Tuesday
Apr082014

Buy or Short the Nasdaq Internet Group?

Last night we highlighted the break of the 200-day moving average for the Nasdaq Internet Group.  At its peak, the group was up 85% since the start of 2013, but now it's up just 52%.  The question now is obviously where does it trade from here?  If you had to choose one, would you buy the Nasdaq Internet Group here or would you short it?  Please let us know in the poll below, and we'll report back on the sentiment reading shortly.  Thanks for participating!

If you had to choose one, would you buy or short the Nasdaq Internet Group here?
Buy
Short
  
Free polls from Pollhost.com

March was a month of rotation out of what had been working into what had not been working.  The same rotation has occurred over the first few days of April, and the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30+-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Monday
Apr072014

Nasdaq Internet Group Leads the Way Lower

The Nasdaq Internet Group led this market higher in 2013 and early 2014, and it has led the way lower over the last month or so.  As of the close today, the Internet group is down 16.5% from its high reached one month ago on March 7th, and its decline today left it below its 200-day moving average for the first time since December 2012.  Tomorrow morning the group will start the day at the same level it was at on October 1st of last year.  

Below is a list of the stocks in the Internet group that have fallen the farthest below their 52-week highs.  For each stock, we have also included its year-to-date change and its distance from its 50-day moving average.  These stocks have simply seen carnage across the board.  While most of them have lofty growth expectations, many don't have strong earnings at the moment, and the expectations are no longer enough in this market right now.

March was a month of rotation out of what had been working into what had not been working.  The same rotation has occurred over the first few days of April, and the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30+-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Monday
Apr072014

US Losing Out

Since the Nasdaq index rolled over into its current downward trend on March 20th, American equity markets' share of world market capitalization have fallen dramatically.  The chart below shows US share of all world equity market values for the last year.  You can see the big spike up that we saw earlier this year and the big drop down that wiped it all out over the last few weeks.

Losses for US equity investors have meant gains for investors overseas.  Emerging markets, especially, have been benefactors.  The following charts show the market share of Brazil, India and Turkey. 

To give a full picture of how value has shifted globally, the below table shows the current share of world equity market cap and its change since March 20th when the US peaked.  The heatmap of the change is amazing...outside of the US, only Sweden and Greece have lost share over the past two weeks.

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Monday
Apr072014

Buffett's Berkshire Stock Portfolio

While the momentum in the equity market's highfliers has started to work its way into the rest of the market over the last two trading days, one stock that has been insulated so far is Berkshire Hathaway (BRK/b).  Whenever the overall market runs into trouble, shares of the stock usually hold up better as investors view it as a port in the storm.  To be sure, the stock is by no means immune to stock market weakness, but when uncertainty increases, investors place a premium on the wisdom and experience of the Oracle of Omaha. 

While investors will often put a premium on Berkshire when times are bad, when the going is good it's a different story.  As highlighted in a New York Times column this weekend, Berkshire has trailed the return of the S&P 500 and the average mutual fund in four of the last five years. What makes this recent weakness all the more noteworthy is that "in the previous decades, he had underperformed the S.&P only six times."

Not only has the stock of Berkshire done poorly relative to the market, but the company's stock portfolio has also been middling as of late.  The table below lists the recent performance (in USD) of the company's top fifteen equity positions as of the end of 2013, as well as Bank of America (BAC).  While Berkshire doesn't actually hold common stock in BAC, it owns preferreds that are convertible into common stock, which the company plans to convert upon expiration.

Berkshire's top holding as of year-end 2013 was Wells Fargo (WFC), which made up 18.7% of the company's $118 billion stock portfolio.  Over the last year, the stock has been one of Berkshire's biggest winners and so far this year it is the company's second best performing stock.  Berkshire's second largest holding -- Coca-Cola (KO) -- has not fared quite as well.  Over the last year, the stock is down 3.1%, and it's down 6% on the year.  On an unweighted basis, Berkshire's stocks are up an average of 15.5% over the last year, which is about 310 basis points (bps) less than the S&P 500.  On a weighted basis, the returns are slightly better (approximately 16.4% vs. 18.6%), but still trailing.  Year to date (YTD), Berkshire's top holdings are down 1.1% compared to a decline of 0.3% for the S&P 500.  Here again, the returns improve on a weighted basis, but only marginally.

