NAHB Homebuilder Sentiment Robust

November NAHB Homebuilder Sentiment exceeded estimates this morning and improved sequentially, coming in at 58 versus expectations of an increase to 55 from 54 in October.  At right we break down the changes within each sub index and the regional indices.  Every index improved sequentially, a pattern we last saw in July.  This is the first time since 2004 that all indices have improved sequentially in at least two monthly reports within the calendar year.  Particularly strong were gains in the Northeast and West regions, where sentiment surged ahead of the cold weather we got over the last two weeks.  

In a trend we've seen all through the recovery in the housing market since 2009, Traffic has continued to lag other indicators, indicating that while demand is adequate, it's not broad based.  This tracks well with the notably suppressed household formation rate, mortgage production indices, and new home construction rates we've seen over the same period: not only can fewer Americans afford a home, many appear to be less interested in owning than has historically been the case.  That said, as measured by the NAHB sentiment indices, the housing market is as healthy as it's been in years.

Below we chart the NAHB headline, sub index (since 1985) and regional series (since 2004).


S&P 500 Energy Sector Trading Range Screen

A few weeks ago we posted the trading range screen below highlighting the 30 largest stocks in the S&P 500 Energy sector.  At the time, every single stock in the screen was at or near extreme oversold territory.  Below is an updated look at the screen.  For each stock, the dot represents where the stock is currently trading, while the tail end represents where the stock was trading one week ago.  The black vertical "N" line represents the stock's 50-day moving average, while moves into the red or green zone are considered overbought or oversold.  Generally speaking, stocks at the far right of the screen (extreme overbought) or the far left of the screen (extreme oversold) are due for some sort of mean reversion back towards their 50-days.

As shown, most Energy names have worked their way out of oversold territory over the last couple of weeks.  As of the close today, 9 remained oversold, 18 were neutral, and 3 were overbought.  Even with news that Halliburton (HAL) was buying Baker Hughes (BHI), Kinder Morgan (KMI) is actually the most overbought name on the list, ahead of BHI.  Kinder Morgan has had a nice run over the last week or so, but it's not quite at extreme overbought levels that would trigger a warning flag.  KMI's chart is actually looking pretty strong here and has a lot of upside momentum (as judged by its long tail).

Earlier this year, it seemed like any time a corporate acquisition was announced, both the target and the acquirer would trade higher -- bucking conventional wisdom on M&A.  This trend didn't play out for Halliburton (HAL) shareholders today, however.  As shown below, after falling 10% today on its BHI acquisition announcement, HAL is now 16% below its 50-day moving average and back into oversold territory.  The stock also moved back into the red for the year, and it broke key support at the $50 level.  


YTD Sector Returns Heatmap

Below is an update of our year-to-date sector returns heatmap.  It's a great way to see the various trends and rotations between sectors through the course of the year.  The heatmap shows the year-to-date performance for each sector at the end of every trading day of the year.  Red areas indicate underperformance versus other sectors year-to-date, while green areas indicate outperformance.  So the darkest red sectors are the worst performers year-to-date at whatever point in the year you're looking at, while the darkest green sectors are the best performers year-to-date at that point.  Using this visualization, it's easy to track the over- or under-performance for each sector as the year has progressed.

Utilities have been a big performer all year, while Consumer Discretionary has consistently lagged the rest of the market.  Industrials did terribly during the peak of US Dollar appreciation (a trend that's still underway, just less rapidly) while Energy has fallen off a clif moving from one of the best performers to one of the worst in less than two months.  Finally, Health Care has been a source of alpha all year: during the second quarter it kept up with the market while it has seen outperformance over the whole course of the first, third and fourth quarters to date. 

Below the heatmap, we also provide a table showing the year-to-date return for each S&P 500 at the end of each month.

For more sector analysis make sure to check out Bespoke's Sector Snapshot over at Bespoke Premium.  Sign up today for a five day free trial and receive the Sector Snapshot on Thursday afternoon.


Bullish Sentiment Down Once Again

Bullish sentiment in our weekly Bespoke Market Poll fell another 3 percentage points this week from 58% down to 55%.  After peaking at 68% on November 3rd, bullish sentiment has now fallen 13 percentage points over the last two weeks.  While the market has traded slightly higher and hit new all-time highs over the last two weeks, investors appear to have tempered their enthusiasm for stocks quite a bit.


S&P 500 Higher or Lower from Here?

The S&P 500 finished the week slightly higher once again, leaving the index right near all-time highs.  So 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!  

