Monday
Apr142014

Taxman

Let me tell you how it will be
There's one for you, nineteen for me
Cos I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small
Be thankful I don't take it all
Cos I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street
If you try to sit, I'll tax your seat
If you get too cold I'll tax the heat
If you take a walk, I'll tax your feet

Taxman!
Cos I'm the taxman, yeah I'm the taxman

So said The Beatles in their 1966 track Taxman, the lead song for their album "Revolver".  It harkens back to a time when the marginal income tax rate for the highest income earners in the United States was an astounding 70% for married joint filers over an income of $200,000.  Adjusted for inflation, that top rate would kick in around $1.4 million today.  While John, Paul, George, and Ringo were exagerating when they said "one for you nineteen for me", they weren't far off!  Today, however, nominal income tax rates are drastically lower, currently sitting at 39.6% for incomes over $450,000.  That still stings though, and many investors are actually faced with a tax bill on April 15th instead of a tax refund.  This is a function of who invests in stocks.  Investors are more likely to have earned income not automatically withheld, among other factors, so many are forced to cough up money in mid-April instead of getting a relieving check back from Uncle Sam.  Good financial planning can mitigate that effect, but we were curious to see if tax-driven selling of equities had an effect on stocks.

With federal tax returns due tomorrow, it seemed appropriate to take a look at how the markets typically do during the distraction of tax week each year.  We compiled a data set of returns from the Friday before tax day to the Friday after tax day since 1955.  Going back to that year, average returns for "Tax Week" hover around +39 basis points, which is stronger than the average gain of 0.15% for all 5-day periods throughout history.  It is notable, though, that the S&P has been lower during tax week in three in the last four years during the current bull market.

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Monday
Apr142014

Slightly Less Bearish

There are still more bears than bulls in our weekly Bespoke Market Poll, but bearish sentiment dipped 3 percentage points this week from 56% down to 53%.  The steep market declines seen on Thursday and Friday doesn't appear to have scared off too many investors.

Friday
Apr112014

S&P 500 Higher or Lower from Here?

Things got dicey this week as the Nasdaq posted back-to-back declines of 3% and 1.3% on Thursday and Friday.  Selling had been confined to just a few high-growth sectors up until yesterday, but investors moved out of pretty much everything equity related over the last two days.  So which way will the market head from here?  Please take part in our weekly 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!

Which way does Bespoke think this market is headed?  Find out in our weekly Bespoke Report newsletter published every Friday after the close.  Sign up for a 5-day free trial here to view this week's newsletter.

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com
Friday
Apr112014

Largest Companies With Earnings Coming Up

Alcoa (AA) kicked things off with its earnings report on Tuesday, and now the season is gearing up with over 700 publically traded companies reporting over the coming two weeks of trading.  The earnings season is coming during a period where stocks are starting to roll over as sell-offs in aggressive growth sectors over the last month have spilled into the broad market.  Expectations for companies are a tad muted after a difficult winter crimped economic activity. 

Citi (C) enters the fray on Monday, following up reports from JPMorgan (JPM) and Wells Fargo (WFC) today.  Both companies reported major declines in revenue, primarily due to a decline in demand for mortgages as the refinancing boom of the last three years winds down, so the markets will be focused on that segment of C's business.  On Tuesday, we get Warren Buffet's favorite beverage producer Coca-Cola (KO) as well as consumer-focused Johnson & Johnson (JNJ) and fellow soft drink maker PepsiCo (PEP) on Thursday.  In Tech, Intel (INTC), Google (GOOGL), and IBM all report next week.  Further down the line, Facebook's (FB) report on the 23rd will be important given the recent hits to internet plays.  In its relatively short earnings history, FB jumps by 8% on average from its pre-report close to the following day's final level.

Below is a table showing the largest 30 companies (by market cap) reporting over the next two weeks; we've also included beat and miss rates for both EPS and revenue as well as guidance raise percentages and the historical average one day percent change on earnings reports for each company.  Bespoke Premium subscribers have already received this information and more for over 2100 companies that report between now and mid-May.  Sign up for a 5-day free trial today to gain access to the full list and the rest of Bespoke's earnings season products!

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Thursday
Apr102014

US Stocks Ravaged as Other Asset Classes Hold Their Own

After today's two percent decline in the S&P 500, below is a look at how asset classes across the financial spectrum performed.

