Bullish Sentiment Declines a Bit

There were still more bulls than bears in our weekend Bespoke Market Poll, but the percentage of bulls ticked down 5 points from 64% to 59%.  Bearish sentiment on the market over the next month came in at 41%.


The Bespoke Report: 8/22/14

The weekly Bespoke Report is our widely read and renowned weekly publication that covers all of the major market news that occurred throughout the week as well as our analysis of how these events will impact markets in the weeks ahead.  No topics get overlooked in this in-depth report that features all of the unique charts and graphs that Bespoke readers have come to love.  

Some of the topics covered in this week's report include:

  • New Highs for the S&P 500 and Nasdaq, DJIA lagging behind.
  • Which stock characteristics have been powering the market?
  • A complete rundown of this week's economic data.
  • The dollar has surged.  What now?
  • Which sectors and stocks stand to benefit the most from falling gas prices?
  • Equity market mellows to Fed minutes.
  • After three straight up weeks, where does sentiment stand?
  • On Google's 10-year anniversary, Steve Jobs gets the last laugh.
  • Should we really be writing off the Russell 2000 and small cap stocks?
  • Longest streaks for the S&P 500 without a close below its 200-day moving average.
  • Breadth swings from extreme oversold to extreme overbought in under a month.

All this and a lot more is covered in this week's report, so head over to and download this week's edition to catch up on everything you need to know.  If you aren't currently a subscriber, sign up for our free trial today and receive instant access.  It's "simply one of the best bargains you'll find." 

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S&P 500 Higher or Lower from Here?

Jackson Hole has come and gone, so which way will the market head from here?  Please take part in our Bespoke Market Poll 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!

Will the S&P 500 be higher or lower than its current level one month from now?
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Dow 30 Trading Range Screen

Below is an updated snapshot of our Dow 30 trading range screen, which takes a look at where the 30 members of the Dow are trading relative to their 50-day moving averages.  For each stock, the dot represents where it is currently trading within its range, while the tail end represents where it was trading one week ago.  The black vertical "N" line represents each stock's 50-day moving average, so you get a graphical representation of each stock's recent price action in one nice table.  Moves into the red zone are considered overbought territory, and when a stock gets up into the dark red shading, it has extended well above its 50-day.  Moves into the green zone are considered oversold territory, with the dark green shading representing extreme levels.

Traders like to use our screen to see which stocks are leading and lagging in the index (or their own portfolios if we have created a custom screen for them).  It's also a useful tool when trying to decide the timing of an entry point for a buy or sell.

As shown below, there are currently 8 stocks in the Dow that are overbought, and 5 that are oversold.  Some of the most overbought names in the Dow right now are Disney (DIS), Home Depot (HD), Merck (MRK) and Procter & Gamble (PG).  The 5 oversold names are American Express (AXP), McDonald's (MCD), AT&T (T), Verizon (VZ) and Exxon Mobil (XOM).  

A green dot means the stock has moved up within its range over the last week, while a red dot means the stock has moved down.  Only 3 of 30 Dow stocks have moved lower within their trading ranges over the last week, so we have seen broad momentum higher since last Thursday's close.  Some key names have just crossed back above their 50-days as well, which means they're not nearly as extended to the upside as the overbought names, but they still have positive momentum on their side.  These include stocks like Boeing (BA), Caterpillar (CAT), General Electric (GE), JP Morgan (JPM), Coca-Cola (KO), 3M (MMM), UnitedHealth (UNH) and Visa (V).  

To run your own basket of stocks or portfolio through our trading range screen on a regular basis, try out our Bespoke Institutional service today.  You can learn more by visiting our Institutional page over at Bespoke Premium or calling 914-315-1248.


Bespoke CNBC Appearance (8/21/14)

Bespoke's Paul Hickey appeared on CNBC's Squawk Box with Jim O'Shaughnessy on Wednesday morning to discuss the current market rally and more specifically the Consumer Discretionary sector. To view the interview, click on the image below.


