Wednesday
Sep172014

Bespoke's Country Trading Range Screen

Below is an updated look at our country equity market trading range screen using US-exchange traded funds.  For each ETF, the dot represents where it's currently trading, while the tail end represents where it was trading one week ago.  The black vertical "N" line represents each country's 50-day moving average.  A move into the red zone means the ETF is "overbought," or extended well above its 50-day.  A move into the green zone means the ETF is "oversold," or depressed well below its 50-day.  The calculations for overbought and oversold readings are highlighted at the bottom of the screen.

As you can see in the screen, the US (SPY) is currently the most extended above its 50-day of any country shown.  Vietnam is the only other country that's even overbought.  The majority of country ETFs shown have moved back below their 50-day moving averages over the last week, and nearly a third are now in oversold territory.  Australia (EWA), Malaysia (EWM) and Singapore (EWS) have really taken it on the chin over the last week, moving down to extreme oversold territory.  Other notable countries that are currently oversold include Japan (EWJ), South Africa (EZA) and the UK (EWU).

Will the US keep outperforming the rest of the world, or will it too move back down towards its 50-day or even below it?

Wednesday
Sep172014

Dow Theory Still Bullish

One index that has done very well over the last couple of months is the Dow Jones Transportation Index.  As shown below, while the Dow Jones Industrial Average has yet to make a new high, the Dow Transports index has broken out nicely.  In fact, the Dow Transports index is up nearly 17% year-to-date, which is 13 percentage points more than the Dow Industrial's minimal YTD gain of 3.46%.  Many investors look for the Transports to lead the way, and the fact that it has done so well is a bullish sign for the major indices like the Dow and S&P 500 in our view.  

Wednesday
Sep172014

Home Builder Confidence Spikes Higher

Housing is back.  At least that is what the recent survey of home builder sentiment seems to be telling us. After a better than expected earnings report from Lennar (LEN) earlier in the day, Wednesday's report on home builder sentiment from the NAHB hit its highest level since November 2005.  While economists were forecasting a modest increase from 55 to 56, the actual reading came in at 59.  This was the fourth straight month that home builder sentiment was better than expected, which is the longest streak since last August.

The table to the right breaks down this month's home builder sentiment report based on each of its components and regions.  Given all the green in the column for September, it was a pretty strong report across the board.  With respect to Present Sales and Traffic, both of those components reached or exceeded their highest levels since the end of the recession in 2009, while Future Sales is just one point off its post recession high of 68.

On a regional basis, the Midwest was the only region that saw weakness in sentiment this month, falling from 64 down to 61.  That weakness was more than made up for, though, by a two point bump higher in the Northeast, a 12 point increase in the South, and a five point jump in the West.  In fact, the increases in sentiment for the Northeast and South both hit post-recession highs.

Tuesday
Sep162014

Market Performance on Fed Days

Tomorrow’s Fed Day will be the sixth of the year and the seventh in which the Fed has been tapering QE.  It is widely expected that the tapering of asset purchases will continue through the next meeting on October 29th, at which point the current round of QE will be over.  Once the taper ends, the next step is rate hikes, which most expect to occur at some point in 2015.  We continue to believe the Fed when it comes to its dovish stance on rate hikes, meaning we don’t expect the first hike to come nearly as early as some.

Below is a look at the performance of the S&P 500 on Fed Days since ZIRP (zero interest rate policy) began back in December 2008.  As shown, the S&P has averaged a move of...

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Tuesday
Sep162014

Breadth By Market Cap

Technicians typically use market breadth as a tool to confirm the direction of the overall market.  When the market is moving higher and breadth is positive, it serves as confirmation of the rally.  Conversely, if the market is rallying but breadth is weak, it could spell trouble for the market.  One of the most basic ways to measure market breadth is through the cumulative advance/decline (A/D) line.  This indicator simply adds the net number of stocks (advancers minus decliners) in an index that traded higher on the day and then adds that number to a running total from a specific starting point.

