Thursday
Jul312014

The Closer Commentary 7/31/14 - We Don't Need No Justification

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

 

It’s rare that you see a day where the following financial assets trade lower simultaneously: large cap stocks, small cap stocks, Treasuries, oil, credit (CDS indices), gold, silver, platinum, palladium, and copper.  Virtually the only asset class that didn’t have ferocious volatility selling today was the USD, which was essentially flat versus EUR, JPY, CAD, and CHF.  The action today simply didn’t make sense from a technical or fundamental perspective, and the explanations we saw trotted out made even less sense.

One culprit that has been discussed: inflation has edged up as of yesterday’s GDP report to 2.0% annualized, as measured by core PCE.  But this pace of price growth, while to the upside of leading indicators received during the quarter, is still an incredibly benign level, and is totally unthreatening in terms of both harm to the economy (runaway inflation) or in terms of kickstarting a Fed tightening.  The Fed has stressed repeatedly that not only is its inflation target symmetric around 2.0%, but further it will not be fooled by an economy that has printed higher inflation in recent memory (Q1 2012 had a 2.1 core PCE print).  While higher inflation could be coming, it needs to be sustained before it will impact the thinking in FOMC meetings. 

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Thursday
Jul312014

The No-Bull Bull Market

The weekly bullish and bearish sentiment readings from the American Association of Individual Investors were released this morning, and they showed an equal amount of bulls and bears at 31.12%.  We've been writing about the lack of optimism from individual investors during this bull market pretty much since it began back in 2009, and our theory has been that after two 50%+ declines for the major indices over the last decade and a half, investors are understandably very suspicious of equities as an asset class.  No matter how high stocks go, any signs of short-term trouble cause sentiment to sour quickly.  At this point it seems like the healing process coming out of the financial crisis could take decades and not months or years. 

To better illustrate the lack of optimism on the part of individual investors over the last few years, below is a chart of the rolling one-year average of the weekly AAII bullish sentiment reading going back to 1988.  Over the last year, the average weekly AAII bullish reading has been 37.95%.  This is about a point lower than the historical average weekly reading of 38.82% over the entire time period.  As you can see in the chart, bullish sentiment has been suppressed throughout this entire bull market going back to 2009, but it has really diverged from the S&P over the last two years.  Since mid-2012, the S&P 500 has been charging higher to new all-time highs, but bullish sentiment has remained very low and refuses to jump higher.  

Thursday
Jul312014

Individual Investors Indecisive

Today's release of sentiment figures from the American Association of Individual Investors (AAII) shows that sentiment is more mixed than it has been in recent memory.  While there was little in the way of moves in either direction this week, the percentage of bullish and bearish investors is exactly identical at 31.12%.  This is the first time in more than four years (May 2010) that bullish and bearish sentiment have been the same.  Between stronger than expected earnings and GDP data on one hand, and the potential for a tighter Fed and geo-political concerns on the international front, investors just can't seem to make up their mind in either direction.

Thursday
Jul312014

The Bespoke Morning Lineup: 7/31/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

In Germany, retail sales disappointed on a year-over-year basis, coming in at 0.4% growth versus 0.8% expected. The unemployment rolls shrank slightly more than expected (a decline of 12,000 versus the 5,000 reduction expected) while both the Europe-wide (11.5% versus 11.6% expected) and Italian unemployment rates beat expectations (12.3% versus 12.6% expected). The Italian CPI and PPI was all bad news, with deflationary prints (-2.1% month-over-month and 0.0% year-over-year) for CPI. In the UK, home prices missed expectations, rising 10.6% year over year versus 11.3% expectations. This may actually be a good thing given concerns over English housing prices from the private sector and the Bank of England alike; the UK is the best performer in Europe today, off just 18 bps. To summarize, Europe is selling off because of BES and more evidence of an economy that just cannot get moving and in fact may be decelerating even further.

