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Market Update 8/9- Earnings On Target - More 'Noise" & Now Add In The "Presidential Cycle Curse"

|Includes:AAP, CXO, LVS, Micron Technology Inc. (MU), NVDA, OAS, PXD, QCOM, V

Despite the overall market weakness, some good economic news was reported and simply shrugged off.

Factory orders rose 1.1% in June.

July Non manufacturing index didn't disappoint as it grew for the 54th consecutive month. This month's NMI is the highest reading for the index since its inception in January 2008.

However as mentioned last week the "concerns" (noise) are all still in the headlines and steering the market to the downside. The markets appeared to ignore the aforementioned economic data reports, both of which were stronger than anticipated (but which may be seen by some as leading the Fed to begin normalizing rates earlier). Leading some market participants to fear that the end of QE3 will spell the end of the bull market.

If that is the prediction of some, then we need an explanation as to why the S & P is within 4% of all time highs after the FED has withdrawn 65% of their monthly purchases. I'm not of the opinion that removing the remaining 35% will put an abrupt end to this bull market.

The pullback that many have been calling for is here. Can it become a full blown correction (10% or more )- no one knows. I like to take it one step at a time -- S & P 1890 - 1900 as first support then 1840-1850.. The market isn't that far away from that first support area as it got down to 1904 on an intraday basis during the week.

After five years into this bull move many folks still do not believe we can be in a bull market given all the current consternation, and some that will admit to that, now say we have seen the TOP . I will repeat what I have stated all along,

"The equity markets do not care about the absolutes of good or bad, but only if things are getting better or worse."

"Things" are getting better, and would note that while "easy money" is certainly no obstacle, if next year's earnings estimates are anywhere near the mark, earnings will have almost tripled since 2008. And the S & P has risen approximately 170%. So is the equity market really so way ahead of the fundamentals as the naysayers claim ?? ---- I think not.

Speaking of earnings, the picture continues to look good.

Per Thomson Reuters's, "This Week in Earnings" the forward 4-quarter EPS estimate fell $.07 this week to $127.00 even, from $127.07 the past two weeks.

The forward P.E. ratio as of Friday, August 1, 2014 is 15.2(x).

The PEG ratio this week fell to 1.58(x) from last week's 1.65(x)

Thanks to the decline in the SP 500 this week, the earnings yield on the SP 500 rose to 6.6%, versus last week's 6.42%.

Here is the very pleasant surprise: the year-over-year growth rate of forward earnings has started to accelerate: this past week's y/y growth rate was 9.58%. That is now residing in my the upper range of my initial forecasts for the year

So the economists I follow, seem to be on track with the forecasts I received earlier in the year calling for 7 - 10% earnings growth....The growth rate is now residing in the upper range of my initial forecasts for the year. Kudo's to my sources.

This should remove the "idea" of any earnings related "recession issue" in the near term. The market is simply self correcting over the "noise" out there and now should be very apparent that it is not earnings related.

This scenario now sets up nicely if you are bullish, similar to what has happened in the past. Market weakness, brought on by geopolitical issues, in this case Russia/Ukraine ( now Iraq - Again) , and it's not a reason to hit the 'sell" button. These events do get resolved and when they do, the market will then react to what really matters.

As a testament to that, just look at how the market reacted when the "headline" came out that the Russian troops had pulled back from the Ukraine border. The rally on Friday afternoon wiped out the entire weekly loss on all of the major averages.

Therefore, I continue to embrace my thoughts that we could easily see more knee jerk reactions and suggest "patience and selectivity" are the operative words here.

Let's not forget that stocks suffer pullbacks & corrections, and that it is a very healthy component of a long-term uptrend, giving investors a chance to trim underperforming positions and buy into companies at lower prices.

And now another headline risk that I believe will start to make the rounds shortly. An issue regarding the "Presidential Cycle Curse", which I first brought to investors attention in this blog, earlier this year.

Here is a very important data point that I gleaned from my research regarding the "Presidential cycle" and the markets.

Every mid-term year drop since 1998 has taken SPX negative for the year and under its 200 day MA. Coincidentally that would be right around my second support area of 1840-1850. So will this year be different ? Who Knows ?

Here's what I do know-after the year 2 presidential-cycle correction, (if it occurs) the S&P on average has experienced a 40% return over the subsequent 10 quarters. That dovetails nicely with my call that the markets will indeed be higher than they are today.

Keep this data point in mind, when the naysayers and media are filling our ears with, the BULL market is over.

I would like to take a minute to "RANT' on a topic that in my view is no longer worthy of the crazy headlines it receives.

Can we forget about the 'Jobs" picture already ??

209,000 jobs in July-with an upward revision of another 15,000 jobs in May and June-marking the sixth consecutive month of 200,000 or more jobs added to the economy for the first time in 17 years, with a six-month average gain of 244,000 jobs.

Th economy has gained back ALL of the jobs lost during the great recession of '08-'09. In addition, questioning the quality of the jobs created and weaving that into a negative, is more frustrated bear nonsense.

Ok, done ......

I continue to suggest looking at companies that are reporting good earnings but are selling off due to overall market weakness.

An example that I mentioned back on May 9th.

(NASDAQ:NVDA) sold off sharply because of tepid guidance after another stellar earnings report . Nvidia does NOT give upbeat guidance, ever, yet has beaten consensus earnings estimate for the last 8 quarters ! The shares hit 19.50 on April 24th, yields 2 %, is cash rich, and with all of that it dropped to a low of $17.70 this past Friday. I have owned the shares since early 2013 getting in at $14.78. My target is around $22-23, so there is plenty of runway left in this name after the drop.

This week (NVDA) reported another blowout earnings report and the stock was up some 8% on that news. Those paying attention and taking advantage of these pullbacks are now rewarded.

(NYSE:AAP), (NASDAQ:MU), are interesting at these levels. A stock like (NASDAQ:FFIV) has held up extremely well during the sell off and is actually higher than what it was before the market started to drift lower.

(NYSE:LVS) is getting hit from all sides (analysts and now Hedgeye chiming in with a "short" position) regarding the "Macau slowdown". Its temporary noise, offering investors a chance to add this name at 25% off its high.

The oil names were crushed, (NYSE:CXO), (NYSE:WLL) & (NYSE:PXD) as they have now all come down to attractive levels for investors to take a serious look at these opportunities. All of these names have an improving fundamental picture. I've added another oil stock to my watch list (NYSE:OAS). It has very attractive properties in the Bakken and it could very well be a potential takeover target. It's come down from it's high of $58 to its recent quote of $47.

A stock that I haven't mentioned in a while (NASDAQ:QCOM). A quality name in the mobile phone arena, that has come down from a high of $82 to $73. QCOM is a winner no matter if Apple or android controls the mobile space.

(NYSE:V) has improving fundamentals, yet is down 8% of its 2014 high and 12% off of its all time high.

These are but a few examples of stocks that in my view will be higher down the road when the market starts to pay attention to what really matters.

Best of Luck to all !!

Disclosure: None

Additional disclosure: I am long numerous equity positions - all of which can be seen here on my SA Instablog. It is my intention to present an introduction to this securities and state my intent and position. It should be used as a 'Starting Point' to conduct your own Due Diligence before making any investment decision.