Friday
Dec192014

S&P 500 Higher or Lower from Here?

Talk about a crazy week.  After plunging to start the week, the S&P 500 surged over the last three days and is once again making a run at all-time highs.  So which way will the market head from here?  Is there more pain ahead or smooth sailing into January?  Please let us know by taking part in our weekly Bespoke Market Poll below.  Simply tell us whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating and have a great weekend!

Be sure to sign up for a 5-day free trial to our Bespoke Premium service if you're looking for in-depth analysis of this market.  Become an annual member and you'll receive a hard copy of our awesome Bespoke Market Calendar for 2015.  Right now you can enter "endofyear" in the coupon code section of our Subscribe page to receive a 10% discount on the life of your membership!  Happy Holidays from Bespoke.

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com

Friday
Dec192014

Bespoke CNBC Appearance (12/19)

Bespoke's Paul Hickey appeared on CNBC's Fast Money last night to talk about the divergence between the S&P 500 and the Energy sector over the last six months.  To view the segment, click on the image below.

Friday
Dec192014

Bullish Sentiment Declines

It looks as though all of this volatility is getting to investors' nerves and causing them to be a little more risk averse.  In the latest weekly survey of investor sentiment from the American Association of Individual Investors (AAII), bullish sentiment declined by 6.28 percentage points, falling from 45.02% down to 38.74%.  In spite of the large decline in bullish sentiment, though, bullish sentiment remained marginally above its bull market average of 38.31%.  This marked the 11th straight week of above average bullish sentiment, which is the longest streak since February 2013.  As you can see in the chart below, bullish sentiment has seen a big drop from its recent high of 57.93% from mid-November.  That being said, the trend of higher highs and higher lows remains intact.

Friday
Dec192014

A "Typical" December

After being down as much as four percent on the month earlier this week, and then having the best two-day rally in years on Wednesday and Thursday, the S&P 500's performance this month seems anything but typical.  However, when you compare the month to the average December pattern, the month has been relatively normal.  Regular readers of our site know we focus a lot on seasonality and historical trends in our analysis.  While these are by no means the only type of analysis you should use in your investment decisions, we feel it is important to know the historical trends.  History may not always repeat itself, but just as kids will share similar traits with their parents, market trends one year often look a lot like the trends that preceded them in the past.

A case in point is the month of December.  Earlier this month, we sent out a B.I.G. Tips report to clients discussing seasonal trends for the month of December.  In that report, we showed a chart that highlights the typical seasonal pattern for the S&P 500 during the month.  We noted that the month "typically gets off to a pretty strong start in the first few days, hitting a high on 12/6.  From there, however, the S&P 500 goes on to give up most of those gains as we approach mid month.  It isn't until the second half of the month when the typical seasonal December strength kicks into gear."  

The chart below shows the "typical" pattern for December (light blue line) and compares it to this year (dark blue).  As shown in the chart, while the magnitude of the move this month has been bigger than the average (which you would expect), the pattern has been nearly identical.  For the average December since 1989, the S&P 500 starts off the month on a positive note, peaks on 12/6, and then sells off.  After hitting a mid-month low on 12/15, though, the S&P 500 finishes the month on a positive note.  

This year, the highs and the lows haven't matched up exactly, but they have been very close.  After rallying to start out the month, the S&P 500 peaked on 12/5, then sold off by 5%.  That mid-month sell-off ended just one day later than average (12/16), and since then the S&P 500 has rallied by over 4%.  You can't get much closer than that!

This type of seasonal and historical trend analysis is just one of many facets of our Bespoke Premium service.  If you are not currently a subscriber and want to find out more about the service, click here for a detailed description.  Or better yet, why not try it out with a no obligation 5-day free trial.  If you decide to stick with it on an annual basis, you'll receive a free copy of our Bespoke Market Calendar as well!

Thursday
Dec182014

Two Day Crash Up

Stocks had their best two-day run in over three years today, gaining 4.49% on the S&P 500.  It was just the 86th time in the S&P 500's history that it had back-to-back 2%+ up days.  (For an analysis of how the market has historically performed following these huge two-day moves, become a Bespoke Premium member today.)  In terms of trading range, the broad market moved from firmly below its 50-DMA to almost a standard deviation above it in just two sessions (on firm volume, no less).  The run into the close today was extremely impressive, with further gains in futures after the cash market closed.  The chart below highlights the move today in the context of the trading range over the last six months.

US equities weren't the only asset class to go parabolic over the past 48 hours.  Below is a table showing a wide range of ETFs for US equities, global equity markets, currencies, commodities, and fixed income.  Equities have exploded in many markets, with Europe and some of the higher quality emerging markets keeping pace with the US, but tempered gains elsewhere.  Foreign exchange has also gotten hit as the USD appreciated versus EUR and JPY since the FOMC announcement yesterday.  Finally, fixed income has gotten hit hard: Treasury yields surged yesterday and today as the equity market took off.