Be sure to sign up for a 5-day free trial to any of our Bespoke subscription services to check out our popular Bespoke Report newsletter.  It's must-read on the Street each week!

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


Technology Finished on Top

The third quarter earnings season closed its doors yesterday with Wal-Mart's (WMT) report.  For the full season, 62.1% of the 2,400+ companies that reported earnings beat consensus analyst EPS estimates.  

Below is a breakdown of the earnings beat rate by sector this season.  As shown, Technology sector stocks beat earnings estimates at the highest rate.  71.3% of Tech stocks beat estimates.  The next closest sector was Health Care at 66%.  

At the bottom of the barrel are four sectors in the low-50s -- Materials (52.8%), Energy (52.2%), Utilities (50.7%) and Telecom (50%).

Over at Bespoke Premium, we'll have a full run-down of the just-completed third quarter earnings season in our weekly Bespoke Report newsletter due out after the close today.  Sign up for a 5-day free trial today!


UA = CMG...Wait What?

We look at a lot of stock charts here at Bespoke, and in doing so sometimes patterns just jump off the screen.  This morning, we noticed one that seemed too ridiculous to be true, to the point where we had to check that our screens were working properly.

The degree of similarity for these two charts is nothing short of amazing.  Chiptole Mexican Grill is a purveyor of burritos (which the Bespoke team have been known to enjoy occasionally) while Under Armour makes high performance sports apparel and accessories.  Chipotle operates fast casual restaurants and interfaces directly with consumers, while the vast majority of Under Armour's sales come via relationships with third party retailers.  Chipotle is exposed to agricultural commodity costs while the synthetic materials that are used in producing Under Armor clothing are a whole seperate area of the commodities markets.  While both companies are pursuing similar segments of the population (semi-affluent or affluent consumers with active lifestyles and strong brand awareness), we didn't think the phenomenon of hitting Chipotle for carnitas after your work out in Under Armour gym wear was so widespread.  But with a 0.94 correlation...

Unfortunately, we think this is an example of a spurious correlation.  The two both happened to get a great earnings reaction at the end of July, and their respective relationships with the broad market explain the rest of the similarity in their price action.  That's broadly supported by the following chart, which indexes both stock's prices to 100 as-of 2/2/14.  Both have moved similarly but Under Armour is the clear winner in terms of returns.

This is also supported by looking at returns, which we do below.  What was a 0.94 r-squared for price becomes a 0.21 r-squared for daily returns: in other words, the relationship isn't as strong as it initially looked.

This is a good example of spurious correlation, but it is worth thinking about why there's any relationship between the two names at all.  The similar moves off of earnings are certainly a factor, but even more interesting is how each responds to broad market conditions.  Both are revenue-growing darlings of the momentum trade.  Their marginal investor is similar, and they trade in a very similar way every day.  So while the apparent correlation isn't actually a real relationship, we do think that it's worth remembering that no stock trades in isolation: they're all exposed to the broad market, and stocks that are held by similar investor types often react to broad market conditions in similar ways.

As a reminder, The Bespoke Report will be out this evening.  If you haven't ever tried Bespoke Premium, sign up for a free trial now to get our weekly recap and outlook in your inbox.  Cancel for free if you don't like the first five days of the service.  Make sure to use “fallspecial” at checkout to receive 10% off, in case you decide you like what you read tonight!


The Many Subjects of King Dollar

The move higher in the US Dollar has rightfully gotten a lot of attention this year.  On a year to date basis, the move has been parabolic, with a brief pause in mid-October until a new wave of quantitative easing in Japan unleashed another rally driven higher by the gains for USDJPY.  The US economy has been resiliant in the face of a possible global slowdown, with the labor market whirring away, output humming, and the end of QE standing in stark contrast to other major economies.  Whether that set of conditions (and the gains for the dollar) continue is an open question, but for now the dollar reigns as king.  Below is a chart of the Bloomberg USD Index year-to-date for 2014.

Given the impressive performance of the dollar, we thought it would be interesting to look at other big currency winners and losers this year.  The performance (%) for all of the currencies in the table below are measured in terms of the USD, and we've also included November to date performance. 


Strong Internals for JOLTS Report

Today's Job Openings and Labor Turnover Survey (JOLTS) suggested a continued improvement of labor market internals, specifically higher quit rates and more turnover as workers moved between employers.  While the most widely-reported headline number was a miss (4.735 million job openings versus 4.8 million expected and 4.835 million previous, revised up to 4.853 million) the internals suggest the marginal worker is gaining confidence and moving in to the market by switching jobs via quits.  The quit rate hit its highest level of the expansion (2.0% for all positions, 2.2% for private positions, and 0.8% for government positions) continuing roughly on-trend but representing a dramatic jump versus last month, when we said the following:

But it wasn't all good news: the quit rate is stubbornly low.  Given that wages are refusing to move higher, this shouldn't be a huge surprise.  Without a higher wage waiting for them at a new job opening, why would a worker depart their existing employer?  Quits are just another sign that while demand is increasing for labor, supply remains high, keeping prices (wage growth and quits) low.