What a brutal stretch it has been for US equity investors.  Growth name weakness has spilled over into the rest of the market for the time being, and US-focused ETFs are showing it, drastically underperforming peer indices in the rest of the developed world and the emerging markets alike.  While returns haven't been spectacular recently anywhere outside of EM, the persistent selling in US markets hasn't been replicated to the same degree, although Italy, Japan and Russia have been the lagards among intenational equity markets.

In non-equity asset classes, there's an entirely different feel.  Currencies, commodities, and fixed income focused funds are all thumping equity allocations.  Precious metals are still down month-to-date, but continued volatility in US stocks is likely to reinforce the recent bid for these assets.  Meanwhile the US yield curve has been bull steepening as the equity markets re-align, helped along by dovish comments littered throughout the Federal Reserve's release of its March Federal Open Market Committee minutes on Wednesday.

 

While EM names and non-US equities have been boosted by the roll-over in US markets, we're interested to see if a larger risk-off mentality spreads from American bourses to overseas markets, or if the US weakness is a more localized phenomenon.  Bulls are not comfortable domestically; will that feeling spread abroad too?

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Thursday
Apr102014

Stocks Slammed

Tax day next Tuesday is quickly approaching, and based on today's action, it looks like investors are selling everything they own to pay all those 2013 capital gains taxes they owe! 

Below is a look at where the S&P 500 and its ten sectors currently stand within their trading ranges after a day of carnage is US markets.  For each sector, the black vertical "N" line represents its 50-day moving average, while the dot represents where it's currently trading.  The tail end shows where it was one week ago, and moves into the red zone or green zones are considered overbought or oversold. 

Today's 2% decline for the S&P 500 left it solidly below its 50-day moving average, so the bears have re-gained control of the index in the near term.  Five sectors are now below their 50-days as well -- Consumer Discretionary, Financials, Health Care, Industrials and Technology.  It's never good to see all cyclicals below their 50-days like this, much less the two largest sectors of the market in Technology and Financials.  Four sectors remain overbought, and three are defensives -- Consumer Staples, Telecom and Utilities.  Bulls want to see the cyclicals overbought and the defensives lagging, but the opposite is in place right now. 

As shown below, just under 50% of the stocks in the S&P 500 are now above their 50-day moving averages.  This isn't horrible breadth given that the index broke hard below its 50-day today, but it's not good to see the reading below 50%.  Once again, it's the major cyclicals with the weakest breadth readings.  The biotech-heavy Health Care index has the weakest breadth reading with just 28.3% of its stocks above their 50-days, while Consumer Discretionary and Technology have readings in the 30s.  Industrials and Financials stand at 42.2% and 44.6%, respectively.

On the positive side, every stock in both the Telecom and Utilities sectors is above its 50-day, so investors have been moving into these defensive areas hand over fist.  What does this say about the outlook for the US economy as we head into the middle of 2014?

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Thursday
Apr102014

Pain in the Most Heavily Shorted Stocks

Short interest figures for the end of March were released after the close yesterday, and we just finished our update of short interest figures for clients. Below we have provided a table of the most heavily shorted stocks (as a percentage of float) in the S&P 1500.  The list includes every stock that has more than 25% of its free-floating shares sold short (in the middle of March there were only 25).  For each stock we have also included its performance so far this month.  

The month is only ten days old, but already it is looking to be quite a good month for the short-sellers.  Of the 33 names highlighted below, only 11 are up, while the remaining 22 are down.  All in all, the average return of the stocks listed is a decline of 2.98%, which is 100 bps more than the 1.92% decline for the S&P 1500 (-1.92%).

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Thursday
Apr102014

Jobless Claims vs. the Market

Initial Jobless Claims ticked to their lowest level in nearly seven years this week.  This should be a positive for the market given how closely the weekly Jobless Claims reading has mirrored stocks since the start of the bull market.  Below is a chart of the S&P 500 since March 2009 with an inverted chart of Jobless Claims overlaid on top.  You can see the new high in the inverted Claims reading made this week.  

While Jobless Claims made a new bull market low today (new high on the inverted chart), equities are clearly not reacting positively.  In fact, they're reacting rather horribly, with the Dow down 200 and the Nasdaq down 100.  There have been periods throughout this bull where "good news is bad news," but ultimately the market has moved higher as Jobless Claims have moved lower, and we are pleasantly surprised by the positive development in the reading today.

