Prices at the Pump Keep Dropping

The national average price of gasoline has been in a practical free fall for nearly four months now and hasn't had a single up day since late September.  According to AAA, the national average price of a gallon of gas currently stands at $3.186, which is the lowest level since 11/11/13.  More importantly, though, if the average price drops another cent, gas prices will fall to levels not seen since February 2011.  Two handle gasoline on the horizon?


S&P 500 Sector Trading Range Charts

The S&P 500 closed yesterday at nearly 3 standard deviations below its 50-day moving average.  The late-day selloff that we saw was extreme to say the least.  As shown below, the index has now clearly broken its uptrend channel, so the bulls certainly have work to do.  That being said, the market hasn't been this oversold in more than two years.  You would expect to see a short-term bounce back soon.  

Consumer Staples and Utilities are the two remaining sectors that are above their 50-day moving averages.  The rest of the market is oversold.  

Energy, Industrials and Materials have experienced complete technical breakdowns.  Technology, Consumer Discretionary, Financials and Health Care are getting close.  

For more in-depth sector analysis, sign up for a 5-day free trial to Bespoke Premium today.


European Default Risk

European equity markets have gotten absolutely slaughtered recently.  Interestingly, though, sovereign default risk for some of the countries that have seen their stocks fall hardest hasn't ticked higher.

Below are price charts for the major equity indices of France (CAC), Germany (DAX), Italy (FTSE MIB) and Spain (IBEX 35).  Below each price chart for the various indices, we provide a price chart of that country's 5-year credit default swaps (CDS).  CDS measures default risk for sovereign debt, and as you can see, we have yet to see any kind of spike in default risk during the current downturn.  That's a bullish sign so far.


Highest Percentage of Oversold Stocks in a Year

Below is a look at the percentage of overbought versus oversold stocks in the S&P 500 over the last year.  As shown, 63% of stocks in the index enter today in oversold territory, which is the highest reading we've seen in a year.  Just 10% of S&P 500 stocks are overbought.  It has been a painful few weeks for stocks indeed.  Let's see if we get an oversold bounce soon.


Bulls Still in the Majority

If you were looking for a spike in bearish sentiment following the brutal action in stocks last week, you didn't get it.  As shown below, bulls remained in the majority in our weekend Bespoke Market Poll, coming in at 54% versus bearish sentiment of 46%: 


What A Week It Was

To further summarize the volatile week we just had, below is a look at the recent performance of various asset classes using our key ETF matrix, which covers US equity strategies and sectors, currencies, country ETFs, commodities, and fixed income.  As shown, declines of 3-5% were seen across the board last week for US related equity ETFs.  The losses have left the Dow in negative territory for the year now, and the smallcap Russell 2,000 (IWM) is down nearly 10% YTD.

Energy, Materials, Industrials and Technology were the worst performing sectors last week, while Consumer Staples and Utilities were actually higher -- clearly a defensive rotation.

Globally, we did see strength in Brazil (EWZ) and Hong Kong (EWH) for the week, but everything else was in the red.  Developed Europe led the way lower, and the France (EWQ) and Germany (EWG) ETFs are now down double-digit percentage points in 2014.  Germany (EWG) is down nearly 20% YTD, and it's also down more than 20% from its 2014 highs -- putting it in bear market territory.

While oil and natural gas both fell sharply last week, gold and silver rallied.  Treasuries also saw heavy buying as the "safety trade" reigned supreme.

What's causing the market to struggle so much recently, and how should you position yourself through year end?  Find out our thoughts in our weekly Bespoke Report newsletter, available to all Bespoke clients.  Use "bespokeinvest" in the coupon code section of our Subscribe page to receive a 10% discount on your new Bespoke membership.  As always, there's a 5-day free trial, so if you're unhappy with the product, simply cancel at no charge.

