Weekend Reading From Bespoke: Morning For Equities?

Each Friday, members of our Bespoke subscription services receive our Week in Review newsletter.  This report provides Bespoke's current market thoughts through commentary and the unique graphs and charts that our clients have come to love.  If you're looking to get a better grasp of the market, subscribe to one of our membership packages today and download our Week in Review newsletter.

In this week's newsletter:

• 30 Days and counting without a 1% decline.
• What Happened to all the volatility?
• Are CDS markets confirming the rally?
• An update of the Torture Indicator.
• Sentiment - bullish or bearish.
• Is this rally the real thing or another false start?
• The juggernaut that is Apple (AAPL).
• Economic Scorecard.
• An update of Q4 earnings season.
• 'Fixed Income' Equities.
• Bull market breakouts.

Proceed to newsletter...  (Must be a Bespoke subscriber to view.)

Which Way Market?

The S&P 500 has gotten off to one of its best starts to a year in decades, but which way is it headed now?  Are we due for a longer-term pullback or can the index continue higher and break its April 2011 bull market highs?  Let us know by taking part in the poll below, which asks whether the S&P 500 will be higher or lower from current levels at the end of the first quarter (March 31st).  This should give us a pretty good idea of where sentiment currently stands among investors and traders.  We'll report back with the results shortly.

Will the S&P 500 be higher or lower by the end of the first quarter?
	Higher
	Lower
Free polls from Pollhost.com

Subscribe to Bespoke Premium and gain access to our top market ideas.

Earnings Season Gets Better

Two weeks ago at this time, just 57% of the companies that had reported this earnings season had beaten earnings estimates.  As shown below, 61.5% of companies that have reported have now beaten estimates.  This is just below the historical average of 62% going back to 1998. 

While they're still negative, guidance numbers have also gotten slightly better recently.  Below is a chart showing the spread between the percentage of companies that have raised guidance minus the percentage that have lowered guidance on a quarterly basis going back to 2003.  As shown, this earnings season, the spread is -3.3 percentage points, meaning more companies have lowered than raised.  This is the most negative reading since the first quarter of 2009.  Last week at this time, the spread was at -4.2%, however, so guidance did get better this week.

Regardless of what companies have reported, as a whole, they have performed well on their report days this season.  As shown below, the average stock that has reported this season has gained 0.44% on its report day.  This is the second consecutive earnings season and the fourth out of the last five where stocks have averaged gains on their report days.

Subscribe to Bespoke Premium and gain access to our complete earnings season analysis.

 

Top Earnings Season Triple Plays

So far this earnings season, just 3.9% of the companies that have reported have reported triple plays.  These are stocks that beat both their earnings and revenue estimates and also raised guidance. 

We consider triple play stocks the cream of the crop of earnings season, and all of the stocks are worth looking into more once they have reported such strong numbers.  We analyzed the price charts of the 49 triple plays so far this earnings season and found the ones that we believe currently look the most attractive from a technical perspective as well.

Below are the twelve stocks that we believe have the best chance of rallying from now until their next earnings reports based on their chart patterns.  On the following pages we provide charts and descriptions for each of the twelve stocks listed, and on the final page of this report, we provide a list of all 49 triple plays.

Continue to report...  (Must be a Bespoke Premium member to view.)

Selling the Winners

We ran our decile analysis on the S&P 500 to see how the stocks that had been up the most and least so far this year are performing today with the index down close to 1%.  To run the analysis, we break the index into deciles (10 groups of 50 stocks each) based on YTD performance through yesterday's close, and then we calculate the average change today for the stocks in each decile.

As shown below, the 50 best performing S&P 500 stocks YTD heading into today are down an average of 1.41%, while the 50 stocks that were up the least YTD are down 0.72% today.  While the spread in performance across the deciles isn't that wide, traders are clearly taking some profits in this year's winners today, which have mostly been highly cyclical stocks.

 

Subscribe to Bespoke Premium and gain access to our top market ideas. 

Bespoke's Sector Snapshot

Every Thursday we publish our Sector Snapshot report over at Bespoke Premium.  (Click here for a sample of the report.) 

Below we highlight our trading range charts for the S&P 500 and its ten sectors, which is one section of the report.  In each chart, the light blue shading represents the sector's "normal" trading range, which is one standard deviation above and below the 50-day moving average.  The red shading represents between one and two standard deviations above the 50-day, and moves into or above the red zone are considered overbought.  The green shading represents between one and two standard deviations below the 50-day, and moves into or below the green zone are considered oversold.

