Radar’s Process

Charts, Commentary, News, Stocks, Technical Analysis

“IAM” is the online name of one of our professional trader friends who writes a respected private newsletter to be shared with just a few friends and colleagues. He lets us share the newsletter with you, our readers. We offer it to you largely unedited, so you can see how professionals think and what they talk about. All views belong to the writer.

Radar is going to reflect on this week and in the market from last week’s observations. Look at the charts and remarks from last week’s Radar:

https://www.screencast.com/t/dXVr3rFv

Look at the high volume from last week 2443.75 and the arrow that points specifically to that level. This week it is exact. 2443.75 the prior week VPOC.

Look at the monthly chart next:

Look at the comment and observations from the chart.

You can see the repair that was observed.

Next, look at the observations for Event news that was remarked about on Saturday a day before the article was mentioning North Korea.

“What are the instruments in the orchestra?

“Event News…something like North Korea pops up.
Calendar and economic releases… GDP 3%. etc.
Actual data and earnings…described above.
Value Area Definition…actual market definition and development.
Cycle behavior…basically, earnings and value progression.”

Note the first mention of event risk.

“Something like North Korea pops up.” In January 2016 you may remember the Ebola concerns. Each event carries its’ own concerns, but the threat to earnings is key IRHO. The Fed also had just raised interest rates. The first quarter of a percent.

What happened the day after the article was written? North Korea detonated a hydrogen bomb. It was just a test. The market opened Sunday in Globex and Monday/Tuesday with a test of the 2443.75 level. This is the VPOC from the prior week. The unknown event risk Radar mentioned, cannot take credit for, because, while it was on Radar’s Radar, there was nothing to say it would occur. But, it did and so did the test of the prior week VPOC held.

How could the market structure indicate almost to the tick the test level of 2443.75? It is critical to note that the structure and test levels are indicated each and every week in Radar. It appears remarkable! Not only are the test levels indicated, but the reasons for the level are mentioned in anticipation of some event/earnings occurring. Radar spends much time to express the things it is concerned about. It cannot read the future. It can only observe the items that it sees. AMAZING! 2443.75.

This next week, let’s focus on earnings! Keep in your mind, Hurricane Irma and Saturday, North Korea Independence Day.

The next chart Radar will observe is a merged weekly time and volume profile chart.

At and above 2471’s the market is trying to extend value, discount earnings that indicate beats and equalize the prior highs at 2488.85. If earnings beats occur then 2500 and 2510 look doable. Below 2445.75, the market will look for visibility of earnings and disappoints. If fuzzy then probes lower to discount the best estimates and revisions lower. Remember there is always Event Risk. The economy is doing fine. Goldilocks…just right.

Radar suspects 2445’s will hold. Continue to buy the dips.

Radar is meant to take about five minutes to read and maintain each week. It tries to mention and digest each new worry and evaluation every week. Please take advantage of the insights that are mentioned each week. You are free to email me for observations anytime. meee646@gmail.com

I would like to mention the Fed’s Primary Discount Rate again. One year and nine months ago it stood at .75%. We have had four quarter percent increases. It is 1.75% today. Inflation and the economy are slowing indicating better for Q3 and 12 months out. FactSet indicates up 11% to 2704 all things being equal and still up from last forecast. Remember $33.84 and $33.16. Initial Q3 earnings estimates on July 1 and most recent. They will tell a great story as we continue to follow them. 2.25% Primary Discount Rate puts Radar on High Alert!

https://www.frbdiscountwindow.org/en/Pages/Discount-Rates/Current-Discount-Rates.aspx

Also, the Fed’s Balance Sheet is in the process of selling bonds. Radar has been writing about this for about 10 weeks. It would take about three years and $63 billion a month (approx) to hit the Fed’s goal. $2.7 Trillion, thereabouts.

Fed Balance Sheet

Released On 9/7/2017 4:30:00 PM For wk9/6, 2017

Prior
Actual
Level
$-11.5 T
$1.1 T
Total Assets – Weekly Change
$4.452 B
$4.453 B
Reserve Bank credit – Weekly Change
$-11.1 B
$-0.8 B

The Balance Sheet assets were $4.7 Trillion about three weeks ago. Tightening is beginning.