While wage growth hasn't kicked in yet, the quit rate is a good sign that employees are gaining confidence and seeing demand; the marginal worker is seeing enough wage enticement to jump ship, and that marginal worker is an increasingly large share of the total labor force.

The context for this improvement in quits is an extremely low level of firings.  Layoffs remain near all-time lows.

As a result, total separations rate is still quite low but ticking up, driven by good seperations: quits by workers seeking better opportunities (and likely higher wages) elsewhere.

While the number of job openings ticked down and missed expectations, it's still on-trend with explosive growth to the upside that went parabolic in Q2 of this year.

On balance this was a very strong report, about as strong as could be expected without raising questions about the validity of the underlying data.  Higher worker turnover is unambiguously good for wages, as it represents a more efficient functioning of the labor market during a period of rising labor demand.  Employers that are able to offer higher wages pick up workers and the result is higher incomes for consumers as lower paying jobs are abandoned for better opportunities.  This is only the latest in a series of indicators (nonfarm payrolls, initial and continuing jobless claims, labor force participation, hours worked) that show at worst a very steady expansion of the labor market and at best that we are getting very close to an inflection point towards higher wages.  While there is still a lot of ground to be made up relative to the last economic expansion (see charts above), JOLTS is quickly becoming a less steady justification for the Fed's desire to keep rates "lower for longer" now that QE is over. 


Jobless Claims Rise

Jobless claims for the latest week came in higher than expected, but still remained below 300K for the ninth straight week.  While economists were forecasting claims to increase by 2K from last week's level of 278K, the actual increase was 12K to 290K.  The current nine week streak of sub 300K jobless claims represents the longest streak since July 2000.

With this week's increase in jobless claims, the four-week moving average increased by 6K to 285K.  This ends a streak of five weeks in a row where the four-week moving average made a new post-recession low.  Guess they can't go down forever!

On a non-seasonally adjusted basis (NSA), jobless claims increased by 40K to 306.9K.  While this increase may sound big, we would note that it is common for NSA claims to increase at this time of year (and through January).  In fact, for the current week of the year this week's reading is the lowest since 2006, and 92K below the average NSA level for this time of year.  That being said, we can guarantee there will be some bears who will point to the rising levels of NSA claims as a cause for alarm just to support their negative views.


Bullish and Bearish Sentiment Both Increase

With the S&P 500 seemingly hitting record highs on a daily basis, it is not surprising to see bullish sentiment increasing along with the market, and that's exactly what we saw this week.  According to the American Association of Individual Investors (AAII), bullish sentiment increased by 5.24 percentage points to 57.93% from last week's level of 52.69%.  What is likely to raise eyebrows, though, is the fact that with this week's increase, bullish sentiment hit its highest level in more than four years, and is the second highest reading we have seen in the current bull market.

With bullish sentiment at such high levels, you would expect to see the herd of bears thinning out.  Surprisingly, though, this week we also saw a relatively big increase in bearish sentiment as well.  After hitting a bull market low last week, bearish sentiment increased from 15.05% to 19.31%.  What makes this increase notable is the fact that there has only been one other week in the entire bull market (4/30/09) where both bearish and bullish sentiment increased by more than four percentage points.


Best and Worst Performing S&P 500 Stocks on Earnings this Season

More than 400 of the S&P 500's companies have reported earnings since early October, and below is a list of the stocks that have reacted the most positively and negatively to their reports.  (For S&P 500 companies that report in the morning, we use that day's change.  For companies that report after the close, we use the next day's change.)

Just six S&P 500 companies have gained 10% or more on their report days this season.  Tractor Supply (TSCO) has been the biggest winner with a one-day gain of 15.82% following its 10/22 report.  Whole Foods (WFM) ranks second best with a one-day gain of 12.15%, while Edwards Lifesciences (EW) ranks third at +11%.  Newfield Oil (NFX), Visa (V) and Devon Energy (DVN) round out the group of six that saw double-digit percentage gains on earnings.