The horrible European set up this morning is putting pressure on US equity index futures, and despite a strong night in Asia contracts have been drifting lower since the open of overnight trading last night. This is ironic given some good performances on the far side of the world’s biggest ocean overnight: China was up almost 1%, continuing its breakout to the upside, Australia put in a respectable day +18 bps and New Zealand performed similarly, Hong Kong was up 10 bps, Singapore had a +68 bps day and Nikkei 225 losses were contained at 18 bps. There were some real rough patches though: India sold off almost a percent, Thailand lost over 1%, and Indonesia underperformed. Currently spoos are off 60 bps, but have gained off their 5:00 AM lows below 1950. The current price at fair value indicates a cash market open in the neighborhood of 55 bps below yesterday’s close. Treasuries are also selling off with the yield on the 10-year up by 4 bps to 2.60%.

In earnings, there are 157 firms reporting this morning and another 124 tonight. Exxon Mobil (XOM, -0.29% yesterday, -1.21% pre-market) reported solid EPS and revenue beats, but is still headed down this morning.

In economic data, the Employment Cost Index for Q2 was higher than expected (0.7% vs 0.5%). At the same time the weekly Initial Jobless Claims were slightly higher than expected (302K vs 300K). The Chicago PMI (63.0 expected versus 62.6 prior) will be released at 9:45 AM.

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Thursday
Jul312014

Jobless Claims Slightly Higher Than Expected

Jobless claims for the last week rose by 23K, which was the largest weekly increase since May 16th.  At a level of 302K, this week's level was slightly higher than the consensus forecasts of 300K.  While this week's headline number was a slight disappointment, underneath the surface it was more positive.

For example, even after this week's increase in claims, the four week moving average still declined, falling from 300.25K down to 297.25K.  This is the first time the four-week moving average has been below 300K in eight years!

On a non-seasonally adjusted (NSA) basis, initial claims actually declined by 29.8K to a level of 257.2K.  For the current week of the year, we haven't seen a reading this low since at least 2000.  This week's NSA reading was also more than 75K below the historical average of 333.6K for the current week dating back to 2000.  While the headlines may say that today's initial claims report was worse than expected, based on the drops in NSA claims and the new low in the four-week moving average, it wasn't a bad report.

Wednesday
Jul302014

The Closer Commentary 7/29/14 - GDP, FOMC, Yeah You Know Me...

Instead of an excerpt, tonight we are posting The Closer in its entirety.  If you like what you see, head over to Bespoke Premium and sign up for a free 5-day trial to get The Closer each evening in your inbox.  Please click the thumbnail below to view The Closer for 7/30/14.

Wednesday
Jul302014

Winners and Losers After 1,000 Reports

This morning's batch of earnings reports put us over the 1,000-report mark for the current earnings season.  So far this season, the average stock that has reported has gained 0.02% on the day of its report, so let's call it a wash for now.  (For companies that report in the morning, we're looking at that day's change.  For companies that report after the close, we're looking at the next day's change.)

Now that we're 1,000 reports into earnings season, below is an updated look at the biggest winners and losers so far.  As shown, there have been six stocks that have gained more than 20% on their report days.  ZELTIQ Aesthetics tops the list with a one-day gain of 28.6%, followed by Rubicon (RUBI) at 27.3% and Amedisys (AMED) at 25.5%.  Inphi (IPHI), Datalink (DTLK) and NeoGenomics (NEO) are the three other companies that gained more than 20% on earnings.  Other popular companies on the list of earnings season winners include Twitter (TWTR), US Steel (X), Intuitive Surgical (ISRG) and Under Armour (UA).  

Brightcove (BCOV) has been the biggest loser thus far with a one-day decline of 37.88% on its report day.  Silicon Limited (SILC) ranks second with a decline of 23.55%, followed by Unisys (UIS) and Alliance Fiber Optic (AFOP).  All four of the aforementioned names fell more than 20% on their report days.  Some of the other notable losers on earnings this season include WellCare Group (WCG), Xilinx (XLNX), Oshkosh Truck (OSK), SanDisk (SNDK) and Buffalo Wild Wings (BWLD).

