Bespoke Market Poll: Still Bullish

Since the start of the year, we've seen investors remain bullish even in a rough market.  Up until recently, investors would head for the hills any time the market ran into trouble, but that hasn't been the case so far this year.  Contrarians would argue that this is not good news for the market.

This weekend, our Bespoke Market Poll results showed a continuation of the "bullish in the face of market weakness" trend.  While bullish sentiment ticked down one point, it still remains well above the 50% threshold.  We still haven't seen a bullish reading below 50% since the end of September 2014.


Countdown To Liftoff Mostly Unchanged

Bespoke's "Countdown To Liftoff" indicator was introduced last week, and it provides our current estimate for the length of time until the Fed hikes rates.  After getting close to 11 months following last week's poor economic data, it has started to drift back down under 10.  The decline we saw over the weekend may in part be related to yesterday's WSJ article that suggested the Fed remains on course to hike rates this year despite falling yields on long-term treasuries.

For an explaination of Bespoke's Countdown To Liftoff, please see our previous post.


NAHB Home Builder Sentiment Declines

Home builder sentiment in the month of January saw a modest decline in January falling to 57 from December's upwardly revised level of 58.  With economists collectively looking for a reading of 58 in the headline index, today's report was slightly weaker than expected.  The table to the right lists the breakdown of this month's report by category and region.  As shown, there was widespread (although not huge) weakness in this month's report.  While Present Sales was flat, Future Sales and Traffic were both down (see charts below).

On a regional basis, sentiment weakened everywhere but in the Midwest, where we saw the sentiment index rebound back up to 60.  Out west, though, sentiment dropped by nine points from last month's post-recession high of 74.  Even though the declines in this month's headline reading were minimal, it turned what was an already weak market for the sector even weaker.


S&P 500 Higher or Lower from Here?

The S&P 500 saw a nice move higher on Friday, but the index closed lower on the week.  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 Tuesday 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?
Free polls from Pollhost.com

Wondering what to make of this market over the long weekend?  Sign up for a 5-day free trial to our Bespoke Premium service and view our just-published Bespoke Report newsletter.  It's 42 pages packed with data and analysis that Bespoke readers have come to love.  If you follow the markets, our weekly report is a "can't miss".


Countdown To Liftoff Ticks Lower

Bespoke's "Countdown To Liftoff" indicator was introduced yesterday.  After economic data this morning (including a massive Michigan Consumer Confidence print), the dollar has rallied sharply and interest rates have moved higher.  As a result, our new calculation shows a Fed hike in the month of November instead of the month of December.  In practice, we expect the Fed to announce a rate hike at a meeting with a press conference, so that means the market is on balance expecting a hike in either September or December, with a more likely outcome being December.


% from 52-Week Highs

Below is a look at the average percentage that stocks in the S&P 1500 (which includes large, mid and smallcaps) are from their respective 52-week highs by sector.  In the S&P 1500 as a whole, stocks are currently down an average of 15.71% from their 52-week high.  In the Energy sector, the average decline is a whopping 45.56%.  The Materials sector is the second worst at -21.65%, followed by Industrials at -16.53%.  Utilities stocks are the closest to their 52-week highs, which isn't surprising given their massive run in 2014 and their outperformance so far this year as well. 

While we're still in a bull market, these numbers show that from an unweighted perspective across all market caps, things are not quite as rosy as you might think.

We'll be expanding on this analysis in our weekly Bespoke Report newsletter due out this evening.  Sign up for a 5-day free trial to any of our subscription services to access the report later today.


Why The Natural Gas Volatility?

swctweather.com covers weather forecasts and patterns for Connecticut and New York and is run by Jacob Meisel, a sophomore at Harvard College.  We're currently working with Jacob long-term to build out a weather/commodities research platform.  Jacob has close to 8 years of experience already forecasting weather both for the CT/NY region and for the nation.  As far as forecasting sites for the region are concerned, swctweather.com gives the best detail and explanation behind its forecasts, allowing the reader to see not only the what of the forecast, but the why as well.  Its Premium service allows subscribers to view daily updates on both short-term storm threats and long-term patterns, with similar daily updates on expected impacts in the natural gas and energy market.  On January 6th, Jacob wrote a report we published explaining why a short term bottom in natural gas had not yet been set due to an expected moderation in temperatures mid January.  He was right, and natural gas prices set a new low this past Monday before spiking as forecasts turned colder.  He has followed this up again with a brief summary of where the market looks to go from here:      