As shown, the S&P 500 has been in overbought territory basically for the last month now, and it's currently close to two standard deviations above its 50-day. 

Eight of the ten S&P 500 sectors are currently overbought, with the Technology sector clearly the most extended.  Financials, Industrials, Consumer Discretionary and Materials are all extremely overbought as well, but they're not quite as overbought as Tech.  Utilities and Telecom are the two sectors that aren't overbought at the moment.  These two sectors have lagged severely all year as the "risk-on" trade has driven money out of defensives and into cyclicals.  A pullback by the cyclicals from overbought levels would likely see money flow back into the defensives, however.

Become a Bespoke Premium member today to access our Sector Snapshot on a weekly basis.

Technology Sector on 10-Day Winning Streak

The S&P 500 Technology sector has had an amazing run since the start of the year.  As shown in our trading range chart below, the sector has nearly gone parabolic in recent days and has moved well above overbought territory.

The run has been so strong for the Tech sector that it has been up for 10 consecutive trading days and 17 out of the last 18.  Below are the five other 10-day winning streaks that the sector has had since 1990.  We also provide how the sector performed on day 11, over the next week and over the next month following these five streaks.  As shown, the sector has declined on day 11 three out of five times, but it has been up over the following week all five times for an average gain of 1.62%.  Over the next two weeks, the sector has been higher three out of five times for an average gain of 0.88%. 

Subscribe to Bespoke Premium and gain access to the top earnings season analysis around.

Is It Morning Again in the Stock Market?

It seems as though wherever you look these days, sentiment towards equities is on the upswing.  The S&P 500 is off to its best start since 1997, and for the first time in over a year, both individual investors and advisors are bullish.  Granted, this could be just one of another in a long string of false starts, but after twelve years of no returns in the stock market, even as earnings have nearly doubled, more investors are beginning to embrace the idea that this time it could be the real thing.

One case in point is Warren Buffett.  In his annual letter at the end of 1999, Mr. Buffett argued that, “our optimism... is also tempered by the expectation — indeed, in our minds, the virtual certainty — that the S&P will do far less well in the next decade or two than it has done since 1982.”  Staring at a bull market in its 18th year, where equities were trading at historically high multiples, Buffett was on the defensive side and hoarding cash.

Today, though, Mr.  Buffett seems to be firmly entrenched in the equity camp.  In a recent article he wrote in Fortune (adapted from this year’s annual letter), Buffett argued that: “Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks.  I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined.  More important, it will be by far the safest.”

Investors who remain risk averse but are still looking to dip their toes in the water and gain some exposure to equities should consider high quality dividend paying stocks.  To some, this may sound like last year's trade, but there are still many stocks out there that provide better yields than Treasuries and have payouts that most would consider to be safe.  To that end, earlier today we published a list of high yielding dividend paying stocks that have consistently raised their payouts and have more than enough earnings to cover the payout.  Clients wishing to view this diverse list of companies can click on the link below to download the report.  If you are not yet a client and wish to join, sign up today!

Is It Morning Again in the Stock Market?

2012 Leveraged ETF Performance

With the market getting off to such a hot start to the year, you can imagine how well the double and triple long equity ETFs have done.  And obviously, the double and triple short ETFs have gotten hit very hard.

Below are lists of the best and worst performing leveraged ETFs year to date.  As shown, the double long silver ETF (AGQ) is up the most with a gain of 47.61%.  The triple long financial ETF (FAS) is up the second most with a gain of 40.30%, while the triple long small cap ETF (TNA) ranks third with a gain of 37.79%.

The inverse ETFs of the three best performing leveraged ETFs year to date have been the worst performers in 2012.  The double short silver ETF (ZSL) is down the most with a decline of 36.67%.  The triple short financial ETF (FAZ) is down the second most with a decline of 30.83%, while the triple short small cap ETF (TZA) is down the third most at 29.23%.

Subscribe to Bespoke Premium and gain access to the top earnings season analysis around.

Platinum to Gold Ratio Pushing Up Towards One?

As we've mentioned a few times over the past few months, the platinum to gold ratio recently hit its lowest level since at least 1986 (when our data begins).  Even though platinum is 30 times more rare than gold, as recently as January 6th, platinum was trading $212 an ounce cheaper than gold (a ratio of 0.87).  Since January 6th, platinum has made up quite a bit of ground on gold, however, and it's now just $70 an ounce cheaper than gold.  The platinum to gold ratio currently stands at 0.96. 