Jobless Claims Dip Back Below 300K

Jobless claims fell by 14K last week, falling back below 300K and below consensus forecasts for a level of 303K.  With claims alternating between above and below 300K for the last six weeks, it appears as though claims are clearly settling down at a new lower range.

Although claims declined this week, the four-week moving average actually increased by nearly 5K to 300.75K from last week's post-recession low of 296K.  This was due to the fact that we dropped a reading of 279K from the four-week total. Next week, we will be dropping a level of 303K, so if there is any decline in claims, the four-week moving average will also decline.

On a non-seasonally adjusted basis (NSA), today's claims report was strong.  At a level of 248.8K, NSA claims were the lowest they have been for the current weak of the year since 1999, and 63K below the average level of 312.2K going back to 2000.


Philly Fed Hits Multi-Year High

Today's release of the Philly Fed report for the month of August not only came in stronger than expected, but the General Business Conditions index hit its highest level since March 2011.  While economists were forecasting a level of 19.7, the actual reading came in at 28.0, up from last month's reading of 23.9.

Strangely enough, while the headline reading of the Philly Fed report showed strength, the business indicators within the report were practically all weak.  As shown in the table to the right, seven of the nine indicators declined this month, reversing last month's gains.  The biggest declines of the general business indicators came in New Orders and Shipments.  In fact, while the headline reading of this month's report was the best since March 2011, the New Orders component saw its largest monthly decline since August of that same year.   Net net, on the surface there was a lot to like about the report, but after digging into the internals a lot of the bloom came off the rose.


Commodity Trading Range Charts

Below is an updated look at our trading range charts for ten major commodities.  For each commodity, the green area represents between two standard deviations above and below the 50-day moving average.  Moves to the top of or above the green zone are considered overbought, while moves to the bottom of or below the green zone are considered oversold.  

As you can tell by the charts, commodities have had a rough go of it lately.  Nearly all of them are currently at the bottom of their trading ranges or worse.  Oil has really broken down here after a brief attempt to break out above $105 in June.  Right now it is in a steep downtrend and has yet to find support.  If oil can't hold the $90 level on a test in the near term, it will be entering price levels that it hasn't seen in quite some time.  Like oil, the precious metals have also been trending lower.  Gold, silver and platinum have all moved to the bottom of their trading ranges recently, so we'll have to see if they can bounce off of these oversold levels.  

Corn and wheat are two more commodities that have had brutal summers.  Since peaking in May, they have been on a straight path lower with hardly any attempts to bounce.  The only commodity that has yet to break down is coffee, but even it has been range bound since the price spike it saw at the start of the year.

Those looking for signs of a pick-up in inflation won't find it in commodity prices, that's for sure. 


The Bulls Are Back!

With the S&P 500 on pace for its third straight week of gains, investors are getting hopping on the bullish bandwagon - in a big way.  According to this week's survey of individual investors from the American Association of Individual Investors (AAII), bullish sentiment rose by 6.3 percentage points to 46.11%.  Adding this week's increase to last week's jump of 8.92 percentage points, the two-week increase in bullish sentiment (15.2) is the largest two-week increase since last July.  This week's level of bullish sentiment is also the first reading above 40% since early June and actually represents the highest reading of bullish sentiment so far this year.  While less than half of individual investors are bullish, we are getting close to that 50% threshold that has spelled short-term trouble in the past.

As bullish sentiment surges, bears are moving to the sidelines.  This week's level of bearish sentiment declined from 26.96% last week down to 23.65%, which is the lowest weekly reading since early July.  The last time bearish sentiment saw as big a two-week decline as it has the last two weeks (14.58 percentage points) was back in late October of last year.


S&P 500 Just 10 Points Away

A couple of weeks ago, the bears were out in full force, but a 4% rally off of the August 7th lows has certainly quieted things down.  

As shown below, the S&P 500 is now back in overbought territory (>1 standard deviation above 50-DMA) after trading in oversold territory as recently as last week.  As of the close today, the S&P is just 10 points away from its July all-time high.  Is another break-out near?  (Sign up for a 5-day free trial to the Bespoke Premium service for our thoughts.) 