For those that wish to focus solely on largecap names, below are lists of the biggest winners and losers on earnings in just the S&P 500.  

Wednesday
Jul302014

Industrials Sector Falling Apart

The S&P 500 remains comfortably within its long-term uptrend and above its 50-day moving average.  The same can't be said for the Industrials sector, which has taken a big hit this week.

As shown below, just 39.1% of stocks in the Industrials sector are currently above their 50-day moving averages, and the sector has fallen into extreme oversold territory after trading above its 50-day just a week ago.

(Note that the Consumer Staples sector has been falling apart as well, but it's not as concerning since it's a defensive sector.)

Check out the difference in chart patterns between Industrials and Technology below.  Tech remains in bull mode, while Industrials has really broken down this week.  

Today's better-than-expected GDP report should help stabilize the Industrials sector.  If it doesn't, what kind of warning sign is this sell-off sending investors? 

Wednesday
Jul302014

The Bespoke Morning Lineup: 7/30/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

Futures are very quiet this morning, moving up overnight slowly but steadily. Markets in the US are currently expected to open ~20 bps higher than yesterday’s close. In overnight markets, Chinese equities took a break from their explosive move with a slightly worse than flat performance among A shares; equities traded in Hong Kong moved higher once again with a 37 bps gain in the Hang Seng. India (+33 bps) and Japan (+18 bps) were both up, as was Korea where stocks piled on 1%. Most markets had a solid morning followed by modest sideways afternoon price action ahead of the large swath of US economic data today.

In Europe, a beat in Q2’s initial GDP estimate from Spain was released this morning, although the growth was modest: 1.2% YoY versus expectations for 1.1%. Spain is the best performer in Europe on the back of that move with the IBEX 35 up 51 bps as of this writing. The other Iberian nation is going the opposite direction though: Portugal is down over 1%. The only other market trading with any volatility is Norway where stocks are down 61 bps. Core markets are flat in terms of both international and national indices.

Looking ahead to the afternoon, the FOMC decision is out at 2:00 PM and we expect no significant change from prior communications: taper to continue by $10 billion to $25 billion/month, and no new language regarding rate hikes or the timeline for a hike following the removal of accommodation. While some observers are calling for dissent on the decision from hawks, we would be surprised by this outcome. Inflation has ticked up recently but the most recent CPI print was a pause from that trend, indicating that there is little need to be concerned over inflationary pressures at this point. PCE, the Fed’s preferred gauge of inflation, is trending upwards, but it is still far below target. We therefore expect a stay-the-course Fed and no significant changes in outlook for this meeting. We would also note that there is also no press conference at this meeting.

Earnings this morning have been broadly positive and relatively quiet, although Garmin (GRMN, +0.10% yesterday, +7.49% pre-market) reported a massive quarter, beating EPS estimates by over 33%, delivering large revenue growth (11.7% year-over-year) and raising full year revenue and EPS estimates.

Subscribers, please click the thumbnail below to access the full Morning Lineup. 

Tuesday
Jul292014

The Closer Commentary 7/29/14 - Little Blue Boom

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

In earnings tonight, the biggest headlines came from the explosion upward in Twitter (TWTR, +1.74% today, +33.32% after hours), which reported a massive beat on every conceivable metric, including user growth (+24% year over year), revenue (+124% year over year), net income, and engagement.  Shares are up over 33% after-hours, and have been climbing steadily since the report.  As of today 33.9 million shares of TWTR were sold short (7.6% of the equity float), and those shorts will be in pain tomorrow as the weaker hands are forced to buy back shares at the market.  For the time being, the Little Blue Bird is really flying, much to shorts’ chagrin.

Elsewhere in earnings, U.S. Steel moves to the upside (X, -0.63% today, +9.29% after hours) this evening after reporting an unexpected profit and higher than expected revenue.  Amgen (AMGN, +0.54% today, +4.01% after hours) also beat profit estimates by 30 cents per share on almost $300 million higher revenue than expected; the company also raised full year EPS and revenue estimates.  American Express (AMX, -0.50% today, 0.10% after hours) delivered a profit beat on in-line revenue.  Insurer AFLAC (AFL, -0.80% today, -1.81% after hours) disappointed the market with a lowered EPS estimate for Q3, despite a strong Q2 report that beat on EPS and revenues.