While the performance of Berkshire's stock and its top equity holdings have trailed the market recently, keep in mind that these stocks, like Berkshire, are on the more conservative side of the spectrum.  If the market is in the early stages of a prolonged sell-off, we would expect Berkshire and its holdings to once again deliver the alpha that it has recently lacked.

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Monday
Apr072014

Average Stock Down Down Over 12%

It was just last Friday that the S&P 500 hit an intraday all-time high before selling off sharply.  That weakness has continued into today, and the index is now down just under 3% from that intraday high last Friday.  Although the S&P 500 is down only modestly from its 52-week highs, individual stocks have seen much larger declines.  The chart below and to the right summarizes an analysis from our most recent Bespoke Report, which was sent out to all clients after the close on Friday, and it summarizes the average decline for individual stocks from their respective 52-week highs.  Given the declines again today, we have updated the chart to reflect prices as of Monday afternoon.

For the S&P 1500 as a whole, which encompasses large, mid, and small cap stocks, stocks are down an average of 12.8% from their 52-week highs.  As you would expect, small cap stocks have seen the largest declines with an average drop of 15.8%, followed by mid caps, which are down an average of 12.5%.  Large cap stocks have held up the best, as they are still within 10% of their 52-week highs.

Looking at the average declines based on sectors shows a wide variance.  Consumer Discretionary stocks have seen the largest declines from their 52-week highs with an average decline of 16.1%.  Besides the Consumer Discretionary sector, Technology and Telecom Services are the only other sectors where stocks are down an average of more than 15%.  On the other end of the spectrum, Utilities (-5.4%) and Consumer Staples (-9.4%) have held up the best with average declines of less than 10%.  While the modest decline of the S&P 500 from its high might suggest that the decline has been minor in scope, on an individual stock basis, the pain is more amplified.

Monday
Apr072014

Growth w/ No Earnings Continues to Get Hit

Stocks with strong forward growth expectations but low or no trailing earnings continue to get hit hard today.  Companies with strong trailing earnings have held up much better. 

The PEG ratio compares a stock's P/E ratio to its growth expectations (P/E over growth).  Companies with low PEG ratios typically have lower relative P/E ratios (stronger earnings) to go along with high growth expectations, while the companies with no trailing earnings but high growth expectations will have higher PEGs.  

Below we have broken the Russell 1,000 into deciles (10 groups of 100 stocks each) based on PEG ratios and calculated the average performance of the stocks in each decile since the end of February when the current rotation out of the "high-fliers" began.  Decile 1 contains the 10% of stocks in the Russell 1,000 with the highest (or no) PEG ratios, while decile 10 contains the 10% of stocks in the index with the lowest PEGs.  As you can clearly see, the stocks with the highest PEGs have suffered big losses on average since the end of February, while three of the four deciles of stocks with the lowest PEGs have actually averaged gains.

Earlier today, we highlighted this chart in a B.I.G. Tips report that was sent to our Bespoke Premium members.  In the report, we also included a list of stocks with low PEG ratios and strong Bespoke Stock Scores ratings that we believe is a good starting point for investors looking to build a list of potential buy opportunities when the time is right.  To view the report, sign up for a 5-day free trial to Bespoke Premium today.

Monday
Apr072014

Bears Now Wide Awake

After a relatively nice weekend around most of the country, the ground is beginning to thaw and the animals are springing back to life.  It appears as though the action in the market recently has awoken the bears as well.  As shown below, 56% of participants in our weekend Bespoke Market Poll expect the S&P 500 to be lower one month from now, while just 44% expect the index to be higher.  This isn't a huge bearish spread, but it is notable because it is the lowest that bearish sentiment in our weekly poll has been since September 3rd of last year.