For more on today's price action, make sure to sign up for a five day free trial of Bespoke Premium.  In tonight's edition of The Closer, we'll be giving a full market recap of today's action and its implications for the remainder of the year.  Subscribers also get our weekly Sector Snapshot tonight, recapping price action and key trends for the S&P 500 and each of its ten sectors.  An annual Premium membership will also get you a hard copy of our Bespoke Market Calendar (shown below)!

Thursday
Dec182014

Energy Stocks Bounce

Below is an updated look at our trading range screen for the 30 largest stocks in the S&P 500 Energy sector.  For each stock, the dot represents where it's currently trading, while the tail end represents where it was trading one week ago.  The green shading represents oversold territory, and as you can see, pretty much all of them were oversold last week at this time.  Plenty are still oversold, but much less so than they were last week.  It looks like the "buy-the-dippers" have finally come out of the woodwork.  Let's see how big the rush to buy in "at the lows" gets over the next day or so.

Thursday
Dec182014

Jobless Claims Better Than Expected

Today's release of jobless claims for the latest week came in modestly better than expected dropping to the lowest level since Halloween.  While economists were expecting claims to come in at a level of 295K (unchanged from last week), the actual reading came in at 289K.

With this week's decline, the four-week moving average saw a modest decline, and stayed below 300K for the 14th straight week, which again is the longest streak since 2000.

The biggest move, however, was in the non-seasonally adjusted (NSA), which dropped 61.9K down to 326.9K.  For the current week of the year, this is the lowest level we have seen going back to 2000, and is more than 100K below the average of 435K going back to 2000.

Wednesday
Dec172014

Oil Volatility and Correlation with Equities

Oil's crash over the last few months has dominated the headlines, and over the last couple of weeks, its impact has been felt on stocks as well.  If you're wondering, below is a chart showing the correlation between the daily movements in oil and stocks.  The chart shows the rolling one-year correlation between the daily percentage changes of oil and the S&P 500.  A correlation of 1 would mean the two have moved hand in hand with each other over the past year, while a correlation of -1 would mean the two have mirrored each other over the past year.

As shown in the chart, up until 2009, there was not much correlation (positive or negative) between the two, but the financial crisis caused their correlation to increase dramatically (both fell sharply along with most other asset classes).  Throughout most of the current bull market coming out of the financial crisis, though, the correlation remained relatively elevated as well.  Over the last two years, you can see that the correlation has dropped dramatically, but it's still slightly above the range it had been in for decades prior to 2009.  Not until just recently when oil's drop began to really get noticed did the correlation stabilize and tick slightly higher.  

While oil has dominated the headlines recently, its volatility hasn't spiked dramatically.  For the most part, it has been a slow, steady drop.  Below is a chart showing the rolling 50-day average +/- daily percentage change for oil going back to 1983.  As shown, over the last 50 trading days, oil has seen an average daily change of +/-1.67%.  This is only 7 basis points above the average daily move of +/-1.60% seen for oil over the last 30 years.  If anything, the takeaway from the chart is that oil's volatility had gotten extremely low coming into the current bear market, and it's just now getting back to normal levels.

Wednesday
Dec172014

Junk Bond ETF Having Best Day Since August 2011

The high-yield (junk) bond ETF -- HYG -- has been tumbling lately due to oil's big price drop.  As oil has fallen into the $50s, worries that companies in the US Energy industry won't be able to meet their debt obligations have weighed on the junk bond market as a whole.  Below is a six-month chart of the HYG ETF.  After a big decline over the past month or so, HYG is finally seeing a bounce today.  In fact, its one-day gain of 2% is its biggest one-day move since August 2011.

Historically, movements in the junk bond market have tracked the stock market pretty closely.  Since April of this year, however, the two have diverged quite significantly.  At the surface, this divergence is a big deal, but we don't think it's as ominous as it would be if oil's price drop were not one of the primary reason's for the pressure in high yield.

Tuesday
Dec162014

Slightly Bearish on Oil

After oil's decline down to $56 yesterday, we asked Bespoke readers whether they thought the commodity would rise or fall in price over the next month.  As shown below, 56% of respondents said oil would be lower, while 44% said it would be higher.  Given the "falling knife" nature that oil has taken on recently, we're somewhat surprised that investors are not more bearish on the commodity.  At least from a contrarian perspective, this poll suggests that there's clearly not a consensus that oil is going to just keep crashing from here.  

Tuesday
Dec162014

Housing Starts and Building Permits Disappoint

As if the overnight news outside of the United States was not bad enough, today's housing data didn't do much to boost investor sentiment.  For the month of November, Housing Starts declined to 1.028 million from an upward revised seasonally adjusted rate (SAAR) of 1.045 million, which was also modestly below expectations of 1.04 million.  Building Permits also missed expectations, as the actual reading came in at a SAAR rate of 1.035 million, which was 25K below the consensus forecast of 1.06 million and down 57K from last month's post recession high of 1.092 million.  Today's data was a bit of a disappointment, but the fact that last month's levels were revised higher, and we still remain right near recovery highs, softens the blow a little bit.