Get some sleep tonight!  Tomorrow has a GDP release, FOMC decision, and earnings for 237 companies including Allstate (ALL, -1.54%), MetLife (MET, -1.31% ), and Humana (HUM, -2.60%).  Energy names are also reporting including Suncor (SU, -0.91%), Tesoro (TSO, +1.52%), and Cenovus (CVE, +0.37%).  In consumer space, Kraft (KRFT, -0.76%) reports; Sprint (S, +4.71%) will report as well.  As for GDP, a full preview will be out tomorrow morning with The Morning Lineup.  We will also preview ADP and the FOMC.

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

Tuesday
Jul292014

Biggest Exporters to Russia

European leaders are in the process of instituting beefed up sanctions against Russia.  Although these sanctions will most likely only be targeted to certain sectors like defense and banking, investors have increasingly been focusing on what countries are the most exposed to Russia in terms of total exports to that country.  While we are (hopefully) far from the point where the international community feels the need to sever all trade ties with Russia, any ratcheting up of sanctions will have a proportionate impact on countries which export the most to Russia.

Earlier today, we tweeted a chart showing Russian imports broken out by the country of origin.  In that chart, China and Germany each accounted for more than 14% of all Russian imports.  While those numbers look large, they only tell you that Russia relies a lot on those two countries.  It doesn't necessarily mean that those countries rely a lot on Russia.  

Flipping that perspective around, the chart below shows large countries (top 25 in terms of GDP) where Russia accounts for more than 1% of all total exports.  Looking at it from this perspective, for both Poland and Turkey, Russia accounts for more than 4% of total exports.  Next on the list is Germany, where Russia accounts for 3.5% of total exports.  Broadly speking then, in terms of G8 countires Germany has the most to lose from any additional ratcheting up of sanctions against Russia.  For the US, on the other hand, Russia only accounts for just over 1% of total exports.  It is no surprise then, that the US has been among the most vocal calling for sanctions, while Europe is taking a more gradual approach.

Tuesday
Jul292014

Consumer Confidence Surges

When it comes to confidence measures during the current economic expansion, it doesn't get much better than today's Consumer Confidence report from the Conference Board.  While economists were expecting July's reading to come in at a level of 85.4, the actual reading was 5.5 points higher at 90.9, up from June's reading of 86.4.  This was the biggest upside surprise since June 2013.  Even more impressive, though, was the fact that we haven't seen a reading above 90.9 since October 2007.

Following last month's report, we noted that the Consumer Confidence Index was coming close to breaking its downtrend that had been in place since the late 1990s leading up to the 2000 recession.  With this month's increase, that downtrend has now been broken.  While the increase in confidence is welcome, we would remind readers that the current level of confidence is still below the historical average reading of 93.4 that we have seen dating back to 1967.  Even with the recovery/expansion in the US economy now entering its sixth year, consumer confidence is still below average.

One of the drags on consumer sentiment during the current recovery has been a weak rebound in confidence among middle class consumers.  Throughout this recovery, it has been said that the wealthy have seen their standard of living improve while the middle class has been left behind.  Looking at confidence based on income supports this view, but it may be showing some signs of change.  

The chart below compares Consumer Confidence of consumers with incomes above $50K (red line) and consumers with incomes between $35K and $50K (blue line).  Since bottoming at similar levels at the depth of the recession, wealthier Americans definitely saw a sharper rebound in confidence while confidence among middle class ($35K-$50K) consumers lagged.  In July, however, confidence among middle class consumers spiked by 11.6 points compared to a 0.5 point increase for wealthier consumers.  This narrowed the gap in confidence among both income groups down from 32.3 points to 21.2 points.  One month does not necessarily make a trend, and we have seen similar one month spikes during this recovery that never materialized into a longer trend, but whenever you see a shift like this, it bears watching for signs of a change in the prevailing trend.

