Dow 15,000?

After last week's horrendous start to the year, Dow 15,000 certainly doesn't roll off of the tongue as easily as it did one week ago.  If analyst price targets are in the ballpark though, the Dow should rise by 19% from current levels, putting Dow 15,000 within reach by the end of the year.  Below we highlight the percentage difference between the current price of each of the Dow's thirty stocks versus the average analyst price target for each stock.  Based on these results, GM is forecast to have the biggest gain with a rise of nearly 50% from current levels, while KO is expected to rise only 4.6% from its current price.

We have often pointed out that analyst price targets should be taken with a grain of salt.  For what its worth though, we would note that at the start of '07, we did a similar analysis and came up with a price target of just over 13,300, and the Dow finished the year at 13,264.8.

Russell 1,000 Stocks Furthest Above and Below 50-Day Moving Averages

Currently, 80% of stocks in the Russell 1,000 are trading below their 50-day moving averages.  Below we highlight the 20 stocks in the index that are trading the furthest above and below this widely followed technical level.  The usual suspects are trading the furthest below their 50-day's -- PAY, FMD, ETFC, MBI, SLM, RAD, AMD, CC and LCC.  Of the few, the proud, the overbought, SPN is trading 28% above its 50-day, followed by MOS, RESP, CTCM, MON, ADM and HES.

 

Year to Date Stock Performance

Although we're just four trading days into the year, some of the year to date stock declines make it look like we're two or three quarters into '08.  Currently, 160 stocks in the Russell 1,000 are already down more than 10% on the year.  MXB leads the declines at -25.86%, followed by RAD (-24.37%), PAY (-24.04%), JEF (-23.60%), YRCW (-21.08%) and CROX (-20.21%).

 

Unfortunately, there are just 2 stocks in the Russell 1,000 that are up more than 10% -- SPN (+32.61%) and CELG (+11.17%).  While 160 stocks in the index are down more than 10% on the year, just 114 stocks are actually in positive territory. 

Overbought Commodities

While the new year has not been good to stocks, it has been good to commodities, and our trading range charts highlight their gains.  The green shading represents two standard deviations above and below the commodity's 50-day moving average.  When the price moves above or below this shading, it is considered overbought or oversold.  As shown, oil's most recent rally to $100 has put it in overbought territory.  Gold's rally has been even stronger than oil's, and the metal is currently trading above its trading range.  Silver, platinum, corn and coffee are also trading in overbought territory, while copper, orange juice and natural gas are trading in the neutral zone.  While commodities in general are in a solid uptrend, it wouldn't be surprising to see some of them stall in the short term.

Oversold Sectors

One of the breadth indicators that we follow is the percentage of stocks in an index or sector that are above their 50-day moving averages.  By this measure, the S&P 500 is oversold with just 19% of stocks above their 50-day's.  There are two sectors that currently have extreme oversold breadth readings -- Technology and Consumer Discretionary.  Just 6% of stocks in the Technology sector are above their 50-day moving averages, while there are just 3% above in the Consumer Discretionary sector.  While this may not be good for their long-term outlooks, the sectors are due for a bounce in the short term.

 

ETF Fever

This weekend's WSJ featured an article on how ETFs investing in gold have increased demand for the metal.  According to the article, streetTracks Gold Shares ETF (GLD) now holds more gold than the People's Bank of China and the European Central Bank.  In fact, there are only seven countries which currently hold more gold than the Gold ETF, and they are the US, Germany, France, Italy, Switzerland, Japan and the Netherlands.  At the same time, demand from traditional sources has declined.  For example, since 2001, worldwide demand for gold to make jewelry has fallen by 13% (so much for the booming new demand from India and China).

The question for investors boils down to whether or not commodities like gold are rising because of increased real demand or the proliferation of ETFs that make commodity investing easier for investors.  Looking at a chart of gold (the commodity) shows that while it certainly bottomed before a gold ETF was formed, the bulk of the rally came after its formation.

Whatever your opinion, there's no denying that demand, no matter where it comes from, will cause prices to increase.  So while the current source of demand that is fueling gold may not be as healthy as demand from industrial and manufacturing processes, as long as it remains in place, prices should remain high.  It's when this demand dries up that gold investors should be worried. 

With hundreds of ETFs available, unlike ever before, individual investors are able to trade a multitude of different strategies (like buying gold or oil) with the click of a mouse.  However, just trying to gain a handle on the various ETFs out there can end up being a full time job.  In order to make finding what you are looking for a little easier, we offer several products that help speed up the process.  First, our ETF cheat-sheets offer a family tree of US and International ETFs. 

For investors looking for ETF analysis, our ETF Trends Report, which is included in the Bespoke Premium service, provides traders and investors with a unique tool to quickly identify how different areas of the market currently look using a proprietary trend and timing score.  Each day, we cover a different set of ETFs that track indices, sectors, groups, styles, commodities, fixed income, currencies, etc.  Long term investors can use this tool to determine when to add or subtract from a position, while active traders can use it to identify trade ideas.