The table below breaks down this month's Housing Starts and Building Permits by type of unit and region.  Unfortunately for housing bulls, the internals of the report were not much better than the headline numbers.  In the case of Housing Starts, multi-family units actually increased (6.7% m/m) while single family units declined (-5.4%).  Given the fact that single-family units tend to have more of an economic impact than multi-family units, we would have preferred to see this disparity the other way around.  In the case of Building Permits, single-family units actually held up better than multi-family units, but both still declined on a month/month basis.  Finally, on a regional basis the South saw the biggest weakness in November as both Housing Starts and Building Permits saw double digit declines relative to October. For the remaining regions, all three saw an improvement in Housing Starts while the Northeast saw an improvement in both Starts and Permits.

Monday
Dec152014

Empire Manufacturing Comes Up Short Again

After two straight months of weaker than expected reports, Empire Manufacturing made it three in a row this morning, and it did it in style.  While economists were forecasting a reading of 12.4, which would have been a slight improvement from the November reading, the actual reading came in at -3.6.  That 16 point spread was the biggest miss since June 2011 and the eighth weakest report relative to expectations going all the way back to 2002.

The table below breaks out this month's Empire Manufacturing report by each of its individual components.  As the internals of the report indicate, there was widespread weakness in December.  Of the nine subcomponents, six were negative, and all but one component (Prices Received) showed a decline.  The biggest declines came in Unfilled Orders (16.5), Shipments (-12.1), Inventories (-11.5), and New Orders (-11.1).

What is interesting to note about the chart and table above is how large the gaps are between current conditions and expectations six months out.  For General Business conditions, the gap currently sits at 42.2 points.  This gap is the widest since May 2011, and indicates that manufacturers expect the current weakness to be temporary.  Nowhere was the divergence between current conditions and expectations six months from now more evident than in the Average Workweek.  In this month's report, the current level for the Average Workweek index was -11.46, which was the lowest reading since July 2011.  Meanwhile, the Average Workweek Expectations index rose to 12.5, which was the highest reading since March 2012.  Hopefully, this optimism pans out!

Monday
Dec152014

Oil Higher or Lower from Here?

Crude oil fell another 4% today to close just above $55/barrel.  The commodity has now fallen roughly 48% from its 2014 high reached back in June, and it only needs to fall another $2 to reach the -50% mark.  Yeah, oil has crashed.  

But the past is the past, and we want to know where it's going from here.  Please take part in our poll below that asks whether the price of crude oil will be higher or lower than its current level one month from now.  We'll report back with the results shortly.

Thanks for participating!

Will the price of crude oil be higher or lower one month from now?
Higher
Lower
  
Free polls from Pollhost.com

Monday
Dec152014

Homebuilder Sentiment Declines Slightly

After a nice upside beat last month, home builder sentiment took a slight step back this month, falling from 58 down to 57.  Today's report was also slightly weaker than expected as economists were also forecasting the index to remain unchanged at 58.  The table to the right breaks down this month's report by each of its subcomponents (charts below) as well as on a regional basis.  As shown in the table, both the Present and Future Sales components showed slight declines this month, while the Traffic components remained unchanged.  On a regional basis, the only region that saw an improvement was the West where sentiment improved from 60 to a post recession high of 74.  While today's report showed slight weakness across the board, we would remind readers that each of the components remains right near their highest levels of the recovery.

Monday
Dec152014

World Oversold

There have been a few times this year when the world's stock markets were nearly all overbought, and a few times when they were nearly all oversold.  Right now we're in one of those "oversold" periods.

Below is a look at our trading range screen for the 30 largest country ETFs.  For each country, the dot represents where it's currently trading within its range, while the tail end represents where it was trading one week ago.  The black vertical "N" line represents each ETF's 50-day moving average, and moves into the red or green zones are considered overbought or oversold.

After a very rough start to December, the average year-to-date change for the 30 country ETFs shown is -7.5%, so the world is now solidly in the red for the year.  With a gain of 8%+, the US is an outlier to the upside.

Twenty-one of the thirty country ETFs are currently in oversold territory, with most at extreme levels (>2 standard deviations below their 50-days).  Countries like Chile (ECH), India (PIN), Indonesia (IDX), Italy (EWI), Mexico (EWW), Thailand (THD) and the UK (EWU) are actually more than 3 standard deviations below their 50-days -- pretty much limit down and falling completely out of bed here.  After the US broke below its 50-day today, just one ETF on the list is above its 50-day -- the Phillipines (EPHE).

Not a pretty end to the year so far.  At mid-month, this has been more of a "Grinch that Stole Christmas" pullback instead of the "Santa Claus Rally" that bulls were hoping for.  Let's see what the second half of the month brings, though, before we make it official.