The U.S. market remains in an Uptrend Under Pressure. The S&P 500 and Nasdaq held 50- and 21-DMA support respectively this week. The Nasdaq moved back into all-time highs, but on Friday reversed to close at the lows of the session and below last week’s intraday high. The S&P 500 remains the lagging index and still needs to convincingly clear above resistance between 3,155 and 3,233. With that said, the 50- and 200-DMA have converged just above 3000, which should offer a strong level of support on any pullback. Distribution went unchanged this week, holding at six and three days respectively, with one day expiring on each next week.
Symbol: LMT
US Focus
The U.S. market shifted back to Uptrend Under Pressure. Though we did have to briefly move back to Confirmed Uptrend intraweek as the Nasdaq made a new high, our overall recommendation never changed given severe sector divergence. After briefly making a new high on Tuesday, the Nasdaq quickly retraced that move to close below its 21-DMA for the first time since April. The S&P 500, which never fully resolved the June 11 sell-off, closed back below its 200-DMA on Friday. Both indices added a distribution day, taking the count up to six and three days, respectively, with no expiration next week. We will now be looking for both indices to
US Focus
The U.S. market remains in an Uptrend Under Pressure. The S&P 500 and Nasdaq held support this week, rallying off their respective 50- and 21-DMA, respectively. Both, however, are still trading within the range of last Thursday’s severe decline and have yet to convincingly take out that level. Distribution held steady until Friday’s triple witching tacked on a fifth day for the S&P 500. The overall count now stands at five and two days, respectively, with one day expiring on the S&P 500 next week.
US Focus
The U.S. market has been moved to an Uptrend Under Pressure. The S&P 500 and Nasdaq gapped down on Thursday, closing at the lows of the day and down more than 5% each in heavy volume. The S&P 500 distribution day count increased to five days in the last five weeks, with three in six sessions. The Nasdaq count remains relatively low at three days. The S&P 500 is testing support at ~3,000, while the Nasdaq is trading at its 21-DMA. The next logical level of support should these levels break is the sharply rising 50-DMA (S&P 500: 2,903; Nasdaq: 8,921).
Won Global View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq gapped higher on Friday, closing up 4.9% and 3.4%, respectively, last week. The S&P 500 now faces resistance at ~3,214, while the Nasdaq is testing new highs at 9,838. Distribution remains a non-factor at three days and two days, respectively.
Global Laggards
U.S.
Arch Coal (
)—Energy ($1.6B market cap) – Coal producer with operations in West Virginia, Virginia, Kentucky, and Wyoming generates two-thirds of revenues from the U.S. and one-third from overseas, mostly in Europe/Asia.
- After emerging from bankruptcy in Q3 2016 with a big reduction in debt and operations that were once again profitable, the Company reported five quarters of solid growth.
- From Q4 2016 to Q4 2017, it averaged 16% sales growth and 40% EPS growth. It also beat consensus EPS estimates by double digits in four of the five quarters.
- Q1 2018 EPS missed the consensus by 33% as sales declined 4% and missed the consensus by high-single digits. It was hit with a trifecta of lower volumes, lower realized prices, and higher cash costs in the quarter.
- The Company also lowered full-year 2018 guidance for coking and thermal coal volumes and raised cash cost guidance by high-single digits.
- Consensus now expects sales and EPS to decline an average of 4% and 13%, respectively, for the next eight quarters. Full-year 2018 consensus EPS estimates have come down 25% since the Q1 miss.
- Despite pledges by the Trump administration to keep the coal industry alive, competition from natural gas in the U.S. and the combination of natural gas and other renewables in overseas markets will likely continue to erode industry revenues.
- U.S. natural gas production is at an all-time high and supply is expected to continue growing along with domestic demand for the next two decades.
- Coal production increased in 2017 for first time in three years, but remains 35% below a 2008 peak. However, demand did not increase and is expected to fall by single digits annually going forward. Supply is expected to fall this year but flatline thereafter, which could put more pressure on prices.
- Shares fell 15% on volume that was 700% above average after the Q1 earnings miss, breaking through the 200-DMA. Volume to the upside has since been weak, and shares are hitting resistance at the 21-DMA. This is a new short opportunity.
- Despite the cheap valuation (7x trailing Q4 EPS), declining earnings for the next few years could create a value trap.