  • Recent natural gas volatility, while not unheard of in winter months, has been impressive and appears to be significantly driven by shifting weather forecasts.
  • EIA reports continue to indicate that despite record production, strong enough weather-induced demand swings can significantly influence government stockpiles.
  • Weather models have continued to significantly overestimate North American warming trends through January thus far, as models have underestimated the movement of convection and upper level energy in the western Pacific Ocean.
  • Weather model failure to completely predict global weather patterns in the past two weeks has resulted in lower North American accuracy, and thus forecasts may continue to be of lower confidence than usual, resulting in continued natural gas and energy market volatility.
  • However, models have come into better consensus for a colder medium and longer-term, as the polar vortex remains split and the potential remains for a major cold shot to end the month of January.
  • Even without a major cold shot, sustained temperatures near or below average in many major population centers through the month should continue to add pressure to current natural gas stockpiles.
  • Oil continues to remain highly volatile as the supply and demand imbalance approaches equilibrium; any continued fall in oil will continue to act as a headwind ahead of a natural gas market that is beginning to see increasing weather tailwinds.
  • Recent natural gas upward movements came from a combination of colder forecasts and oil stabilizing; movement either further upward or sustained in this higher trading range could occur should these colder forecasts persist and oil remain relatively stable.
  • Listed below is the Madden-Julian Oscillation (MJO), a measure of convection and outgoing longwave radiation in the western Pacific; when values are far from the center circle, the MJO has a significant influence on global weather patterns.
  • The move of the MJO recently deep into phase 6 and then continuing into phase 7 (red line) is further than most weather models had predicted early this month; it is the continual progression counter-clockwise of the MJO that has led to models underestimating the potential for colder shots and stronger heating demand into the coming weeks, with phases 8 and 1 correlating best to cold in the eastern US.
  • The European weather model (green line) forecasts the MJO’s influence will weaken, but not after leaving behind this cold pattern; a major variable in future forecasts will be the model verification scores with this index, as they will need to increase to add confidence in February forecasts.


Key Earnings Reports Next Week

Markets get a much-needed break on Monday with the Martin Luther King, Jr. holiday.  Things pick up quickly again on Tuesday, though, as we enter the heart of earnings season.  

Below is an abbreviated version of our interactive earnings season calendar (available to Bespoke Premium and Institutional members) highlighting the 40 largest companies set to report earnings next week.  The biggest reports to watch next week are IBM, Netflix (NFLX), American Express (AXP), General Electric (GE) and McDonald's (MCD).  

For each of the stocks below, we include its report date and report time (AM or PM), its current earnings estimate and the 4-week change in that estimate, and the percentage of the time that the company has historically beaten earnings and revenue estimates and raised guidance.  We also include the stock's average one-day change in reaction to its historical quarterly reports, so you can see which stocks typically trade higher or lower on earnings.  All of these stats are included in our Interactive Earnings Report Database available to Bespoke Institutional members.

Sign up for a 5-day free trial to our Bespoke Premium service to check out the full version of this season's calendar.


Dow 30 Trading Range Screen

Lots of red on our Dow 30 trading range screen this morning.  Three stocks -- all Financials -- are at three+ standard deviations below their 50-days entering today: American Express (AXP), Goldman Sachs (GS) and JP Morgan (JPM).  Are they due for a bounce?


S&P 500 Sector Breadth Levels

The S&P 500 has moved down to two standard deviations below its 50-day moving average after two five-day losing streaks since December 30th.  As shown below, along with the S&P 500 as a whole, six of ten sectors are now oversold as well.  

The move lower for the market has left 33% of stocks in the S&P 500 above their 50-day moving averages.  As shown below, this is the lowest reading we've seen since the market's ebola scare last October.

Most cyclical sectors have breadth readings in the 20s right now.  Energy has the lowest reading at 2%, but that's nothing new.  It's sectors like Technology, Financials and Industrials that have seen the sharpest moves lower recently.  Just 20% of Tech stocks are above their 50-days right now, which means there are a lot of downtrends in place.  


Countdown To Liftoff Getting Longer

The question of when the Fed will finally raise its Fed Funds rate is a key topic of interest for anyone that follows the market these days.  In this regards, below we introduce our Bespoke "Countdown To Liftoff" measure.  The measure uses basic assumptions and Fed Funds futures prices to predict the number of months before a rate hike from the Federal Reserve.  As of last June, markets were pricing a hike in June 2015, less than six months from where we are today.  Since then, though, some nerve has been lost: the measure hit a multi-year low as recently as last Thursday, with the market pricing in a hike for the September meeting.  Following those lows, though, we've seen a significant repricing (visible on the chart) as volatility and mixed economic data have pushed expectations out.  As of today, our "Countdown to Liftoff" measure projects the first Fed rate hike all the way out to December (10.98 months from today to be exact).