Our Friday edition of The Closer always comes loaded with charts summarizing major asset class changes, equity strategy performance, and the coming week's economic data releases.  There are also all of the other features included in The Closer every night: charts, returns, big movers, Stock Odds, and Bespoke's Market Timing Model.  Subscribe now to get your free five day trial of Bespoke Premium!  From Friday's edition of The Closer: 

The worst week for stocks since May of 2012 is over.  Treasury yields continue to fall, dropping by the most in the ten year since July of 2012; oil showed some life in today’s session but crude has now declined by the most since the Taper Tantrum in June of 2013.  The decline in oil is in spite of a move lower in the US dollar index, its first after 12 weeks of gains.  A pause for moves higher mid-week in equities, credit and emerging market equities thanks to the Fed minutes Wednesday was broken up during the European session as stocks on the east side of the Atlantic plummeted, continuing moves lower that have been underway for weeks.  Economic data in the US was very light but showed no change in momentum as jobless claims continued their run of impressively low prints and the JOLTS report showed strong demand for labor.  But the global economy remains less robust, and there were disappointing releases around the world.  A great start to earnings from Alcoa (AA) was ignored by the market as the name declined 5.71% despite a strong report.  Financials get earnings really rolling next week.


S&P 500 Higher or Lower from Here?

The market fell hard this week, leaving the S&P 500 just one point above its 200-day moving average.  The Nasdaq and Dow weren't so lucky -- failing to hold above their 200-days into the close today.  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!

After a week like this one, our Bespoke Report newsletter is must read.  This week's report is packed with actionable analysis and market statistics covering the big sell-off we've seen recently in stocks.  Use "bespokeinvest" in the coupon code section of the Bespoke Premium subscribe page to get 10% off your new membership today.  As always, there's a 5-day free trial included.

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


S&P 500 Energy Sector Long-Term Chart

Below is a long-term look at the S&P 500 Energy sector.  Earlier this year, the sector experienced a big upside breakout above its pre-financial crisis highs.  As shown below, though, that breakout has given way to a breakdown back below those 2007 highs.  The sector has also broken below the bottom of its two-year uptrend channel.  There's a longer-term uptrend channel still in place that goes back to the sector's lows in 2008.  Let's see if it we get a test of that before the end of the year.


The 50 S&P 500 Stocks Farthest Below 50-Days

There's a lot of oversold stocks out there right now.  Below is a list of the 50 S&P 500 stocks that are currently the farthest below their 50-day moving averages.  As shown, the bulk of the names at the top of the list are from the Energy sector, which is no surprise given the sector's performance recently.  Noble (NE) is the farthest below at -22.89%, followed by Chesapeake (CHK) at -22.5%.  The first non-Energy sector stock that shows up is Allegheny Tech (ATI), which is a Materials name that is 17.7% below its 50-day.  

First Solar (FSLR) is the most oversold Tech stock at -16.21% below its 50-day.  Some other notables on the list include Gap (GPS), Harman (HAR), CBS and TripAdvisor (TRIP).

For more in-depth market analysis, sign up for a 5-day free trial to Bespoke Premium today.


Sector YTD Returns Heatmap

Below, we chart a heatmap showing 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.

It has been a goofy year.  Health Care, Consumer Discretionary and Financials were the hottest sectors in early January, but then Financials and Discretionary trailed off quickly.  Discretionary hasn't been able to recover all year.  Health Care and Utilities were the top performers over the first quarter, but then Health Care trailed off in the second quarter while Utilities remained on top.  Once July and August rolled around, Health Care picked up again, and it's currently the top sector year-to-date with a gain of 16%.  

The Technology sector struggled early on versus other sectors, but since July it has remained as a top performer year-to-date.  Industrials was a middle-of-the-pack sector up until August, but since then it has been a relative underperformer.  Finally, Energy started off relatively weak, but then it turned into a big outperformer in the middle part of the year.  Since September rolled around, though, Energy has gone straight down, and it's now the worst performing sector in the market year-to-date. 


S&P 500 Sector Breadth Levels

Just 32.2% of stocks in the S&P 500 are currently above their 50-day moving averages.  Below is a look at breadth levels for the ten S&P 500 sectors.  As shown, three sectors stand out as having very positive breadth, while the remaining seven sectors are weak relative to the index as a whole.  Utilities -- the most defensive sector there is -- has a breadth reading of 83.3%.  Consumer Staples -- another defensive -- has a reading of 65%.  Behind Consumer Staples is Health Care with 64.2% of its stocks above their 50-days.

On the downside, Energy continues to get beaten down.  Just 2% of S&P 500 Energy stocks are above their 50-days.  Just 19.7% of Technology stocks remain above their 50-days, which isn't a good sign given that the sector makes up 20% of the market.

