the term advance/decline comes from.

When we add up that breadth number day after day, we “accumulate” the daily breadth numbers, giving us a cumulative advance/decline (A/D) line.

Most of the time, when the market goes up or down, the cumulative A/D line moves in lockstep.

Conceptually, the reason why this is an important metric is very straightforward as well. If only a few stocks are pulling the market up, then it only takes one of those stocks to fall hard to send the market spiraling.

So far, the market’s resisted doing that. But I’m seeing things that suggest we may be in for, if not a huge move down, then some decidedly more up-and-down action before long.

Have a look at these charts…

When the Line Starts to Split, Watch Out

I’ve shown charts in the past of how well the cumulative A/D pointed out major turns in the market:

Market Split Graph

It’s interesting that we saw a cumulative A/D line divergence in late 2015 before the big August correction in that year. I call it interesting because that was a “micro” case of the other big turns on the chart above, but it’s very illustrative.

That was a time when global financial markets, especially China, were struggling. China was down over 30% from its peak in just a matter of three to four months. And yet the U.S. markets continued to climb, fueled by the great run of the FANG (Facebook, Amazon, Netflix, and Google/Alphabet) stocks.

A look at the market breadth at the time shows that (unlike nowadays) those few stocks weren’t just leading the market – they made up almost all of the gains that summer.

The reckoning came in August when the S&P 500 dropped more than 15% in just five trading days. There was plenty of money to be made on big, bearish extremes.

Today’s FANG and Breadth Story

I’ve heard similar concerns recently – that the FANGMA stocks are all that are holding this market up. I’ve previously addressed these worries, but it’s worth a quick glance back before looking at what could be coming around the corner.

The short answer is that those six big tech stocks are leading the market. However, unlike August of 2015, lots of other stocks are following. So, breadth (number of stocks participating on the upside) is consistent with market returns and not as unbalanced as many have reported.

Let’s see how that plays out in our current cumulative A/D chart:

FANG and Breadth Graph

We see that breadth helped us form an expectation of more upside after the late March to early April retest of the February lows. And during this last push up into the last half of July, there is still broad market participation, even with Big Tech still leading the way.

I believe that right now there are more “yellow flags” signaling caution in the market than we’ve seen in many years. But the prudent course is to follow the trend and keep buying the pullbacks until breadth and other indicators tell us that the party is over.

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8 Stocks to Sell Immediately

stocks to sell

Source: Shutterstock

Stocks are rolling over badly on Wednesday, reversing early session strength, as investors are spooked by headlines President Trump may increase the import tariffs on Chinese goods further as well as a hawkish statement from the Federal Reserve. Policymakers upgraded their assessment of the economy to “strong”, which raised fears of an accelerated rate hike pace.

From a gain of roughly 80 points, the Dow Jones Industrial Average is down 120 points as I write this. Narrowing breadth has been a problem for weeks, with the recent push to new highs by the Nasdaq Composite coming solely on the back of the mega-cap technology stocks.

A number of stocks are rolling over strongly now. Here are eight stocks to sell right now:

Stocks to Sell: MGM Resorts (MGM)

MGM Resorts (NYSE:MGM) shares are plummeting out of a multi-week trading range above their 50-day moving average, returning to lows seen in early July. The stock is falling in sympathy with losses for Caesars Entertainment (NASDAQ:CZR) after management issued a cautious outlook on its conference call. More downside looks likely now, with a break of support at $28 likely giving way to a fall back to early 2017 lows.

The company will next report results on Aug. 2, before the bell. Analysts are looking for earnings of 26-cents-per-share on revenues of $2.9 billion. When the company last reported on April 26, earnings of 29-cents-per-share missed estimates by a penny on a 3.8% rise in revenues.

Stocks to Sell: American States Water (AWR)

Stocks to Sell: American States Water (AWR)

American States Water (NYSE:AWR) shares are falling out of a multi-month uptrend pattern, closing in on their 50-day moving average, which was tested multiple times over the spring. Adding to the downside pressure, and impetus to sell, is a recent downgrade by Atwater Thornton analysts on valuation concerns.