Tuesday
Jul292014

The Bespoke Morning Lineup: 7/29/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

Equity index futures have been quiet overnight and after hitting their lows just before 4:00 AM have traded up well into the open for cash equities, helped by positive earnings releases pre-market. Rates are moving off their overnight highs as equity futures rally, but are still lower than yesterday in the long end and slightly higher in the short end…the inexorable flattening continues. The dollar index is largely flat as a weaker pound offsets a stronger euro. In credit markets, US high yield was slightly tighter (lower spread) to Treasuries yesterday, while higher quality investment grade bonds remain in the same range they’ve held since the start of June.

The divergence between the S&P 500 as a whole and the industrial sector that we’ve seen since mid-June has continued and accelerated; over the last four days industrials are now down 1.41% versus the broad index, the worst-performing sector over that period. Utilities, meanwhile, have outperformed, returning to a trend we’ve seen all year long that had moderated since the end of June.

Pre-market earnings have been mixed, but large-cap firms have had solid reports, including a beat on top and bottom line by Aetna (AET, +1.71% yesterday, -2.15% pre-market). While AET is trading down pre-market, the company also raised full-year EPS guidance (still within analyst estimates); shares have traded as high as $89 in thin pre-market activity. Elsewhere in healthcare Pfizer (PFE, -0.30% yesterday, +0.56% pre-market) also beat on EPS and revenues, issuing healthy guidance in-line with analyst estimates of full year EPS and revenues. Meanwhile UPS (-0.88% yesterday, -3.07% pre-market) reported stronger-than-expected revenue but failed to deliver on the bottom line and lowered guidance for full-year EPS. The fall in profit is primarily due to a charge taken to account for some union employee liabilities.

Subscribers, please click the thumbnail below to access the full Morning Lineup. 

Monday
Jul282014

The Closer Commentary 7/28/14 - Reverse Off The Start

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

As if the rough and disorderly open wasn’t enough, the Pending Home Sales figure released today showed a decline of 1.1% versus expected gains of 0.3%, a really unfortunate print.  Housing, having shown signs of life in May (this particular indicator printed at 6.1%; revisions from this release brought that figure slightly lower to 6.0%), is still clearly challenged.  Our long-term outlook is unchanged, but for 2014 the pain in construction and secondary market turnover appears set to continue.

Equity markets were eventually able to shrug off a rough open and bounce off the 1968 level.  After trying and failing to break through its 200-period moving average (on a 2 minute chart) three times before 1:00 PM, the index finally consolidated into a wedge then broke out to the upside, a move that carried the index to its highs of the day and sustained a close in the green at +3 bps. 

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Monday
Jul282014

S&P 1500 Most Heavily Shorted Stocks: Mid July 2014

Short interest figures for the middle of July were released late last week, and below we have provided a list of the 32 stocks in the S&P 1500 that have more than 25% of their float sold short.  As is usually the case, the majority of names listed in the table come from the small cap space.  In fact, just two of the 32 names shown (GameStop- GME and Cablevision- CVC) are in the S&P 500.

For each stock listed below, we have also included its performance so far this month.  Of the 32 names shown, only 12 are up so far in July.  Additionally, of the 20 stocks that are down, seven are lower by more than 10%.  Overall, the average performance of the stocks listed is a decline of 2.75% compared to a gain of 0.40% for the S&P 1500.  Normally in a period when the overall market is up, stocks with the highest level of short interest outperform, so the fact that the most heavily shorted stocks in the market are down by nearly 3% in an up market has to make the shorts just ecstatic.  

The strong underperformance of the most heavily shorted stocks in July continues a trend that has been in place for much of the last several months.  With the exception of the month of June, we have repeatedly seen the most heavily shorted stocks posting returns that are well behind the overall return of the market.  2013 was a year to forget for short-sellers, but so far 2014 has been the year for shorts.