This next chart is good stuff:

Lastly, a trip to test support at 2455.75, perhaps 2444.50; then a lift? I suspect it will be determined by earnings for the market to equalize 2488.50 Sept. contract high and attempt to 2500’s? If something stupid happens in North Korea or Hurricane damage is extreme then event risk. If earnings are poor and event risk, probes lower.

I have written this article myself and it expresses my opinions. I am not receiving any compensation or gratuities for it. None! Radar follows news sources it believes are highly reliable.

Radar offers a free observation and progression of things that show up. It cannot be all inclusive! The observations are done through a brief article that takes about five minutes to read each week. It offers ideas and actions that prudent people may want to consider. Radar reads many articles and keeps a calendar to look forward. People make trades. Radar observes Value and Earnings from those trades. Analysts create the consensus view.

Radar is always accessible for your input, questions, critiques, desires and general questions.
meee646@gmail.com

Radar uses open source input for its’ interpretations and observations. Look to your advisors to keep your finances in balance, adjust asset allocations and plan ahead, when prices are full, plan for taxes and major outlays.

Open Source Notes:

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_090817.pdf

http://www.wsj.com/mdc/public/page/2_3021-peyield.html

“Index-Level (Bottom-Up) EPS Estimate: Below Average Decline to Date Downward revisions to earnings estimates in aggregate for the third quarter to date have been below recent averages. The Q3 bottom-up EPS estimate (which is an aggregation of the earnings estimates for all 500 companies in the index and can be used as a proxy for the earnings for the index) has fallen by 2.0% (to $33.16 from $33.84) since June 30. This decline in the EPS estimate for Q3 2017 is below the trailing 1-year (-2.5%) average, the trailing 5-year (-3.5%), and the trailing 10- year average (-4.3%) for the bottom-up EPS estimate for the first two months of a quarter.” FactSet. Radar provided the underlining.

“Earnings Guidance: Fewer Companies Issuing Negative EPS Guidance for Q3 than Average The term “guidance” (or “preannouncement”) is defined as a projection or estimate for EPS provided by a company in advance of the company reporting actual results. Guidance is classified as negative if the estimate (or mid-point of a range estimates) provided by a company is lower than the mean EPS estimate the day before the guidance was issued. Guidance is classified as positive if the estimate (or mid-point of a range of estimates) provided by the company is higher than the mean EPS estimate the day before the guidance was issued. At this point in time, 116 companies in the index have issued EPS guidance for Q3 2017. Of these 116 companies, 73 have issued negative EPS guidance and 43 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 63% (73 out of 116), which is below the 5-year average of 75%. In the Health Care sector, more companies have issued positive EPS guidance (11) than negative EPS guidance (9) to date for the third quarter.” FactSet.

Radar has witnessed rapid declines in this overall view. The month of January 2016 comes to mind. Remember Ebola? The first Fed Rate Hike? To be at its’ best, daily forecasting of guidance is desired. For instance, if downgrades occur rapidly and after 10 days or so of better earnings visibility, then a correction would ensue. The amount of correction is directly correlated to the new guidance and revaluation occurs.

“Looking Ahead: Forward Estimates and Valuation Growth Expected to Rebound to Double-Digit Levels after Q3 For the third quarter, companies are expected to report earnings growth of 4.9% and revenue growth of 5.1%. Analysts currently expect earnings to rebound to double-digit levels over the next few quarters. For Q4 2017, analysts are projecting earnings growth of 11.4% and revenue growth of 5.6%. For Q1 2018, analysts are projecting earnings growth of 10.4% and revenue growth of 6.1%. For Q2 2018, analysts are projecting earnings growth of 10.2% and revenue growth of 5.9%. For all of 2017, analysts are projecting earnings growth of 9.7% and revenue growth of 5.6%.” FactSet.

Up and better for 12 months out. Still reflect higher prices based on earnings for the index.

“The Q3 bottom-up EPS estimate (which is an aggregation of the earnings estimates for all 500 companies in the index and can be used as a proxy for the earnings for the index) has fallen by 2.0% (to $33.16 from $33.84) since June 30.” FactSet.

And

11.4% Q1 and 10.2% all of 2017. $33.84 and 33.16. Radar needs to stay focused on these!! Also Q1 2018 10.4% and Q2 10.2%


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