Going forward, we will update the "Countdown To Liftoff" daily and post the results here so you can keep track of it throughout the year.  So whenever you're wondering what the current projections are for the first rate hike, visit http://bespokeinvest.com.  If you're looking for even more in-depth analysis of this type of stuff, become a Bespoke Premium member today.    

Interested in more of our outlook for 2015?  Look no further than our 2015 Annual Bespoke Report, available for free with a trial over at Bespoke Premium.  Sign up today to access!  Existing subscribers can click the link below to access it.

Bespoke Report: 2015


Jobless Claims Higher Than Expected

Jobless claims for the latest week rose to 316K from last week's level of 297K, and they were above the consensus expectations of 290K.  Today's reading was also tied for the highest seasonally adjusted weekly reading since 6/6/14.  At the surface, today's report was not a good reading, but one week does not make a trend.

With this week's sizable increase (largest since November) in claims, the four-week moving average rose to 298K, making this the 11th straight week that we have gone without hitting a new cycle low.  That low came on 10/31/14 when the four-week moving average dipped to 279K.

On a non-seasonally adjusted basis (NSA), claims rose by just under 100K to 528.5K.  While this looks like a sizable increase, the current week typically represents the peak reading for NSA claims in a given year.  In fact, for the current week of the year NSA jobless claims are 130K below the average since 2000, and the lowest since 2007.


Volatility Schmolatility

With 100 point moves in the DJIA just about every day this year and weak price action to boot, you wouldn't fault individual investors if they were growing increasingly cautious.  After a decline of 2.5% in the last five trading days, though, individual investors have actually turned more bullish over the last week.  According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment rose from 41.01% up to 46.11%.  This is still down from the 50%+ reading we saw to start the year, but we would have expected a little bit more nervousness on the part of individuals given the market environment.


Sector Performance Since Yesterday's Highs

Yesterday afternoon we highlighted the performance of the S&P 500 and its ten sectors off of the morning highs they put in.  With the market taking another leg lower today, below is an updated look at the chart.  The green bars represent the one-day change for sectors at their highs yesterday, while the red bars show how much they have declined from those highs.  As shown, Materials has been the clear loser with a decline of 3.84%, especially since the sector was up just 0.72% at its highs yesterday.  The Financial sector has really taken it on the chin as well over the last two days, falling 3.65% from its highs.  The S&P 500 as a whole is now down 3.14% from yesterday's highs, and defensive sectors like Utilities, Consumer Staples and Telecom have held up the best during this pullback.

The two-day move for the S&P 500 has left it nearly two standard deviations below its 50-day moving average, which is an extreme oversold reading that hasn't been seen since the mid-October ebola scare.  Five of ten sectors are also now oversold, with Financials at the most extreme levels, and Industrials and Materials not far behind. 

Three sectors remain above their 50-days: Consumer Staples, Health Care and Utilities.  The outperformance that we saw from Utilities in 2014 looks to be carrying over into 2015.


Heavily Shorted Stocks Still Struggling

Short interest figures for the end of December were released after the close yesterday, and as we do with each release, earlier today we sent out our semi-monthly update of trends in short interest among S&P 1500 stocks.  Although it might be a new year, one trend that hasn't changed is in the performance of the most heavily shorted stocks in the S&P 1500; they are still getting creamed.  

The table below lists the 34 stocks in the S&P 1500 that currently have more than 25% of their free-floating shares sold short.  For each stock, we have also included its performance so far in 2015.  So far this year, only nine of the 34 most heavily shorted stocks in the S&P 1500 are up.  On the downside, there are 25 stocks that are down so far this year and of those eight are down more than 10%.  Overall, the average return of these 34 stocks is a decline of 4.99% (median: -3.02%), which is more than twice the decline of the S&P 1500. 

One sector where the most heavily shorted stocks have been hit hard this year is Energy.  Nine of the stocks on the current list are from that sector, and so far this month they are down an average 16.5%, with only one gainer (Northern Oil & Gas: NOG).  One of these days, the most heavily shorted stocks will catch a break, but for now piling on the most shorted stocks has been a winning trade.