And for investors that want to take a hands-off approach to ETF investing, Bespoke provides an all-ETF portfolio management strategy as well.

2008 Performance of the Dow 30

In the table at right, we highlight the year to date performance of the thirty Dow stocks.  Clearly, the stocks haven't gotten off to a very good start.  Just two stocks in the index are up over the first three trading days of the year.  PFE is up 0.44% and KO is up 0.78%.  Intel (INTC) leads the declines at -14.97%.  HD and HPQ are down a little over 7%, and most stocks are down between 3% and 6%.  The only news on Intel since the start of the year has been a couple of downgrades from Banc of America and JP Morgan.  Should two downgrades and a change from 07 to 08 on the calendar really have caused a $150 billion company to lose 15% of its value? 

Worst Starts to the Year For Major Indices

Plain and simply speaking, the year has started off on a bad note.  After only three trading days, the S&P 500 is down 3.86% (2nd worst start ever), the Dow is down 3.5% (4th worst ever), and the Nasdaq is down 5.57% (worst ever).  Below we highlight the five worst three day starts to the year for each of the three indices.  On a positive note, for each of the three indices, the average return for the rest of the year is actually positive, although we would caution that the returns vary widely.

Wondering how to navigate this turbulent market? Sign up for a Bespoke Premium membership and get daily strategy reports, trade ideas and market timing tools for as low as $1 per day.  Or just have your money managed professionally by Bespoke.

Forget the Scalpel, Analysts Are Using Machettes!

Even though we are only three trading days into the year, if there is one clear trend in place (besides the market going down), it is that analysts are entering 2008 with a decidedly negative tone.  We recently launched a new report for Bespoke Premium subscribers called Earnings Estimate Revisions (Download Sample) where we summarize and highlight positive and negative analyst earnings revisions over the last month by sector and group.  Over time, we will also track these results on a historical basis to show how the market reacts.

For each sector, we calculated the net number of companies where analysts have raised earnings estimates and divided that by the total number of stocks in the sector.  Using the Consumer Discretionary sector as an example, over the last month, analysts have raised earnings forecasts for 43 companies and cut forecasts for 118.  This gives us a net result of minus 75.  Dividing this into the total number of stocks in the sector (276), we get minus 27%.  Three days ago this figure was minus 25%, which shows that analysts have soured on the sector even more over the last three days.

Below we highlight the one-month net earnings estimate revisions for each of the ten S&P sectors as it stands today versus where it stood on 12/31.  The only sector that hasn't showed deterioration in the last three days is Financials, but this hardly indicates increased bullishness by analysts, as the net reading in that sector went from minus 51% to minus 50%.  In every other sector, analysts have increased their rate of negative estimate revisions over the last three days.  Additionally, while at the end of the year there were some instances where analysts were actually raising estimates more than they were cutting them (Consumer Staples, Energy, and Technology), as of today, there are no sectors where the number of net revisions is positive.

 

Who Will Win in 2008?

With the Iowa caucuses complete and the 2008 elections taking a stranglehold on the front-page news (aside from Britney Spears' most recent meltdown), it's important to track what the prediction markets are telling us about who and what party will come out as winners in November.  The Presidential Election Cycle and the person and parties holding office affect the stock market, and Bespoke will be providing analysis on the relationship between politics and the markets throughout the year.

So who are people putting their money on now that Iowa is over?  Below we highlight a number of charts that track the historical political contracts traded at Intrade, the prediction markets leader.

Current odds are for the Democratic party to sweep the '08 election.  Futures contracts are predicting a 60.1% chance that a Democrat will win the Presidential election, an 89.7% chance that the Democrats will control the Senate, and an 84.1% chance that the Democrats will control the House.  With this strong of a lead, it would be wise for individuals to start preparing themselves for big changes at this time next year.

Although prediction markets favor a Democratic President, we still highlight the fates of the Republican candidates.  As the historical prices for the candidates show, there have been large swings in the last year.  After Romney's loss yesterday (even though it was widely predicted), he has fallen to fourth place of the top four candidates on Intrade with odds of 14.3%.  McCain, who was all but counted out just a month ago, has taken the lead for the Republican nomination at 32.7%!  Giuliani is second at 26.1% and Huckabee (although he won Iowa) is third at 17.4%.  Many political pundits remarked that last night's GOP results were a win for McCain, even though he finished tied for third with Thompson.  The prediction markets confirm McCain's victory.      

And since a Democrat is expected to become the next President, the most important contract is who will win the Democratic nomination.  The Oprah Effect has helped Barack tremendously, as his odds have gone from the low teens all the way up to 45% in the past two months.  Surely Ms. Winfrey deserves a spot in Obama's cabinet should he be elected.  For now though, Hillary remains in the lead at 51.9%, although Iowa caused a large convergence.