One area that has already broken out is the tech-heavy Nasdaq, which has blown out to new bull market highs this week.  For further reference, below is a look at the performance of various asset classes since the market made its short-term low on the 7th of this month.  Performance in the US has been pretty even based on market caps, with small, mid and large caps performing roughly inline.  From a sector perspective, Health Care, Industrials and Consumer Discretionary have outperformed during this run higher, while Telecom and Energy have lagged.  

Things have really quieted down in Ukraine/Russia, and Russia's stock market has benefited the most from this.  As shown below, the RSX Russia ETF is up 8.7% since August 7th, which is the biggest gainer of any ETF in the entire matrix.  As stocks have rallied during this geo-political "quiet period," commodity prices have gone lower, led by oil (USO) with a decline of 4%.  Both gold (GLD) and silver (SLV) are down as well, though.


Autos On The Move

We've seen a continued pickup in auto sales over the course of the spring, with the most recent Auto Sales release for July showing a seasonally adjusted annual rate (SAAR) of 16.4 million total, 12.95 million domestic.  That figure is down slightly from June's figure (16.92 million total, 13.25 million domestic) but represents a shift upward in terms of momentum from this time last year when sales were 15.73 million and 12.2 million.  The move higher for auto sales is a great sign for the economy, and we've seen a steady move higher throughout the recovery from the "great recession," which is just another example of the slow but steady improvement that has been a hall mark of this economic expansion.

Domestic automakers have largely benefited from this retrn to a semblance of normalcy in the auto market, as shown in the chart below which plots the S&P 1500 Automobiles Industry Industry Index against both domestic and total vehicle sales.

There are only two diversified US auto manufacturers left: Ford (F) and General Motors (GM).  With so little diversification, this puts investors at risk for surprises like the GM recalls.  If you'd like to get exposure to rising US auto sales but aren't eager to put all your eggs in one or two baskets, American Despository Receipts (ADRs) might be a good option.  ADRs represent foreign shares held overseas by US financial institutions, making them similar (although distinct from) to exchange-traded funds (ETFs) or exchange traded-notes (ETNs).  If you are interested in trading ADRs, make sure to familiarize yourself with their specific risk factors, which can differ from American equities.  Below is a list of auto manufacturers that are traded in the US.  Bolded names are US equities; the rest are ADRs.  Members of the S&P 1500 Automobile Industry Index are highlighted in grey.


Housing Starts: Insight From Bespoke

Last month, June Housing Starts registered a large miss, printing at 893,000 seasonally adjusted annual rate (SAAR), versus expectations of 1.02 million SAAR.  But in The Bespoke Report dated 7/18/14, we dove into the underlying data to properly understand what drove the miss.  Our findings are presented below.

Today, as we expected, Housing Starts surged, and there were upward revisions of 52,000 SAAR to last month's figure, bringing it much closer to our predicted level of 970,000.  

To receive insights like these every day in your inbox, give Bespoke Premium a try.  For investors that follow the market less frequently, we also offer the Bespoke Newsletter tier of service.  Both are available with a five day free trial.  Sign up today to gain access!


Housing Starts Reverse Last Month's Big Miss

After last month's big miss in Housing Starts where the reported number missed expectations by 127K, Tuesday's Housing Starts report for July exceeded expectations by nearly the same amount.  While economists were forecasting a seasonally adjusted annualized rate (SAAR) of 968K, the actual level came in 125K higher at 1,093K.  This was the third better than expected reading of the year and the biggest beat relative to expectations.  At the current level for July, Housing Starts are just 12K from taking out the post-recession high of 1,105K from November.  

Looking at the breakdown of this month's Housing Starts report between single and multi-family units, the bulk of July's gains came in multi-family units which increased by 28.9% m/m, hitting their highest level since January 2006.  Meanwhile, single family units, which are considered to have a bigger economic impact, saw a much more tepid increase, rising by 8.3%, which was only about half the rate of growth that we saw in the headline reading.