Thursday
Apr102014

Jobless Claims At Lowest Level in Nearly Seven Years

The trend of lower jobless claims continued this week as first time initial claims dropped by 32K to 300K, which is the lowest level in nearly seven years (May 2007).  It was also the lowest weekly decline since December 2012.  A few weeks ago, this type of report may have spooked the market on fears of the Fed moving up its tightening timeline, but with the Fed abandoning its 6.5% unemployment rate target, futures got a modest bump on the news.

With this week's decline, the four-week moving average moved down from 321K down to 316.25K, inching ever so closely to the post-recession low of 314.75K from last September.  It has now been 28 straight weeks since that last post-recession low was made, so a new low would be a welcome relief.

On a non-seasonally adjusted (NSA) basis, jobless claims rose by 3.5K to 298.4K.  In spite of the increase, NSA claims are still well below their average of 376.2K for the current week dating back to 2000, and the lowest for the current week since 2005.

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Thursday
Apr102014

Bullish Sentiment Drops to Lowest Levels Since February

With the recent weakness in equities, one would expect bulls to temper their enthusiasm towards the market, and that is exactly what we saw this week.  According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment saw its largest one week decline since early January.  After bouncing up to 35.4% in the prior week, bullish sentiment declined 6.92 percentage points to 28.48%.  This is the lowest weekly reading since February 6th.  While the ranks of the bulls thinned, the bearish camp grew, rising from 26.8% up to 34.1%.  It is also the first time since February 6th that bears outnumbered bulls.

The fact that bulls are so quick to retreat with the overall market right near all-time highs suggests that investor sentiment is far from complacent.  Instead, it signifies a healthy degree of skepticism towards stocks on the part of individuals.

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Wednesday
Apr092014

Looking For Action? Most Volatile Stocks

For traders with a short-term time horizon who are looking for big moves over a short period, we have updated our list of the S&P 1500 stocks trading above $10 that have the largest intraday high-low ranges (based on the average percent spread between the intraday high and low over the last 50 days).  The stocks are grouped based on whether they have a rising or falling 50-day moving average (DMA).  Stocks highlighted in gray are new to the list since our last report.

Due to the recent sell-off in the equity market, the majority of stocks making this month's list are in short-term downtrends with falling moving averages (35).  Additionally, there has also been a notable increase in volatility as 17 stocks listed have average daily high/low spreads of more than 5%.  In terms of sector breakdown, Health Care has the greatest representation with 15 stocks, followed by Technology (11), and Consumer Discretionary (8).  Meanwhile, the only two sectors that have no representation are Telecom Services and Utilities, but given their relatively high dividend yields and defensive characteristics, these are not typically considered to be volatile stocks.

In terms of individual names, Alexion (ALXN) and Green Mountain Keurig (GMCR) are the only two triple-digit stocks on the list.  Some of the more notable, or well known, stocks listed include Questcor (QCOR), which got a takeover offer just earlier this week, 3D Systems (DDD), and FirstSolar (FSLR).

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Wednesday
Apr092014

Get A Handle On Earnings With Bespoke Premium

If you're looking for a way to get a handle on earnings season, Bespoke has you covered with an array of products that will help you navigate the volatility of the quarterly report dates in your portfolio.  Fighting out gains in the markets is tough enough without the uncertainty of earnings, but our Bespoke Premium and Bespoke Institutional services can help you prepare for unpleasant surprises.

As an example of how our products can be of value, let's take a look at Alcoa (AA).  AA is up 4% pre-market after a strong EPS beat last night to kick off earnings season.  But Bespoke Institutional subscribers who use our Interactive Earnings Database know that over the last ten years, that's been a lousy predictor of how the stock does between the open and the close.  When AA has beat on EPS and gapped higher, the name has sold off an average of 1.39% between the open and close on the following trading day, and was down between its opening and closing prints 10 of the 13 times this has happened since 2004.  While the stock is usually positive from its previous close to the close the following day (11 of 13 times positive averaging 2.33%), those gains are usually driven by the after-hours gap not the price action during trading hours the day after AA reports.

To help you get through the challenging and unpredictable earnings period, Bespoke is offering a 10% discount on new subscriptions to all of our services.  Use the code 'earnings' at checkout to receive the discount.  As always, we offer a 5-day free trial, so if you aren't satisfied with what Bespoke has to offer, you can cancel without charge.

Check out our earnings products page over at Bespoke Premium.  It provides a detailed list of all the earnings-related offerings we put out that can help protect your portfolio during the volatile earnings season.

Tuesday
Apr082014

Most Volatile Stocks on Earnings

Each quarter just before earnings season, we provide a list of the stocks that have historically seen the biggest moves on their earnings report days.  