Some other notables on the list of earnings season winners in the S&P 500 include MasterCard (MA), Harley-Davidson (HOG), Cummins (CMI), Whirlpool (WHR), Amgen (AMGN) and Texas Instruments (TXN).

Below is a list of the S&P 500 stocks that have reacted the most negatively to their earnings reports this season.  Each of the stocks below fell more than 5% on their report days.  Genworth Financial (GNW) has been far and away the biggest loser in the S&P 500 this earnings season with a one-day fall of 38.45% following its 11/5 report.  Netflix (NFLX) ranks second worst with a huge decline of 19.37%, while TripAdvisor (TRIP) and First Solar (FSLR) both fell more than 10%.  NFLX, TRIP and FSLR are all momentum Tech names that got crushed this season.  Some other notables on the list of earnings season losers include Qualcomm (QCOM), Priceline.com (PCLN), Amazon.com (AMZN), IBM, Chipotle (CMG), Facebook (FB), Biogen (BIIB) and Coca-Cola (KO).  Shareholders of these names will certainly be looking for a different outcome next season, and the onus is on the company's to deliver.

Earnings season comes to an end tomorrow with Wal-Mart's (WMT) Q3 report.  Looking for an in-depth analysis of every single quarterly report that was released this season?  Become a Bespoke Premium or Bespoke Institutional member today to receive a boat-load of actionable earnings-related advice.  Click here for a 5-day free trial.


Bespoke CNBC Appearance (11/12/14)

Bespoke's Paul Hickey appeared on CNBC's Fast Money to discuss the performance of retail stocks leading up to the holiday season.  To view yesterday's clip, please click on the image below.


Earnings Triple Plays

The third quarter earnings season unofficially comes to an end on Thursday when Wal-Mart (WMT) reports earnings before the open.  So far this earnings season, more than 2,000 companies have reported their quarterly numbers, and our job here is to identify the reports that look the best. 

One way that we narrow our list down is to look for earnings “triple plays.”  Long-term Bespoke readers know how much we like triple plays, but for those that haven’t heard of the term, we came up with it back in the mid-2000s for companies that beat their earnings estimates, beat their revenue estimates and also raise guidance.  We consider triple play stocks to be the cream of the crop of earnings season, and we are constantly finding new long-term buy opportunities from this basket of names each quarter.

So far this earnings season there have been 136 triple plays, which is a very high number compared to most earnings seasons.  There have been 58 inverse triple plays, which are stocks that miss both earnings and revenue estimates and also lower guidance, so triple plays have outnumbered their opposites by more than two to one.

Below is a list of a few key S&P 500 "triple play" earnings reports from this season.  At the far right of the table, we provide the one-day change that each stock experienced in reaction to its report.  Some of the more notable names on the list include Apple (AAPL), Caterpillar (CAT) and Amgen (AMGN).

Earlier today over at Bespoke Premium, we published the entire list of 136 triple plays for our subscribers.  And to further filter the list of 136 stocks, we analyzed the chart patterns for each of them to identify the ones that currently look the best from a momentum/technical perspective.  There were 15 names that made our final cut.  If you are looking to gain exposure to certain areas of the market and need some individual stock ideas, we recommend taking a good look at the 15 names we identified.  To see the list, sign up for a 5-day free trial to Bespoke Premium today!


US Now the Most Overbought

Below is a look at our trading range screen for the 30 largest country ETFs traded on US exchanges.  For each ETF, the black vertical "N" line represents its 50-day moving average (50-DMA).  The dot represents where it is currently trading, while the tail end represents where it was trading one week ago.  Moves into the red shading are considered "overbought" (read more at the bottom of the screen), while moves into the green zone are considered "oversold".  We also provide how each country has performed on a year-to-date basis, as well as where it currently stands relative to its 50-DMA.

The majority of countries have seen their stock markets trade in neutral territory over the last couple of weeks with relatively low volatility (short tails).  Last week at this time, five countries were oversold, while three were overbought.  As of today, six countries are oversold (all just barely), while there's only one that is overbought.

The one country that is overbought right now is the US (SPY).  As you can see in the screen, it's currently more extended versus its 50-day moving average than any other country ETF highlighted.  Japan (EWJ) was more overbought last week, but it has pulled back significantly over the last five trading days and is now just a hair above its 50-day.  

In terms of year-to-date performance, India (PIN) is up the most at +27.19%, followed by the Phillipines (EPHE) at +20.89% and Thailand (THD) at +19.34%.  The US has been one of the better performing countries on the list at +10% YTD.  On the downside, Russia (RSX) is off the most at -26.6%, while France (EWQ) and Germany (EWG) are both down 10%+ as well.