Thursday
Sep182014

Philly Fed Slightly Weaker Than Expected

After hitting a four-year high in August, the September reading for the Philly Fed Manufacturing survey declined from 28.00 down to 22.5, which was slightly below the consensus forecast of 23.0.  In spite of the decline, manufacturing in the region remains steadily positive, confirming the strength we saw earlier in the week from the Empire Manufacturing report.

The table to the right breaks down September's Philly Fed report by each of its sub categories.  While the headline reading of this month's report showed a decline, breadth in the report was positive as six out of the nine components saw increases.  Areas seeing the biggest improvement were Number of Employees, Unfilled Orders, and Shipments, while Average Workweek and Inventories saw the largest declines.  It's interesting to see that while employers are adding more workers, the employees are working less.  It's only one datapoint, but it might be a by-product of the Affordable Care Act's requirements that all employees working more than 30 hours per week be covered with health insurance.  One way around that requirement is for companies to hire more part-time workers, which is what appears to be happening in this month's report.

Thursday
Sep182014

AAII Bullish Sentiment Remains Above Average

Individual investors are increasingly becoming "comfortably bullish" as bullish sentiment remained above its bull market average for the sixth consecutive week.  According to the weekly survey of sentiment from the American Association of Individual Investors (AAII), bullish sentiment rose from 40.38% up to 42.24%.  While bullish sentiment is above average, we would note that there has still only been one week this year where bullish sentiment exceeded 50%, so in spite of the increased optimism, investors don't appear to have become "comfortably numb" to the risks that the market can actually go down. 

Thursday
Sep182014

Dow 30 Trading Range Screen; Apple Cometh?

Last night we provided our trading range screen for the 30 largest country ETFs traded on US exchanges.  Below we have run the 30 Dow stocks through our trading range screen so you can see how these big blue-chip names have been trading.  Heading into today, 12 Dow stocks are overbought, while 2 are oversold.  Du Pont (DD) is by far the most overbought name in the index after a big move higher yesterday on break-up talk.  Goldman Sachs (GS) and Johnson & Johnson (JNJ) are the next most overbought names.  Two stocks that remain overbought but have moved lower over the last week are Microsoft (MSFT) and Nike (NKE).  Both of these names were in extreme territory last week at this time, and they have seen some mean reversion since.  Chevron (CVX) and Exxon Mobil (XOM) are the two oversold names, but both of these Energy stocks have actually performed well this week.  Another good day and they will move back into neutral territory.

It has now been over three months since Apple (AAPL) split its shares 7 for 1, making the stock $100 per share instead of $700 per share.  Talk of Apple getting added to the Dow heated up on news of the split.  Since the Dow is a price weighted index, Apple shares could never have been included in the Dow as a $700 stock because its weighting would simply be too high.  At $100/share, though, the stock could easily get added to the Dow.

So if Apple does get added to the Dow, obviously one of the thirty current members would have to come out.  Below is a look at the market caps for each Dow member, and we also provide each stock's market cap as a percentage of Apple's market cap.  As a $600 billion company, Apple is 20x larger than the smallest Dow stock -- Travelers (TRV).  The next closest are Du Point (DD), Caterpillar (CAT) and Nike (NKE).  Both Travelers and Nike were recently added to the Dow, so it's unlikely either of these would be removed.  Caterpillar (CAT) is a Dow staple, so it's hard to see that one coming out, either.  Du Pont (DD) may be the most likely choice, especially with talks of the company being broken up yesterday.  If that happens, it could be just a matter of time before Apple (AAPL) replaces DD in the Dow 30.  

Thursday
Sep182014

Jobless Claims Back Near Lows of the Last Decade

After a relatively disappointing weekly jobless claims reading last week, claims improved dramatically this week, falling to their second lowest level in over a decade.  While economists were forecasting claims to come in at a level of 305K, the actual reading was 280K, representing a decline of 36K from last week's level of 316K.  This week's decline was the largest one week decline since November 2012, and it was the biggest downside surprise in just over a year.  Not only was this week's report positive, but its timing couldn't have been better as it also coincided with the reference week for the monthly Non-Farm Payrolls report.