Like Housing Starts, Building Permits for the month of July also came in significantly stronger than expected.  While economists were forecasting permits to come in at an SAAR rate of 1,000K, July's total came in at 1,052K.  Like Housing Starts, this was also just the third time this year that Building Permits came in better than expected.  Like the breakdown in starts, this month's breakdown in permits was similarly skewed in favor of multi-family units.  While single family permits increased by just 0.9% m/m, multi-family starts rose 21.5%.


Range Bound Russell

While a lot of investors have written off the Russell 2000 and small cap stocks since the index's peak in early March, a look at the index's chart shows that it has, more than anything else, been trading in a range bound consolidation mode.  This is a topic we have covered in the past, but with the index's recent moves, it warrants an update.

On a closing basis, each sell-off in the index this year has culminated in a higher low.  On the upside, the index's closing high for the year was 1,208.65 on March 4th.  From there, the Russell 2000 sold off 9.3% but found its footing just above the prior closing low for the year from February 5th.  After that sell-off, it rebounded by just over 10%, nearly recouping all of its declines and closing just half a point shy of a new high.  Once that rally failed to take out the March highs, technicians all but nailed the coffin closed for the Russell. 

Interestingly, the most recent sell-off bottomed out well above the prior sell-off's closing low, marking the second higher low of the year for the index.  With today's rally, the Russell 2000 is actually trading in the upper half of its range for 2014 (midpoint: 1,151.12).  Eventually, the Russell is going to break out of its range in one direction or the other, and the longer it trades within this range, the bigger the move will likely be.  Until that happens, though, we would characterize trading in the Russell 2000 as nothing more than range bound consolidation.


Prices at the Pump Still Falling

While gas prices typically are elevated during the summer driving season, consumers have been getting a break (at least relatively speaking) so far in 2014.  According to AAA, the national average price of a gallon of gas this weekend was $3.45, which represents a decline of 6.5% from this year's high of just under $3.70 per gallon which was reached in late April.

What makes this summer's decline in prices noteworthy is the fact that gas prices normally hover at or near their highs of the year in the Summer.  The chart below shows a composite for the national average price of a gallon of gas throughout the year going back to 2005.  In a typical year, prices at the pump rise steadily throughout the first four to five months of the year and peak just before Memorial Day.  They then trade sideways near their annual highs through Labor Day, before giving up all their pre-summer gains in the final 3-4 months of the year.  This year, gas prices followed the typical pattern (although to a smaller magnitude) up until the spring, but once the summer hit instead of remaining elevated, the bottom fell out and prices have been in a practical free-fall.  Since the start of July, for example, the national average price has only risen on 3 out of 48 days!

The table to the right shows the national average price of gasoline as of 8/17 in each year since 2005.  Even though gas prices have bucked the trend and declined this summer, they are still not low by historical standards.  Compared to the prior nine years, the current price is right in the middle at the fifth lowest.  That being said, it is the lowest national average price for this time of year since 2010, and with a gain of 3.9%, the YTD gain is the second smallest increase since at least 2005.

For anyone who has been driving for more than a few years, paying $3.45 for a gallon of gas is hardly anything to get excited about, but the fact is that gas prices are abnormally low relative to recent history, and are therefore providing some much needed relief to consumers.  If this trend continues, it should also provide a boost to the Consumer Discretionary sector, which has seen a dismal performance in 2014.

On a final note, another factor working in favor of lower gas prices is crack spreads.  Cracks spreads measure the difference between the price of gasoline and oil futures.  In other words, it is the premium that refiners earn on taking crude oil and refining it to gasoline.  The chart below crack spreads between WTI and NYMEX RBOB gasoline futures.  At a current level of $15.93, crack spreads are 28% below their average level of $22.02 going back to 1990.  For the current day of the year, though, spreads are even more depressed.  In the last 25 years (since 1990), there have only been four years where crack spreads were lower on 8/17 than they are now.  Road trip anyone?

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