March was a month of rotation out of what had been working into what had not been working.  The same rotation has occurred over the first few days of April, and the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30+-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Friday
Apr042014

S&P 500 Higher or Lower from Here?

While it didn't feel like it, the S&P 500 finished higher on the week.  The same can't be said for the Nasdaq unfortunately, which fell 2.7% on Friday.  So which way will the market head from here?  Please take part in our weekly Bespoke Market Poll 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!

March was a month of rotation out of what had been working into what had not been working.  The same rotation has occurred over the first few days of April, and the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30+-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com
Thursday
Apr032014

No Earnings, Big Problems

Both the Dow and the S&P 500 held up well today, falling slightly but not suffering any kind of major setback.  But not all was well in the market by any stretch, as we saw a lot of the "high-fliers" take nosedives once again.  

Companies can have the best long-term growth prospects in the world right now, but if they don't already have earnings, they're getting taken to the woodshed.  A month ago, investors were paying sky-high premiums for companies that make no money now but have huge growth prospects, but those premiums are falling fast.  

In the Russell 1,000, there are 85 stocks in the index with negative trailing 12-month P/E ratios (negative earnings).  Those 85 stocks were down an average of 1.78% today, and they're down an average of 3.9% over the last month.  The other 932 stocks in the Russell 1,000 were down just 20 bps today on average, and they're up an average of 2% over the last month.

Below is a look at the biggest losers in the Russell 1,000 today.  There were 36 stocks in the index that fell more than 3.5%, which is a high number for a flat day in the market.  As you can see, the large majority of the biggest losers today were stocks with negative or sky-high P/E ratios.  And most of them were stocks that have also taken huge hits over the last month as well.  Stocks like FireEye (FEYE), ServiceNow (NOW), Workday (WDAY), Palo Alto Networks (PANW), Tableau Software (DATA), Splunk (SPLK), Under Armour (UA), Facebook (FB), SolarCity (SCTY) and Pandora (P) are all names that have sky-high valuations and sky-high expectations, but they all got slaughtered today.  These kind of stocks were market darlings in 2013 and early 2014, but the tide has shifted quickly since the beginning of March.  Investors clearly want to own companies with strong fundamentals right now, and they're exiting the "high-fliers" that they were willing to own just a few weeks ago at a remarkable rate.  

What has really been amazing is that all of these huge declines have come during the earnings off season, and most of the companies that have taken hits did very well following their last earnings reports.  The first quarter earnings season is coming soon (next week), so all these companies that have taken big hits lately will have a chance to prove investors wrong.  Some will do so, and some won't.

Thursday
Apr032014

ISM Services Weaker Than Expected

Investors have hoped that the slow end to winter will have a positive impact on economic activity, but the boost that we have seen so far has not been quite as large as expected.  A case in point is today's ISM Services report.  While the headline reading improved from 51.6 up to 53.1, the increase was not as much as economists were expecting (53.5).  On a combined basis, which weights the ISM Manufacturing and ISM Services based on their overall share in the economy, the combined ISM increased from 51.8 to 53.2.  Two potential reasons for today's weaker than expected report are weather and Obamacare.  In each month's reports, ISM asks respondents for commentary on the business climate.  In this month's report there were two comments that stood out.  In the retail sector, one respondent noted that, "Business was a little slower than expected due to harsh weather conditions across much of the country, but we expect a rebound as spring approaches."  In the Health Care Sector a respondent highlighted the fact that, "Healthcare reform continues to adversely impact hospital projected/actual revenue." 

Looking at the internals of today's report showed a mixed picture.  Relative to last month, five components showed improvement while five deteriorated.  Employment showed the biggest increase in March rising from 47.5 up to 53.6.  While that may seem like a good preliminary indicator for Friday's employment report, keep in mind that last month the employment component saw its largest one month decline since November 2008, yet the non farm payrolls report still showed a month over month increase.  Given that, we wouldn't place too much weight on this month's increase in that component.