As it stands now, the money is on Hillary Clinton to be our President in 2009, with Democratic control of the House and Senate.  Will this be good or bad for the stock market?  Let us know in the poll below.

Will Hillary Clinton as President and a Democratic House and Senate be Good or Bad for the US stock market?
	Good
	Bad
Free polls from Pollhost.com

Nasdaq Head and Shoulders Pattern

With the Nasdaq down 2.9% today, it would be the biggest one-day decline for the index since February 2007.  Below we highlight a chart of the tech-heavy Nasdaq, and the technical layout does not look good.  While the index has moved into extreme oversold territory (2 standard deviations below its 50-day moving average), a classic head and shoulders pattern has formed, which would suggest at least a test of the August lows.

2008 Think B.I.G. Reader Poll Results

In our 2008 outlook survey for both Bespoke Premium members and readers of our Think B.I.G. blog, we asked a number of stock market and economic questions to get a consensus from the intelligent part of the investment community.  We highlight these results below.

As shown, 59% of readers think the S&P 500 will see gains once again in 2008.  On the oil front, the majority thinks the commodity will be lower rather than higher by the end of the year. I’m sure the majority would welcome these declines as well. 

With all the negativity surrounding the US Dollar, it is somewhat surprising to see that 58% think the currency will strengthen in ‘08.  And when asked if the US will go into a recession in 2008, the consensus was evenly split, with 49% saying yes and 51% saying no. The toss-up recession results are inline with what the majority of Wall Street pundits believe as well.  But even at 50%, it will be the most widely anticipated recession in history if it actually occurs.  And since the majority of readers think the markets will be higher in ‘08, they don’t think that an official recession will hurt equities too much.

Unfortunately, Bespoke readers aren’t very bullish on real estate.  Just 34% think the housing market will bottom in the next 12 months.  Hopefully in this case this is a contrarian indicator! 

On the political front, a whopping 76% of readers think that a Democrat will become the next President of the United States. While most individuals assume that a Democrat is bad for stocks, the markets have actually performed better under a Democratic President (see The Bespoke Report: 2008).

Interestingly, Bespoke readers are the most bullish on the beaten-down Financials sector, followed by Energy and Technology.  Although respondents are looking for a rebound in Financials, few are bullish on the Consumer Discretionary sector. They also don’t expect much from Consumer Staples stocks.

We also asked readers for their top stock pick of 2008.  Below we list all of the stocks that were recommended along with the number of times they were recommended. The two stocks at the top of the list are on complete opposite ends of the financial spectrum.  Citigroup (down huge in ’07) was mentioned as the top stock 9 times and Apple (up huge in ’07) was mentioned 7 times.  Owning both may be a good hedge.  Other stocks mentioned multiple times were CSCO, FSLR, BRK/A, GLD, GOOG and GS.  We’ll keep track of these stocks as the year goes on to see how they perform.

Thank you to all 300 of you who participated in our poll!   

Bespoke on Fox Business Channel

Bespoke's Paul Hickey will appear on Fox Business Channel at 9:00 AM ET today to discuss the performance of stocks which are the most and least liked by analysts.

High Yielding Tech Stocks

Not too many years ago, when you thought high-flying stock, Intel (INTC) was the name that came to mind.  After two days of sharp losses to start 2008 though, the only thing high about INTC is its dividend yield (well at least relatively speaking).  Below we highlight the highest yielding technology stocks in the S&P 500.  With a yield of 2.1%, INTC now has the same yield as the overall market.

Highest Yielding and Low P/E ETFs

Many investors like to invest in equity ETFs with high dividend yields to get income while spreading risk across a number of stocks.  We recently screened our list of over 500 ETFs to find the ones with the highest yields.  Below we highlight our results.  As shown, REM, DFE, TTH, PGF and KRE have the highest 12-month dividend yields of the ETFs we track.  Most of the stocks on the list are US equity ETFs, however, there are a number of high-yielding international equity ETFs as well.  DFE, EEW, CVY, DNH, EPP, EWI and EWA all track non-US equity indices.

Investors also like to get their fixed income exposure through ETFs.  These fixed income ETFs make their payouts through dividends just like stocks.  As shown, LQD, an investment grade corporate bond tracking ETF, has a 12-month yield of 5.39%.  LQD is followed by HYG, CFT and AGG.

We also screened our list of ETFs for ones with the lowest P/E ratios.  The P/E ratio of the ETF is the average P/E ratio of the ETF's holdings.  As shown, most ETFs on the list track Financials.  WisdomTree has a Low P/E ETF (EZY), but it ranks 7th on our list.  Powershares has a Deep Value ETF (PVM) that has a P/E ratio of 10.70.

Bespoke can provide investors with yield and P/E information on a large list of ETFs, so be sure to fill out a MyBespoke form if you're interested.