Last week we noted the fact that the four-week moving average for jobless claims would be dropping two sub 300K readings this week and next, so unless we saw a big improvement, the four-week average would rise.  Well, 280K qualifies as a big improvement, and with that the four-week moving average fell by just under 5K to 299.5K.  This is only the fifth time since the recession ended in 2009 that the four-week moving average has been below 300K.

On a non-seasonally adjusted basis (NSA), jobless claims rose by 6.4K to 241.1K.  For the current week of the year, this is the lowest reading since at least 2000 and nearly 73K below the historical average of 314K for the current week of the year.

Wednesday
Sep172014

Bespoke's Country Trading Range Screen

Below is an updated look at our country equity market trading range screen using US-exchange traded funds.  For each ETF, the dot represents where it's currently trading, while the tail end represents where it was trading one week ago.  The black vertical "N" line represents each country's 50-day moving average.  A move into the red zone means the ETF is "overbought," or extended well above its 50-day.  A move into the green zone means the ETF is "oversold," or depressed well below its 50-day.  The calculations for overbought and oversold readings are highlighted at the bottom of the screen.

As you can see in the screen, the US (SPY) is currently the most extended above its 50-day of any country shown.  Vietnam is the only other country that's even overbought.  The majority of country ETFs shown have moved back below their 50-day moving averages over the last week, and nearly a third are now in oversold territory.  Australia (EWA), Malaysia (EWM) and Singapore (EWS) have really taken it on the chin over the last week, moving down to extreme oversold territory.  Other notable countries that are currently oversold include Japan (EWJ), South Africa (EZA) and the UK (EWU).

Will the US keep outperforming the rest of the world, or will it too move back down towards its 50-day or even below it?

Wednesday
Sep172014

Dow Theory Still Bullish

One index that has done very well over the last couple of months is the Dow Jones Transportation Index.  As shown below, while the Dow Jones Industrial Average has yet to make a new high, the Dow Transports index has broken out nicely.  In fact, the Dow Transports index is up nearly 17% year-to-date, which is 13 percentage points more than the Dow Industrial's minimal YTD gain of 3.46%.  Many investors look for the Transports to lead the way, and the fact that it has done so well is a bullish sign for the major indices like the Dow and S&P 500 in our view.  

Wednesday
Sep172014

Home Builder Confidence Spikes Higher

Housing is back.  At least that is what the recent survey of home builder sentiment seems to be telling us. After a better than expected earnings report from Lennar (LEN) earlier in the day, Wednesday's report on home builder sentiment from the NAHB hit its highest level since November 2005.  While economists were forecasting a modest increase from 55 to 56, the actual reading came in at 59.  This was the fourth straight month that home builder sentiment was better than expected, which is the longest streak since last August.

The table to the right breaks down this month's home builder sentiment report based on each of its components and regions.  Given all the green in the column for September, it was a pretty strong report across the board.  With respect to Present Sales and Traffic, both of those components reached or exceeded their highest levels since the end of the recession in 2009, while Future Sales is just one point off its post recession high of 68.

On a regional basis, the Midwest was the only region that saw weakness in sentiment this month, falling from 64 down to 61.  That weakness was more than made up for, though, by a two point bump higher in the Northeast, a 12 point increase in the South, and a five point jump in the West.  In fact, the increases in sentiment for the Northeast and South both hit post-recession highs.

Tuesday
Sep162014

Market Performance on Fed Days

Tomorrow’s Fed Day will be the sixth of the year and the seventh in which the Fed has been tapering QE.  It is widely expected that the tapering of asset purchases will continue through the next meeting on October 29th, at which point the current round of QE will be over.  Once the taper ends, the next step is rate hikes, which most expect to occur at some point in 2015.  We continue to believe the Fed when it comes to its dovish stance on rate hikes, meaning we don’t expect the first hike to come nearly as early as some.

Below is a look at the performance of the S&P 500 on Fed Days since ZIRP (zero interest rate policy) began back in December 2008.  As shown, the S&P has averaged a move of...