In our Interactive Earnings Report Database (available to Bespoke Institutional members), we have the price action around earnings for every company that has reported over the last 13 years.  This allows traders and investors to easily track how specific companies trade on earnings.  From our database, we created the chart below that shows the average one-day change on earnings by sector.  (For companies that report before the open, we use that day's change.  For companies that report after the close, we use the next day's change.)  As shown, the average one-day change on earnings for all stocks in our database is 5.41%, so in general, you can expect the average company to move +/-5.4% on the day of its earnings report.  Unsurprisingly, Technology stocks are the most volatile around earnings, with an average one-day change of +/-7.14%.  Consumer Discretionary stocks are the second-most volatile at +/-6.18%, followed by Health Care (which includes Biotech) at +/-5.77%.

If you're looking for stability, Utilities stocks move the least in reaction to their earnings reports, with an average one-day change of just +/-2.15%.  Financial stocks are the second least volatile at +/-3.61%.

Below is a list of the stocks that have historically seen the biggest moves on their earnings report days.  To be included in the list, a stock must have at least 12 quarters (3 years) worth of earnings reports.

As shown, BroadSoft (BSFT) is the most volatile stock in our database with an average change of +/-16.59% on earnings.  That means that each quarter, you can expect the stock to have a one-day change of more than 16% in either direction!  Fuel Systems Solutions (FSYS) is not far behind in second at +/-16.38%, while Intralinks Holdings (IL) ranks third at +/-15.07%.  

The most notable names on the list are probably Netflix (NFLX), First Solar (FSLR), Priceline Group (PCLN) and Intuitive Surgical (ISRG), but basically it's made up of a who's who of the stocks that traders look to for action.  

A lot of these stocks have gotten slaughtered leading up to their upcoming earnings report dates, so this quarter we are also including how far each stock on the list is from its 50-day moving average.  Companies that have moved into deep oversold territory will be fun to watch this season.  Given how much they have fallen, you would expect the ones that report much stronger than expected earnings to snap back pretty significantly.

For more in-depth earnings season analysis, head on over to Bespoke Premium and sign up for a 5-day free trial today.  Click here to see all of the earnings-related products that are included with the Premium service.

To access our Interactive Earnings Report Database, become a Bespoke Institutional member today.

Tuesday
Apr082014

Would You Buy These Charts?

Bespoke takes a multi-pronged approach to investing, and one of our preferred approaches is to look at recent price action in a name or index using six month charts.  Take a look at the six charts below and see if you like or dislike any of the patterns.

Some of these charts look very bullish.  Unfortunately, they are all actually inverted: the vertical axis goes from low at the top to high at the bottom.  They are, in order, the S&P 500, the Nasdaq Composite, the Nasdaq Biotech Index, the Nasdaq Internet Index, the Dow Jones Industrial Average, and Netflix (NFLX).  Below we've re-oriented the same charts with their vertical axis arranged in the traditional format.  It's no surprise that the inverted charts for biotech and the internet group look so bullish, but it should be a concern for bulls that the inverted chart for the Nasdaq looks like a clear buy given that the downtrend has been broken.  The Dow and S&P 500 inverted charts don't look too bullish yet, so that's a good sign for now.

In general, we think this is a good exercise to run from time to time just to change things up a little and help keep your perspective in check.  If you really liked the look of the inverted charts, you shouldn't like the look of the actual charts. 

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Tuesday
Apr082014

NFIB: Taxes and Government Still Big Problems

Today's report on small business optimism from the National Federation of Independent Businesses showed that overall optimism increased two points to 93.4, which was better than expected (92.5).  Within each month's report on small business, respondents are also asked what 'problem' makes them the least optimistic.  For several years now, the biggest problem for businesses have been government related and that continued to be the case in March

As shown in the table to the right, the top two problems facing small businesses are Government Requirements & Red Tape (21%) and Taxes, which also received 21% of the vote.  While Red Tape was unchanged from February, Taxes saw the largest increase of any category.  This increase was no doubt due to the fact that many small business owners started getting their tax returns which likely showed big increases in liabilities.  At the same time as government is becoming a bigger problem, worries over revenues are diminishing.

The chart below compares the combined percentage of small businesses that cite Taxes and/or Government Regulations as the number one problem they face to the problem of Poor Sales.  As shown, the gap between 'Government' and Poor Sales is near record levels.  At a current level of 42, the 'Government' problem is now three times higher than Poor Sales.

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