Not Quite the Record I Expected

by JDH on April 25, 2015

Interesting week.  As we approach Monday, the day that is over 55 days since the DOW last made a new high, it is worth repeating the question I have asked every week since: is the top behind us?  The theory is that the market never crashes from the top.  It eases downward, then collapses.

Nasdaq-April-24-2015

While the DOW and S&P 500 are not at all time highs, the Nasdaq is, and that’s remarkable, because the previous high was at the tail end of the dot-com bubble bursting in the year 2000.  15 years later and we have finally recovered.  Or, stated another way, if you had bought the Nasdaq at the top, you have had 15 wasted years to get back to even.

That’s the problem with market crashes.  It takes a long time to recover, and that’s why I’m keeping a close eye on current market action.  I would prefer not to be holding securities at the top.

A Record for the Dow

As reported by Dana Lyons, the Dow has had an interesting streak:

It has now been 30 days since the index has made either a 1-month high OR a 1-month low. This is just the 8th such streak in the last 100 years.

The DJIA actually once went 55 years (1943-1998) without one of these streaks. Here are the dates of the 8 historical streaks along with the number of days the streak would eventually reach.

  • 1/9/1919 (36 days)
  • 1/29/1931 (36)
  • 2/5/1942 (31)
  • 9/14/1943 (32)
  • 10/13/1998 (31)
  • 3/5/2008 (30)
  • 9/21/2011 (30)

As you can see, most of the streaks ended within a few days. Only two of them (none since 1931) lasted more than 32. So if this current streak lasts beyond Monday, it would truly be historic.

So what does this mean?  Probably nothing.  The range will end when the range ends, and we will either burst up, or down.

Of perhaps greater interest this week is Apple.  I own the stock (but not the new watch; I couldn’t care less).  As reported by Factset Insight:

Apple is scheduled to report earnings for the first quarter on April 27. The current mean EPS estimate for Q1 2014 is $2.15, compared to year-ago actual EPS of $1.66.

Apple is currently expected to be the largest positive contributor to year-over-earnings growth for the Information Technology sector for Q1 2015 and the second largest positive contributor (after Bank of America) to year-over-year earnings for the entire S&P 500. The blended (combines actual results for companies that have reported and estimated results for companies yet to report) for the Information Technology sector is 0.7%. Excluding Apple, the blended earnings growth rate for the sector would fall to -5.1%. The blended earnings decline for the entire S&P 500 is -2.8%. Excluding Apple, the blended earnings decline for the S&P 500 would increase to -3.9%.

Interesting.  For the sector, earnings growth will be around 0.7%, but if you take Apple out we’re negative by 5.1%.  The entire S&P 500 is negative regardless of whether or not Apple is in or out.

So how can the market push ahead to new highs when earnings are declining?

Could a big earnings “miss” by Apple on Monday be the start of the crash?

If Apple beats estimates, does the stock market power to new highs?

Ask me next week.  Until then, thanks for reading.