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Tuesday
Sep162014

Breadth By Market Cap

Technicians typically use market breadth as a tool to confirm the direction of the overall market.  When the market is moving higher and breadth is positive, it serves as confirmation of the rally.  Conversely, if the market is rallying but breadth is weak, it could spell trouble for the market.  One of the most basic ways to measure market breadth is through the cumulative advance/decline (A/D) line.  This indicator simply adds the net number of stocks (advancers minus decliners) in an index that traded higher on the day and then adds that number to a running total from a specific starting point.

The chart below shows the cumulative A/D lines since the start of the year for each of the three indices that make up the S&P 1500.  These three indices are the S&P 500 (large cap stocks), S&P 400 (mid cap stocks), and S&P 600 (small cap stocks).  While breadth for all three indices started out the year on a similar path, things began to diverge in late March and early April when small caps (red line) started to show signs of faltering.  Since then, breadth in small caps hasn't rebounded and has remained stuck in a range all year.  While breadth in small caps faltered, breadth in mid and large cap stocks kept chugging along through Spring and into Summer.  As Summer approached, though, the strength of the breadth in mid caps showed signs of slowing early on and actually led breadth in the large caps lower from late June through the end of July.  In the market rebound that followed, breadth in both indices rebounded, but while the S&P 500's (large cap) cumulative A/D line handily made a new high, breadth in mid caps just barely exceeded its peak from 7/1.

Based simply on breadth, small caps are clearly out of favor right now, mid cap stocks remain in favor, although investor enthusiasm towards the group is not as strong as it was earlier in the year.  Finally, breadth in large caps remains healthy, indicating solid support from investors towards that particular class of equities. 

Tuesday
Sep162014

Overseas Revenues Up In Smoke

We've written before about the impact that the strong dollar has on specific sectors of the stock market.  At the end of July, we included the following chart in one of our B.I.G. Tips sent to Bespoke Premium and Bespoke Institutional clients.  It shows the spread between Domestics (S&P 500 companies that get at least 90% of their revenue from the United States) and Internationals (S&P 500 companies that get at least 50% of their revenues from outside of the United States).  As the dollar trends up, the domestics begin to outperform, with no foreign revenues to be hurt by declines in overseas currencies.

There's probably no better example of this relationship than Altria (MO) and Phillip Morris International (PM).  Both companies sell tobacco products, and in fact have basically identical portfolios of brands.  But one (MO) sells to Americans and the other (PM) sells to the rest of the world.  In the recent dollar rally, MO has been demolishing PM's performance.  Below is a chart showing the ratio of MO to PM and the US Dollar index.  As the ratio moves up and to the right, domestic MO is outperforming international PM.  Entering today, MO (the domestic company) was up 40% year-to-date, while PM (the international company) was flat.

To get an idea whether your portfolio is protected from further dollar strength, sign up today for either Bespoke Premium (annual) or Bespoke Institutional.  Our Bespoke International Revenues Database breaks down the geographic revenue exposure for every company in the Russell 1000, allowing you to manage the risk of overseas currency moves versus the greenback.

Monday
Sep152014

Nasdaq Trades Down to a Three Week Low

As it turned in a decline of 1.07% on Monday, the Nasdaq composite had its worst day since 7/31.  In the process, the index traded down to its lowest level since it broke out on 8/18.

With today's sell-off in the Nasdaq, a lot of US stocks (primarily in the small cap universe) were down sharply.  Looking at the individual performance of Russell 3000 companies, there were 32 stocks in the index that fell more than 7.5% today alone.  As shown in the table, a lot of those names were stocks that had been leading the market higher since the Nasdaq broke out on 8/18.  For example, the average return of these 32 stocks since 8/18 through Friday (9/12) was a gain of 7.9%.  