The chart below shows the cumulative A/D lines since the start of the year for each of the three indices that make up the S&P 1500.  These three indices are the S&P 500 (large cap stocks), S&P 400 (mid cap stocks), and S&P 600 (small cap stocks).  While breadth for all three indices started out the year on a similar path, things began to diverge in late March and early April when small caps (red line) started to show signs of faltering.  Since then, breadth in small caps hasn't rebounded and has remained stuck in a range all year.  While breadth in small caps faltered, breadth in mid and large cap stocks kept chugging along through Spring and into Summer.  As Summer approached, though, the strength of the breadth in mid caps showed signs of slowing early on and actually led breadth in the large caps lower from late June through the end of July.  In the market rebound that followed, breadth in both indices rebounded, but while the S&P 500's (large cap) cumulative A/D line handily made a new high, breadth in mid caps just barely exceeded its peak from 7/1.

Based simply on breadth, small caps are clearly out of favor right now, mid cap stocks remain in favor, although investor enthusiasm towards the group is not as strong as it was earlier in the year.  Finally, breadth in large caps remains healthy, indicating solid support from investors towards that particular class of equities. 

Tuesday
Sep162014

Overseas Revenues Up In Smoke

We've written before about the impact that the strong dollar has on specific sectors of the stock market.  At the end of July, we included the following chart in one of our B.I.G. Tips sent to Bespoke Premium and Bespoke Institutional clients.  It shows the spread between Domestics (S&P 500 companies that get at least 90% of their revenue from the United States) and Internationals (S&P 500 companies that get at least 50% of their revenues from outside of the United States).  As the dollar trends up, the domestics begin to outperform, with no foreign revenues to be hurt by declines in overseas currencies.

There's probably no better example of this relationship than Altria (MO) and Phillip Morris International (PM).  Both companies sell tobacco products, and in fact have basically identical portfolios of brands.  But one (MO) sells to Americans and the other (PM) sells to the rest of the world.  In the recent dollar rally, MO has been demolishing PM's performance.  Below is a chart showing the ratio of MO to PM and the US Dollar index.  As the ratio moves up and to the right, domestic MO is outperforming international PM.  Entering today, MO (the domestic company) was up 40% year-to-date, while PM (the international company) was flat.

To get an idea whether your portfolio is protected from further dollar strength, sign up today for either Bespoke Premium (annual) or Bespoke Institutional.  Our Bespoke International Revenues Database breaks down the geographic revenue exposure for every company in the Russell 1000, allowing you to manage the risk of overseas currency moves versus the greenback.

Monday
Sep152014

Nasdaq Trades Down to a Three Week Low

As it turned in a decline of 1.07% on Monday, the Nasdaq composite had its worst day since 7/31.  In the process, the index traded down to its lowest level since it broke out on 8/18.

With today's sell-off in the Nasdaq, a lot of US stocks (primarily in the small cap universe) were down sharply.  Looking at the individual performance of Russell 3000 companies, there were 32 stocks in the index that fell more than 7.5% today alone.  As shown in the table, a lot of those names were stocks that had been leading the market higher since the Nasdaq broke out on 8/18.  For example, the average return of these 32 stocks since 8/18 through Friday (9/12) was a gain of 7.9%.  

One of the highest profile names on this list is Tesla (TSLA), which dropped 9.1% for its worst day since May 8th.  Interestingly, while TSLA was the 11th worst performing stock in the Russell 3000 today, Elon Musk's other company, SolarCity (SCTY), was right behind TSLA at number 12 with a decline of 9%.  Is it us, or does it seem like even though the two companies are in completely different businesses, that whenever TSLA has a big up or down day that SCTY sees a similar move in the same direction?

Another way to illustrate how the market's leaders of the last few weeks dragged equities lower today is by grouping stocks in the index into deciles based on their performance from 8/18 through 9/12.  In the chart below, we took each decile of stocks and then calculated the average return of the stocks in them.  The biggest standout to the downside among the ten deciles is the group of stocks that performed best leading up to today, as they declined an average of 1.83%.  

While investors were selling their biggest winners, they must have been offsetting the gains they took with losses from the biggest losers from 8/18 through 9/12.  This group of stocks was down an average of 1.37% today, making it the second worst performing decile of the ten.  Outside of those two deciles, returns were pretty similar today as seven of the remaining eight deciles had average returns that were within a range of 30 bps.

