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EUR/NZD Facing Wedge Break?
Currently the EUR/NZD is at 1.5761. We are looking for a continuation to third wave R5 area at 1.5838 before a correction. The average daily true range (ATR) for the pair currently is 82 pips.
EUR/NZD Technical Analysis
Kiwi Dollar Could Be The Place To Look Post-ECB And NFP
While most will be focusing on USD, EUR and JPY pairs tonight, I think NZD could also be a good place to look, depending on how events unfold tonight (NZD/USD, EUR/NZD, AUD/NZD)
Below you may find the video
Mid-Day Report: Dollar Surges as on Strong Q2 GDP, FOMC Next
Dollar's rally continues in early US session after release of much strong than expect GDP data. In Q2, GDP grew at 4.0% annualized rate, the highest level since Q3 of 2013, and beat consensus of 3.1%. The solid gain more than offset Q1's -2.1% contraction, upwardly revised from prior estimate of -2.9%. The economy grew at about 1% pace for the first half of 2013. The GDP report overshadowed the disappointing ADP employment report, which showed 218k growth in private sector jobs comparing to expectation of 241k. Released from Canada, IPPI dropped -0.1% mom in June while RMPI rose 1.1% mom.
The dollar index surges in response to the GDP data and hits as high as 81.465 so far. Just shy of 81.48 key resistance. Based on current strong momentum, 81.48 would likely be firmly taken out. And, that would confirm reversal of the trend from 2013 high of 84.75. More importantly, the dollar index would declare victory in defending the long term fibonacci level at 50% retracement of 72.69 to 84.75 at 78.72. And that would also set up for a test on 84.75 key resistance in medium term.
Focus will turn to FOMC rate decision next. Fed is expected to taper the asset by another USD 10b, leaving the program at USD 25b per month. As usual, the reduction should be split evenly between treasuries and MBS. Overall, Fed is on track to end the QE3 by the end of October. FOMC should maintain the forward guidance that rates will stay low for a period of time. But the focus is on whether FOMC members are convinced that the economy is already in sustainable recovery. Also, Fed's view on whether inflation is still expected to run below the target would be watched.
Elsewhere, German CPI decelerated to 0.8% yoy in July. Eurozone confidence indicators were slightly better than expected in general. Swiss KOF leading indicator dropped to 09.1 in July while UBS consumption indicator rose to 2.06. New Zealand building permits rose 3.5% mom in June, Japan industrial production dropped -3.3% mom in June.
Japan's economic data released over the past 2 weeks underscored the downside risks to the economic and inflation outlook of the world's third largest economy. It has also raised the uncertainty of the BOJ's monetary policy going forward. The BOJ introduced 'Quantitative and Qualitative Monetary Easing' (QQE) in April 2013 to achieve the inflation target of 2%, with a time horizon of about two years. The program would be an open-ended one beyond 2014. We expect to see more guidance from the central bank in the October meeting regarding future stimulus measures in light of the current economic backdrop. More in Weak Economic Data Unlikely Triggers BOJ To Intensify Stimulus.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.3393; (P) 1.3418 (R1) 1.3434; More....
EUR/USD's fall accelerates to as low as 1.3369 in early US session and break mentioned 61.8% projection of 1.3993 to 1.3502 from 1.3700 at 1.3397 target. Intraday bias is remains on the downside. Current fall should now target 100% projection at 1.3209 next. On the upside, above 1.3415 minor resistance will turn bias neutral and bring recovery. But upside should be limited by 1.3502 support turned resistance and bring fall resumption.
In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.
Economic Indicators Update
Today's Trading Plan: News Driven Market
Pre-market update:
Economic reports due out (all times are eastern): MBA Purchase Applications (7), ADP Employment Report (8:15), GDP (8:30), EIA Petroleum Status Report (10:30), FOMC Meeting Announcement (2)
Technical Outlook (SPX):
My Trades:
Chart for SPX:
Delta Might Be Great Pick
One stock that might be an intriguing choice for investors right now is Delta Air Lines Inc. (NYSE:DAL). This is because this security in the Transportation-Airline space is seeing solid earnings estimate revision activity, and is in great company from a Zacks Industry Rank perspective.This is important because, often times, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. This is arguably taking place in the Transportation-Airline space as it currently has a Zacks Industry Rank of 19 out of more than 250 industries, suggesting it is well-positioned from this perspective, especially when compared to other segments out there.
