The Bullish Stock Market Has Corrupt Fundamentals

All three stock market indexes gained this week but in a paltry way. The Dow could not get out of its own way on Thursday and Friday after good gains early in the week. The S&P moved up on Wednesday, but down on Thursday and Friday to take away most of Wednesday’s gains. The S&P is at the very top of its bullish trend channel that began in late June.

Here are the fundamentals (earnings and sales flow) for the Automobile Sector that has gained an unbelievable 7.3% in January in relative strength.

Symbol  Last Qtr EPS growth  Last Qtr’s Sales %
F -48% -4%
TSLA 153% 145%
GT 18% -8%
DLPH 17% 13%
TTM 149% 5%
DAN 20% -6%
GNTX 3% 4%
HMC 64% 7%
OSK 37% -6%
CYD 2700% -8%
LDL 46% 19%

The average of last quarter’s earnings, if we throw out CYD’s 2700, is 45.9%. If we throw out the 145% for TSLA in the sales growth figures, the average is only 1.6% for the rest. The automobile industry is facing a cyclical problem as most of their sales are leases. The tidal wave of leases sold three and more years ago are now being turned in. These cars will add to the already huge bloat of used cars. As used car prices continue to deteriorate it will pressure new car prices down inexorably.

Research shows that the bond market changes trend (i.e., from bullish to bearish or vice versa) six to eighteen months before stocks. Bond started plunging in June. They have taken a pause recently, but if their bearish trend continues, it means that stocks will start sinking sometime this year.

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