Monday
Sep152014

Tesla's (TSLA) September 15th Bloodbath

After gaining more than $100 since its lows in early May, Tesla (TSLA) is getting slaughtered today on the back of a bearish analyst call from Morgan Stanley.  While the bearish call from Morgan Stanley helped trigger the sell-off, it can't be the only reason the stock is off more than 10% with a couple hours of trading left in the day.  The entire "growth" trade is getting crushed today, and it looks like short-term owners of TSLA are just running for the exits.  Note that nothing changed in regards to TSLA's earnings or revenues since the close last Friday, so we're simply seeing a re-pricing of risk.

For those interested, below is a look at the near-term performance of Tesla (TSLA) when it has fallen more than 8% on any day since it went public back in mid-2010.  As shown, the stock has averaged a gain of 75 bps on the day after these big sell-offs.  Over the next week, the stock has averaged a bounce back of 3.11%, and over the next month, the stock has gained more than 11%.  The one-day and one-week performance numbers would be even better if you took out the 10% drops the stock saw in its first week of trading.

We'll see how Tesla trades from here, but if this is a stock you've been waiting to buy on any pullbacks, you're certainly getting a big one today on no company specific news.

Monday
Sep152014

Empire Manufacturing Beats Expectations

This week's schedule of economic data started off on a positive note as the Empire Manufacturing report for the month of September showed a big uptick from August and exceeded expectations by a wide margin.  While economists were forecasting a level of 16.0 in the headline index, the actual reading came in at 27.5 which was up from last month's reading of 16.69.  It was also the highest monthly reading since October 2009.  While the current conditions index of this month's report showed a solid increase, the expectations component for September (46.8) was practically unchanged from August's reading of (46.8).

The table below breaks out this month's report by each category and shows both current conditions and expectations for six months from now.  In addition to the headline index, five of the nine subcomponents saw an increase in their level for current conditions.  While the Shipments component rose to its highest level since October 2009, the biggest increases for the month were in Prices Received and Inventories.  On the downside, this month's report didn't have anything positive related to the jobs picture.  As shown in the table, the biggest declines in current conditions this month were in Number of Employees and Average Workweek.

Monday
Sep152014

Sentiment Levels Unchanged

Bull/bear sentiment in our weekend Bespoke Market Poll was unchanged week-over-week, with bullish sentiment coming in at 49% and bearish sentiment coming in at 51%.  Last week's negative action for the market doesn't look to have impacted investor views too much.

Friday
Sep122014

S&P 500 Higher or Lower from Here?

The S&P 500 pulled back from all-time highs this week and failed to hold above the 2,000 level.  But 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!

Our "end of summer" 10% off special comes to an end this weekend, so be sure to sign up for your 5-day free trial to Bespoke Premium before the offer expires!  We've just published our weekly Bespoke Report newsletter, so you'll have a fresh piece of market research to read with your new trial.  Simply enter "endofsummer" in the coupon code section of our Bespoke Premium subscribe page to receive the 10% discount for the life of your membership.

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

Friday
Sep122014

Most Heavily Shorted Stocks Getting Hit Hard

Short interest figures for the end of August were released after the close on Wednesday, and with that release we sent out our semi-monthly update of short interest trends for the S&P 1500 to clients yesterday.  One table in the report looked at stocks in the index that have more than 25% of their float sold short and how they have performed so far this month.  One useful aspect of this list is that the performance of these stocks usually provides a good barometer of investor sentiment.  When the most heavily shorted stocks rally, it is a sign that investors are more willing to hold riskier stocks which is good for the overall market.  Meanwhile, when these stocks are underperforming the overall market by a wide margin, it is a sign that investors are increasingly risk averse, which at the margin is negative for equities.