Meanwhile, Delta is actually looking pretty good on its own too. The firm has seen solid earnings estimate revision activity over the past month, suggesting analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term.
In fact, over the past month, current quarter estimates have risen from $1.13 per share to $1.21 per share, while current year estimates have risen from $3.10 per share to $3.24 per share. This has helped DAL to earn a Zacks Rank #1 (Strong Buy), further underscoring the company’s solid position.
So, if you are looking for a decent pick in a strong industry, consider Delta. Not only is its industry currently in the top third, but it is seeing solid estimate revisions as of late, suggesting it could be a very interesting choice for investors seeking a name in this great industry segment.
Should You Buy Exxon Ahead Of Earnings?
Investors are always looking for stocks that are poised to beat at earnings season and Exxon Mobil Corporation (NYSE:XOM) may be one such company. The firm has earnings coming up pretty soon, and events are shaping up quite nicely for their report.
That is because Exxon Mobil is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings—with the most up-to-date information possible—is a pretty good indicator of some favorable trends underneath the surface for XOM in this report.
In fact, the Most Accurate Estimate for the current quarter is currently at $1.92 per share for XOM, compared to a broader Zacks Consensus Estimate of $1.91 per share. This suggests that analysts have very recently bumped up their estimates for XOM, giving the stock a Zacks Earnings ESP of 0.52% heading into earnings season.
Why is this Important?
A positive reading for the Zacks Earnings ESP has proven to be very powerful in producing both positive surprises, and outperforming the market. Our recent 10-year backtest shows that stocks that have a positive Earnings ESP and a Zacks Rank #3 (Hold) or better show a positive surprise nearly 70% of the time, and have returned over 28% on average in annual returns.
Given that XOM has a Zacks Rank #2 (Buy) and an ESP in positive territory, investors might want to consider this stock ahead of earnings. Clearly, recent earnings estimate revisions suggest that good things are ahead for Exxon Mobil, and that a beat might be in the cards for the upcoming report.
Xerox Soars To 52-Week High — Revised
Information technology services provider Xerox Corporation (NYSE:XRX) recently hit a new 52-week high of $13.29 on Jul 25, 2014, before closing the trading session a notch lower at $13.15. This translates to a healthy one-year return of 36.3%.
Xerox’s share price has been on a steady uptrend since Feb 2014. Despite its strong price appreciation, this Zacks Rank #2 (Buy) stock still has enough fundamentals that may further drive its price upward. The stock is currently trading at a forward P/E of 11.9x and has a long-term earnings growth expectation of 7.3%.
Growth Drivers
Xerox reported adjusted earnings (from continuing operations) of $322 million or 27 cents per share in the second quarter of 2014 compared with $345 million or 27 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter marginally exceeded the Zacks Consensus Estimate by a penny.
Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO), increased 2% year over year to $2,992 million in the reported quarter (57% of total revenues). While revenues from DO, ITO and BPO increased due to growth in commercial healthcare and commercial European BPO businesses, improvement in Europe and strength in healthcare offerings further bolstered the segment’s top-line growth.
Xerox expects the Services segment to fetch 66% of its total revenues by 2017, up from 55% in 2013. To achieve this objective, Xerox is focusing more on vertical markets like healthcare. Xerox recently secured an estimated $500 million worth contract to replace New York's Medicaid management system, according to a Bloomberg report.
New York’s Medicaid program, which includes $52 billion of annual billings by health care providers, is the biggest in the nation. Xerox’s selection as the vendor for the state may open doors to more lucrative opportunities for the document imaging giant, once the other states follow New York’s footsteps and revamp their Medicaid payment systems.
The company has already begun to reap huge benefits from the Medicaid Management Information System (MMIS) through its successful implementation and CMS (Centers for Medicare and Medicaid Services) Certification programs. Also, Xerox is looking forward to expand its offerings through inorganic measures to add more clients to its portfolio.