Platinum sure has precedent to trade at much higher levels than gold, as shown in the chart of the historical ratio below.  We'll definitely be watching this relationship closely throughout the year.

Subscribe to Bespoke Premium and gain access to the top earnings season analysis around.

Bespoke's Commodity Snapshot

Many commodities have had nice runs recently, and below we provide our updated trading range charts for ten of them.  In each chart, the green shading represents between two standard deviations above and below the commodity's 50-day moving average.  Moves to the top of or above the green zone are considered overbought, while moves to the bottom or below the green zone are considered oversold.

As shown, the metals have made the biggest move recently, and all four of the metals highlighted below are currently at or well into overbought territory.  Oil is just about in the middle of its trading range, which has been tightening a lot recently due to the sideways trading pattern it has been in since last November.

After bouncing slightly a couple of weeks ago, natural gas has resumed its downtrend.

Subscribe to Bespoke Premium and gain access to the top earnings season analysis around.

S&P 500 and Sector Breadth

Even as the major market indices charge higher, underlying breadth hasn't been expanding in recent days.  As shown below, 85% of S&P 500 stocks are currently above their 50-day moving averages.  This is around the same level it has been at for the past few weeks. 

Four sectors have at least 90% of their stocks trading above their 50-days -- Financials (98%), Industrials (93%), Technology (90%) and Materials (90%).  All four of these sectors are very cyclical in nature.  Consumer Staples, Utilities and Telecom -- all defensive sectors -- currently have the weakest breadth readings, with Utilities having the lowest percentage of stocks above their 50-days at 52%. 

Subscribe to Bespoke Premium and gain access to an abundance of sector stats on a regular basis.

AAPL's Morning Rally = All of GMCR

Shares of Apple (AAPL) are in the midst of quite a rally right now as the stock steamrolls towards $500 per share.  Given its size, when AAPL rallies one or two percent, the increase in market cap is equivalent to the entire market cap of most mid cap stocks and many large caps!  For example, just today AAPL has seen its market cap rise by more than $12 billion.  That is greater than the market cap of every company in the S&P 400 Mid Cap Index (GMCR has the largest market cap in that index at $10.1 billion), and more than the market cap of half the members of the S&P 500!

With the stock now above $490 per share, Apple is currently trading more than 2.5 standard deviations above its 50-day moving average.  Looking back over the last two years, there have been three other periods where the stock got this overbought on a short-term basis (red dots).  The stock did see modest pullbacks following these overbought readings, but it was nothing more than a small bump on the road of its longer term rally.

Subscribe to Bespoke Premium and gain access to our top market ideas.

Investors Getting Back Into the Pool?

There's nothing like a rally in the market to get investors bullish.  With the S&P 500 setting its sights on last year's highs and AAPL steamrolling towards $500 per share, bullish sentiment has been on the rise and is now at its highest level in more than a year.  According to the weekly survey from the American Association of Individual Investors (AAII), more than half of all investors polled are currently bullish (51.64%).  The last time more than half of all individual investors were bullish was on 2/3/11.

Subscribe to Bespoke Premium and gain access to our top market ideas.

Best Performing Stocks on Earnings This Season

The average one-day change of the 1,041 companies that have reported earnings this season has been +0.56%.  Below we highlight the stocks that have had the biggest one-day gains on their report days this season.  (For companies that report after the close, we use the next day's change.)

As shown, Zoltek (ZOLT) leads the way with a gain of 38.44%, followed by Corinthian Colleges (COCO) at 36.30% and Guidance Software (GUID) at 34.15%.  Of the stocks that have gained more than 15% on their report days this season, just two are in the S&P 500 -- Netflix (NFLX) and Computer Sciences (CSC).

Other notables on the list of big earnings season winners include Green Mountain Coffee (GMCR), Seagate (STX), Buffalo Wild Wings (BWLD), and Standard Pacific (SPF).

Below are the top performing S&P 500 stocks on their report days this season.  Along with Netflix (NFLX) and its gain of 22.06%, other notable winners include Whirlpool (WHR), Ralph Lauren (RL), Goldman Sachs (GS), MasterCard (MA) and Apple (AAPL).

Subscribe to Bespoke Premium and gain access to the top earnings season analysis around.