One of the highest profile names on this list is Tesla (TSLA), which dropped 9.1% for its worst day since May 8th.  Interestingly, while TSLA was the 11th worst performing stock in the Russell 3000 today, Elon Musk's other company, SolarCity (SCTY), was right behind TSLA at number 12 with a decline of 9%.  Is it us, or does it seem like even though the two companies are in completely different businesses, that whenever TSLA has a big up or down day that SCTY sees a similar move in the same direction?

Another way to illustrate how the market's leaders of the last few weeks dragged equities lower today is by grouping stocks in the index into deciles based on their performance from 8/18 through 9/12.  In the chart below, we took each decile of stocks and then calculated the average return of the stocks in them.  The biggest standout to the downside among the ten deciles is the group of stocks that performed best leading up to today, as they declined an average of 1.83%.  

While investors were selling their biggest winners, they must have been offsetting the gains they took with losses from the biggest losers from 8/18 through 9/12.  This group of stocks was down an average of 1.37% today, making it the second worst performing decile of the ten.  Outside of those two deciles, returns were pretty similar today as seven of the remaining eight deciles had average returns that were within a range of 30 bps.

Monday
Sep152014

Tesla's (TSLA) September 15th Bloodbath

After gaining more than $100 since its lows in early May, Tesla (TSLA) is getting slaughtered today on the back of a bearish analyst call from Morgan Stanley.  While the bearish call from Morgan Stanley helped trigger the sell-off, it can't be the only reason the stock is off more than 10% with a couple hours of trading left in the day.  The entire "growth" trade is getting crushed today, and it looks like short-term owners of TSLA are just running for the exits.  Note that nothing changed in regards to TSLA's earnings or revenues since the close last Friday, so we're simply seeing a re-pricing of risk.

For those interested, below is a look at the near-term performance of Tesla (TSLA) when it has fallen more than 8% on any day since it went public back in mid-2010.  As shown, the stock has averaged a gain of 75 bps on the day after these big sell-offs.  Over the next week, the stock has averaged a bounce back of 3.11%, and over the next month, the stock has gained more than 11%.  The one-day and one-week performance numbers would be even better if you took out the 10% drops the stock saw in its first week of trading.

We'll see how Tesla trades from here, but if this is a stock you've been waiting to buy on any pullbacks, you're certainly getting a big one today on no company specific news.

Monday
Sep152014

Empire Manufacturing Beats Expectations

This week's schedule of economic data started off on a positive note as the Empire Manufacturing report for the month of September showed a big uptick from August and exceeded expectations by a wide margin.  While economists were forecasting a level of 16.0 in the headline index, the actual reading came in at 27.5 which was up from last month's reading of 16.69.  It was also the highest monthly reading since October 2009.  While the current conditions index of this month's report showed a solid increase, the expectations component for September (46.8) was practically unchanged from August's reading of (46.8).

The table below breaks out this month's report by each category and shows both current conditions and expectations for six months from now.  In addition to the headline index, five of the nine subcomponents saw an increase in their level for current conditions.  While the Shipments component rose to its highest level since October 2009, the biggest increases for the month were in Prices Received and Inventories.  On the downside, this month's report didn't have anything positive related to the jobs picture.  As shown in the table, the biggest declines in current conditions this month were in Number of Employees and Average Workweek.

Monday
Sep152014

Sentiment Levels Unchanged

Bull/bear sentiment in our weekend Bespoke Market Poll was unchanged week-over-week, with bullish sentiment coming in at 49% and bearish sentiment coming in at 51%.  Last week's negative action for the market doesn't look to have impacted investor views too much.

Friday
Sep122014

S&P 500 Higher or Lower from Here?

The S&P 500 pulled back from all-time highs this week and failed to hold above the 2,000 level.  But which way will the market head from here?   Please take part in our Bespoke Market Poll below by letting us know 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!

Our "end of summer" 10% off special comes to an end this weekend, so be sure to sign up for your 5-day free trial to Bespoke Premium before the offer expires!  We've just published our weekly Bespoke Report newsletter, so you'll have a fresh piece of market research to read with your new trial.  Simply enter "endofsummer" in the coupon code section of our Bespoke Premium subscribe page to receive the 10% discount for the life of your membership.

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