Other Stocks to Consider
Xerox currently has a Zacks Rank #2 (Buy). Other stocks that look promising in the industry include Canon Inc. (NYSE:CAJ), which carries a Zacks Rank #1 (Strong Buy) and AMTEK Inc. (NYSE:AME) and Ricoh Co., Ltd. (TOKYO:7752), both carrying a Zacks Rank #2 (Buy).
(We are reissuing this article to correct a mistake. The original article, issued on July 28, 2014, should no longer be relied upon.)
Zillow’s Offer For Trulia Is A Hail Mary
Zillow (NASDAQ:Z) agreed on Monday to acquire fellow real estate listing site Trulia (NYSE:TRLA) for $3.5 billion in an all stock deal. TRLA shareholders will receive 0.444 shares of Z for each share they hold, which should increase Z’s outstanding shares by about 41%.
The market has reacted enthusiastically to this deal. Z is up roughly 20% since the news of the potential acquisition first broke. TRLA is up 55%, and has a further 10% to go to meet the stated acquisition price.
Most analysts have hailed the deal as one that will give the combined company massive pricing power and make it the dominant player in online real estate listing. However, analysts have overstated the positives and significantly understated the risks from this acquisition.
Burning Cash
Both Z and TRLA have had consistently negative free cash flow, which they finance by further diluting their shareholders. Between 2011 and 2013, Z increased its total shares outstanding by ~38%. TRLA increased its shares by 34%. Both companies are aggressively diluting shareholders to fund their operating losses.
Z’s acquisition of TRLA is an acceleration of this trend. This acquisition will dilute the stock by a further 40%, and the combined company should, at least at first, burn even more cash. Both companies are already operating at a loss, and acquisition costs in the first year will use up additional cash. Z appears far from done with losing money and diluting investors.
Why Investors Are Excited
A combined Z and TRLA would have a dominant market share in the online real estate market, up to 71% according to some sources. Already some are predicting that Zillow could become “the Facebook of homes”, a place where every home’s information has to be if it wants to sell.
Investors are also predicting an earlier path to profitability if the companies combine. Management has projected $100 million in cost savings once the acquisition is complete, and increased pricing power is also expected.
Why This Deal is A Hail Mary
Even if this deal works out as analysts hoped, the profit growth expectations implied by Z’s valuation are already tremendous. In order to justify its valuation of $150/share, Z must earn pre-tax margins of 20%, equivalent to what it earned in 2011, its most profitable year, and grow revenue by 44% compounded annually for 10 years.
Like many fast-growing internet companies, Z has forgone profits recently in order to achieve revenue growth. In 2013, it spent almost $160 million on the discretionary items “Sales and Marketing” and “Technology and Development”. These two items comprised 80% of revenue.
Compare this to 2011, when Z spent only 60% of revenue on those two items and managed to earn a 20% pre-tax margin. Essentially, Z’s valuation implies that it will be able to absorb TRLA, scale back spending on marketing and development by 25%, and still grow revenues at a rapid clip.
Additionally, there’s good reason to believe that Z won’t be nearly as powerful or profitable after the acquisition as analysts are projecting. The companies have acknowledged that combined they still only account for 4% of U.S. real estate marketing spending, and Citron Research has raised some interesting questions as to whether the combined company would actually gain pricing power.
It’s entirely possible that Z could complete this acquisition, become a dominant force in real estate, and make shareholders lots of money. Just like it’s possible for a quarterback to run around for 15 seconds, launch a 70-yard bomb into the end zone, and win the game. Sometimes it happens. More often, though, something goes wrong. The odds are against Z shareholders on this one.
Sam McBride contributed to this report.
Disclosure: David Trainer and Sam McBride receive no compensation to write about any specific stock, sector, or theme.
More Chinks In The Chart Armor
NYSE 1-day & NASDAQ 21-Day OB/OS Oversold
Opinion
We continue to be of the opinion that the deterioration of internal breadth within the equity markets warrants some caution over the near to intermediate term. Yesterday’s action put a few more dents in the charts while breadth on the NYSE continued to erode. Some data suggests a possible pause in the weakness balanced against other data suggesting continuation. Yet, in our opinion, there is enough weight of the evidence suggesting prudence.