The company will next report results on Aug. 6, after the close. Analysts are looking for earnings of 48-cents-per-share on revenues of $116 million. When the company last reported on May 7, earnings of 29-cents-per-share missed estimates by 6 cents on a 4.1% decline in revenues.

Stocks to Sell: Concho Resources (CXO)

Stocks to Sell: Concho Resources (CXO)

Concho Resources (NYSE:CXO) shares have broken down below their 200-day moving average, succumbing to downside pressure following a “death cross” of the 50-day moving average below the 200-day moving average back in late June. The downside acceleration comes despite an upgrade from Goldman analysts back on July 18.

The company will next report results on Aug. 1, after the close. Analysts are looking for earnings of 92-cents-per-share on revenues of $906.8 million. When the company last reported on May 1, earnings of $1-per-share beat estimates by 23 cents on a 54.7% rise in revenues.

Stocks to Sell: Wynn Resorts (WYNN)

Stocks to Sell: Wynn Resorts (WYNN)

Like MGM, Wynn Resorts (NASDAQ:WYNN) shares are being punished by the negative impact of negative guidance by competitor CZR. Shares have dropped out of a multi-week consolidation range that capped a 20% decline from the double-top high near $200. If support near $155 doesn’t hold, shares could fall a long way back to early 2017 levels near $85, which would be worth a decline of roughly 50% from here.

The company will next report results on Aug. 1, after the close. Analysts are looking for earnings of $2.03-per-share on revenues of $1.7 billion. When the company last reported on April 24, earnings of $2.30 beat estimates by 28 cents on a 20.5% rise in revenues.

Stocks to Sell: PepsiCo (PEP)

Stocks to Sell: Pepsico (PEP)

PepsiCo (NASDAQ:PEP) shares are testing their 20-day moving average, threatening to break the post-May uptrend that saw shares gain some 20% from their lows. The company reported solid results in early July, helped by the ongoing success of the sparkling water/no-calorie category. But lots of overhead resistance is in play now going back to May 2017. Profit taking should result in a 50% retracement, returning shares to the $106 level.

The company will next report results on Oct. 4, before the bell. Analysts are looking for earnings of $1.58-per-share on revenues of $16.4 billion. When the company last reported on July 10, earnings of $1.61-per-share beat estimates by 8 cents on a 2.4% rise in revenues.

Stocks to Sell: Oshkosh (OSK)

Stocks to Sell: Oshkosh (OSK)

Oshkosh (NYSE:OSK) shares are reversing sharply lower, breaking out of a three-month uptrend pattern and setting up a test of the late June low near $67.50. If that doesn’t hold, watch for a return to the lows seen in late 2016 and early 2017 near $65, which would be worth a loss of more than 8% from current levels as the tailwinds from a surge of military truck orders fades and profits are taken off the table.

The company will next report results on Oct. 30, before the bell. When the company last reported on July 31, earnings of $2.20-per-share beat estimates by 17 cents on a 6.8% rise in revenues.

Stocks to Sell: Dominion Energy (D)

Stocks to Sell: Dominion Energy (D)

Dominion Energy (NYSE:D) shares are lurching lower following earnings on Wednesday, breaking below their 20-day moving average and ending a very tight three-month uptrend pattern. This represents a failed breakout attempt above its 200-day moving average, which maintains the downtrend that has been in place all year.

The company reported results this morning before the bell. Earnings of 86-cents-per-share beat estimates by 7 cents on a 9.8% rise in revenues. Previously, the company reported results on April 27 when earnings of 86-cents-per-share beat estimates by 7 cents on a 9.8% rise in revenues.

Stocks to Sell: HanesBrands (HBI)

Stocks to Sell: HanesBrands (HBI)

HanesBrands (NYSE:HBI) shares are being slammed. Currently down nearly 19%, shares are returning to levels last seen in early June, after HBI reported disappointing quarterly results. Investors were spooked by word Target (NYSE:TGT) will not renew their contract for an exclusive line of C9 by Champion activewear apparel when the contract expires at the end of January 2020.

The company reported results this morning, with earnings of 45-cents-per-share missing estimates by a penny on a 4.2% rise in revenues. When the company last reported on May 1, earnings of 26-cents-per-share beat by 2 cents on a 6.6% rise in revenues.

Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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