So far this month, the most heavily shorted stocks are doing poorly on both an absolute and relative basis.  While the S&P 1500 is down 0.98% the average return of these 29 stocks is nearly two and a half times worse at negative 2.41%.  Furthermore, while there are some big losers that have dragged the average return lower, the breadth of this list is extremely negative.  Of the 29 stocks listed, just ten are up so far in September.  The biggest loser on the list by far this month is GT Advanced Technologies (GTAT).  Following news that the new iPhone screens will not have the company's Sapphire glass, the stock has been in a free fall and is down 28% this month.  After GTAT, the two next worst performing stocks listed are AK Steel (AKS) and Penn Virginia (PVA), which are down 16% and 10%, respectively.

While this list has more than its fair share of losers, there have also been some big winners.  The biggest winner on the list is Conversant (CNVR), which is up big today on news that it will be bought by Alliance Data Systems (ADS) for $35 per share in cash and stock.  Regular readers may remember that we highlighted this stock in a recent CNBC Fast Money interview where we said it was an attractive takeover candidate.  So far in September shares of CNVR are up over 26%.  The next best performing stock on the list of most heavily shorted stocks is Albany Molecular Research (AMRI), which is up just under 10% in September (and coincidentally was positively mentioned in that same interview).  Outside of those two companies, only one other stock (Tuesday Morning: TUES) on the list is up more than 5% this month.

Friday
Sep122014

Prices at the Pump Drop to Lowest Level Since February

In today's retail sales report for the month of August, only two of the thirteen sectors tracked (Gas Stations and General Merchandise) saw month over month declines in sales.  The largest decline was in Gas Stations where sales fell by 0.8%.  When it comes to retail sales, if there is a category where sales declines are a good thing, it is at gas stations.  That is because any sales decline is typically the result of lower gas prices, which leaves more money in the pockets of consumers for other items.

As the chart below shows, the recent drop in retail sales is all due to lower gas prices.  Since its peak in April, the national average price of a gallon of gas (according to AAA) has fallen by nearly 8% from $3.70 down to $3.41.  This is the lowest price since February 22nd.  Additionally, the last time a gallon of gas was less than it is now on this day of the year was in 2010.

To illustrate just how low gas prices currently are for this time of a year.  The chart below compares the YTD percentage change in the national average price of a gallon of gas in 2014 (red line) to a composite of the average YTD change for all years since 2005 (blue line).  Following the recent declines we have seen, prices at the pump are up 2.7% so far in 2014 compared to an average of 25.33% at this point in the year for all years since 2005.  The only other year where the average price was up less at this point in the year was 2010.  As long as this trend continues, you can bet that consumers will be feeling a bit more flush heading into the fourth quarter.

Thursday
Sep112014

Jobless Claims Rise More Than Expected

Initial jobless claims rose more than expected this week, rising to 315K versus expectations of 300K, and up 11K from last week's revised reading of 304K.  Jobless claims have been an optimistic data series for the last several months, but after this week's increase they are suddenly up 36K from their July low of 279K.  This isn't necessarily a major move to the upside, but it is moving in the wrong direction.

Although this week's jobless claims reading was the highest weekly reading since June, the four-week moving average rose by less than one thousand, rising from 303.25K up to 304K.  For the next two weeks, we will be dropping sub 300K readings from the four-week moving average, so unless the weekly numbers improve the rate of increase in this indicator will pick up.

On a non-seasonally adjusted basis (NSA), initial jobless claims dropped by 15.4K to 234.4K.  While this was the lowest NSA weekly reading of the year, we typically see relatively low levels of claims at this time of year as schools are back in session.  For the current week of the year, however, NSA claims were actually lower last year (229.6K) than they were this year, so even on this front claims are showing some deterioration.  Relative to the longer term average since 2000 (305.9K), though, NSA claims are still well below average.

Thursday
Sep112014

Bullish Sentiment Retreats

After a few shaky days for equities, the sentiment of individual investors took a slight turn for the worse this week.  According to the weekly survey of sentiment from the American Association of Individual Investors (AAII), bullish sentiment dropped from 44.67% down to 40.38%, while bearish sentiment ticked just under three percentage points higher, rising from 23.96% up to 26.6%.  Perhaps the most notable aspect of this week's survey, though, was the fact that even after the decline in bullish sentiment, it still remains above its average of 38.3% for the current bull market.  This is the fifth straight week that bullish sentiment has been above average, which is the longest streak since the week ending March 13th.