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Thursday
Apr032014

Jobless Claims Worse Than Expected

After four straight weeks of lower than expected jobless claims, today's report came in higher than expected for the first time since the last week of February.  While economists were expecting a level of 319K, the actual reading came in 7K higher at 326K.

Even though this week's reading increased by 16K from last week, the four-week moving average barely budged, rising from 319.25K up to 319.5K.  It has now been 27 weeks since the four-week moving average last made its post-recession low of 314.75K in late September, but we are inching closer to that level by the week.

On a non-seasonally adjusted basis (NSA), jobless claims rose from 274.1K up to 289.5K.  This is the lowest level for the current week of the year since 2007, and it's more than 50K below the historical average of 345.1K for the current week going back to 2000.

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Thursday
Apr032014

Breadth Hits 2014 High

As shown below, the percentage of stocks in the S&P 500 currently trading above their 50-day moving averages is currently at 83%, which is a new high for 2014.  

Below is a look at the percentage of stocks above their 50-days by sector.  As shown, four sectors have readings above 90% -- Industrials, Materials, Utilities, Telecom.  These sectors are quickly running out of room on the upside in terms of breadth!  

Interestingly, Technology and Health Care have the weakest breadth readings at the moment.  These two sectors had been market leaders in 2013 and early 2014, but the weakness in areas like social media/internet and biotech have held them back recently.  Rotation, rotation, rotation.

Thursday
Apr032014

Bullish Sentiment Rebounds; Remains Below Average

With three straight days where the S&P 500 closed at or near its highs of the day, the index bucked its 2014 trend of opening strong and drifting lower throughout the trading day.  With the trend reversal, investor sentiment rebounded modestly.  According to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment rose by four percentage points to 35.4%.  Even after that increase though, bullish sentiment remains below its 38.6% average for the current bull market.  This is even more noteworthy given the fact that the S&P 500 closed yesterday at an all-time high.

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Wednesday
Apr022014

Best and Worst Performing Stocks YTD

Below is a look at the 40 best performing stocks in the Russell 3,000 so far this year.  The average stock in the index is up 2.8% on the year, and the names below are all up more than 55%.  Intercept Pharma (ICPT) still leads the way by a wide margin with a YTD gain of 388.8%, even though it is down $130 from its recent highs just a few weeks ago.  InterMune (ITMN) ranks second with a gain of 128.8%, followed by Endocyte (ECYT), Furiex Pharma (FURX) and Horizon Pharma (HZNP).  It's notable that the five best performers are all biotech names.

Other notable stocks on the list of winners so far this year include magicJack (CALL), FuelCell Energy (FCEL), World Wrestling Entertainment (WWE), TriQuint Semi (TQNT) and Freescale Semi (FSL).

Of the 2,987 stocks in the Russell 3,000 that were trading at the start of the year, 1,338 were down YTD coming into today.  Below is a list of the worst performers in the index, which are all down more than 34% YTD.  Body Central (BODY) leads the way lower with a decline of 69%, followed by American Apparel (APP) at -60% and Fairway Group (FWM) at -58%.  NII Holdings (NIHD) and Geron (GERN) round out the top five on the downside.  Other notables on the list of losers include Conn's (CONN), Aeropostale (ARO), ExOne (XONE), 3D Systems (DDD), Weight Watchers (WTW), Infoblox (BLOX) and Overstock.com (OSTK).

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Tuesday
Apr012014

S&P 500 Back At All Time Highs

The S&P 500 closed at 1885.52 this afternoon, eclipsing its prior all time highs.  A wobbly March kept investors on their toes, but the worst sell offs of the month came from outside the S&P 500, hitting extended biotech, internet and growth-oriented names.  The closing high once again confirms that the bull market dating to March 2009 is not over, and it also puts large cap stocks back on an upward path for the year after a difficult first quarter.  The S&P is up 37 points, or two percent, since the close on New Years Eve, and the most recent gains will serve as ammunition from equity bulls as the second quarter unfolds.  Below is a chart of the S&P 500 over the last six months.  With the index now above the top end of the sideways range it had been in for the last month, is a breakout coming?