Below we have run the 30 largest stocks in the Energy sector through our trading range screen.  As you can see, 29 of the 30 stocks are in oversold territory -- most of them deeply oversold.  Kinder Morgan (KMI) is the only stock in the screen that is not oversold, but it is below its 50-day moving average.

Yesterday we noted that oil was about to enter bear market territory, and with it, Energy stocks continue to crater.  When will the bleeding stop?


Bullish Sentiment Rebounds

After four declines in the last five weeks, bullish sentiment on the part of individual investors rebounded this week.  According to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment increased from 35.42% up to 39.88%, which was the largest weekly increase since the last week of August.  This week's increase also brought bullish sentiment back above its bull market average of 39.4%.  While bullish sentiment increased this week, bearish sentiment was nearly unchanged, rising from 30.90 to 30.98%, so all of the increased bullishness came from the neutral camp.

Although the S&P 500 was up during the week in which the survey was conducted, this week's jump in bullish sentiment was a little bit of a surprise given all the volatility we have seen in the market of late.  Volatility is usually a turn-off for individual investors, but at this point they don't seem to mind.

Earnings season kicked off Wednesday, so stay on top of things with our top-of-the-line earnings season analysis. Become a Bespoke Premium member today.  Use "endofsummer" in the coupon code section of our Subscribe page to receive 10% off the membership price.  As always, there's a 5-day free trial period once you start your subscription.


Jobless Claims Better Than Expected

Jobless claims for the latest week fell by 1K, falling from 288K down to 287K, which was 8K below the consensus forecast of 295K.  This week's lower than expected reading was the fourth straight week that claims came in lower than expected, which is the longest streak of better than expected reports since March.

With this week's better than expected report, the four-week moving average for jobless claims fell to 287.75K, which is a new low for the current recovery cycle.  In fact, you have to go all the way back to one week in February 2006 to find a lower reading, and before that you have to go all the way back to June 2000.

On a non-seasonally adjusted basis (NSA), jobless claims rose by 30K to 257.7K.  In spite of the increase, though, claims are still low for this time of year.  As shown in the chart below, the average NSA reading for jobless claims in the first week of October is 346.9K, and you have to go back to 1999 to find a week where NSA claims in the first week of October were lower.

Earnings season kicked off Wednesday, so stay on top of things with our top-of-the-line earnings season analysis.  Become a Bespoke Premium member today.  Use "endofsummer" in the coupon code section of our Subscribe page to receive 10% off the membership price.  As always, there's a 5-day free trial period once you start your subscription.


Big Down Day Followed By Even Bigger Up Day

The S&P 500 fell 1.51% yesterday, but it followed up that big loss with a gain of 1.75% today.  Over the two-day period, the S&P is up about 4 points.  

Big down days followed by even bigger up days have been rare during the current bull market that began on March 9th, 2009.  In fact, situations like the last two days where the S&P fell more than 1.5% only to rally back even more the next day have only occurred six other times, and we highlight them in the table below.

You may think it's bullish to see an upside day that eclipses extreme losses on the day prior, but that hasn't been the case during this bull market.  As shown below, the S&P has averaged declines going forward in the near term (over the next day, week and month).  The last time this happened was on October 18th, 2011, when the S&P rallied 2.04% after falling 1.94% the day before.  On October 19th, 2011, the S&P fell 1.26%.  Over the next week the S&P saw a small 30 basis point gain, but over the next month, the index was down 75 basis points.  

Sign up for a 5-day free trial to Bespoke Premium to check out today's Closer, where we dive into today's move in more detail and focus on what's in store for the market next.


New Oil Bear Market?

Oil (West Texas) is currently trading just above $87.  As long as the commodity closes below $88.42, it will enter bear market territory.  

A bear market is a drop of at least 20% that was preceded by a rally of at least 20%.  Below is a chart showing bull and bear markets for oil since 2009 when the Financial Crisis was coming to an end.  As shown, this would be the fourth bear market for oil over the last five years, and it would already be the longest at 397 calendar days.

Over at Bespoke Premium, we have just published a B.I.G. Tips report taking a look at historical bear markets for oil.  How long do they typically last, and how severe do they get?  We answer these key questions in the report.  Sign up for a 5-day free trial to Bespoke Premium to access the report today.