Friday
Jul112008

NYSE Short Interest Hits Record Highs...Again.

Yesterday, the NYSE and NASDAQ both released short interest statistics for the month ending in June, and for each exchange, short interest levels increased.  On the NYSE, short interest rose to yet another record high, up 2.67% to 18.125 billion shares.  Looking at figures for the S&P 500, short interest as a percentage of float for the average stock rose from 5.8% to 6.0% of float.

Sp_500_short_interest_071108

A look at the stocks in the S&P 500 with the highest short interest shows exactly where the trouble lies- Consumer Discretionary and Financials.  Of the twenty stocks with the highest short interest as a percentage of float, seventeen of them come from those two sectors.

Highest_short_interest_0710

Thursday
Jul102008

Uninterrupted Declines

If you've forgotten what a rally feels like, you're probably not alone.  The S&P 500 hasn't had a 2% gain (in one day or over multiple days) since early June.  In the top chart below, we show all periods where the S&P 500 went more than thirty days without a 2% rally.  As shown in the chart, these uninterrupted declines are not too uncommon, as there have been 75 other periods since 1940.  What makes this period more painful, however, is the magnitude of the declines during this stretch.  Since June 5th, the S&P 500 has declined by 11.4% without a 2% rally in between (lower chart), which makes this the sharpest uninterrupted decline since February 2003.  The drought of rallies, compounded by the fact that any rally is more than erased the next day, make this one #%$& of a market.

Rallies_without_declines

Thursday
Jul102008

AAII Bearish Sentiment

Yesterday, we highlighted the ten-year high in bearish sentiment as measured by Investors Intelligence.  Today, the American Association of Individual Investors (AAII) released its weekly poll of individual investor sentiment, and while this poll showed that more than 55% of investors were bearish, the current levels still remain below the peaks we saw in March and January of this year.

Aaii

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Thursday
Jul102008

ProShares Ultra Short and Ultra Long ETFs

Market participants know that the ProShares Short and UltraShort ETFs have become wildly popular.  These ETFs allow investors with long-only accounts to easily bet against the market or hedge their bets.  The ProShares Ultra ETFs provide either double or double the inverse of the daily returns of the asset classes they track.  In the current market environment, the UltraShort ETFs have been huge winners.

For those interested, below we highlight all of the ETFs currently offered by ProShares.  We also include the year-to-date performance of each one, along with its current percentage from its 50-day moving average (to measure overbought/oversold levels).  As shown, the Ultrashort Financial ETF (SKF) is up a whopping 67% year to date, as financial firms have fallen across the board.  SKF is trailed by the Ultrashort Semiconductors (SSG), Ultrashort Russell 1,000 Value (SJF), and Ultrashort Dow30 (DXD) as far as year-to-date performance is concerned.

Because the ETFs attempt to track the daily performance of the underlying indices, the longer-term performances can get out of whack.  Not taking dividends into account, the Ultrashort Oil&Gas ETF (DUG) is down 12.45% year to date, but the Ultra (long) Oil&Gas ETF (DIG) is down 7.29%.

Proshares1

Proshares2

Proshares3   

Thursday
Jul102008

The New Bankers

Besides the 74% premium of the proposed deal, this morning's announcement of Dow Chemical's (DOW) buyout of Rohm and Haas (ROH) for $78 per share in cash had another noteworthy aspect to it concerning the funding of the deal.  In the third paragraph of the press release, DOW says:

Financing for the acquisition includes an equity investment by Berkshire Hathaway and the Kuwait Investment Authority in the form of convertible preferred securities for $3 billion and $1 billion respectively.  Debt financing has been committed by Citi, Merrill Lynch and Morgan Stanley who acted as financial advisors on the transaction.

Since when have the government of Kuwait and Berkshire Hathaway become bankers for M&A deals?  While this is the first transaction we have seen where the Kuwait Investment Authority has helped finance a major merger, it is the second deal in recent months where Berkshire Hathaway has been involved.  With the brokerage firms so strapped for cash, we wonder at what point companies in need of financing will bypass them altogether.

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Thursday
Jul102008

Sector P/E Ratios

Many market participants continue to stress that estimated valuations for the market remains low, making equities attractive.  The problem is that these are estimates, and until the actual earnings come through, it's hard to go by analyst expectations, especially in this market environment.

While estimated valuations might be low, the trailing 12-month P/E ratio for the S&P 500 is not.  As shown below, the trailing P/E for the index is currently at 20.54, and just a couple of weeks ago, it had risen to its highest levels in years.  Even at 20.54, it is higher than it was when the market peaked in October.

Along with the S&P 500, we provide historical trailing P/E ratios for the nine major sectors.  We left Telecom out because its P/E is currently negative (not good).

Spxpe

Finlindupe

Techenrspe_2

Hlthpe

Utilpe

Condconspe

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Thursday
Jul102008

Dividend Yields Soar

After yesterday's severe declines in the Financial sector, the indicated dividend yields on many of these companies have become laughable.  Bank of America yielding 11.6%!  Wachovia yielding 10.5%!  Many of these dividends are going to have to be cut for these companies to stay solvent, but for ones that are able to continue with their regular payouts, share owners will be getting quite the yield.

Below we highlight stocks in the S&P 500 with the highest indicated dividend yields.  If you're buying these names because the yield looks too good to be true, remember that it probably is.

Divyield

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Wednesday
Jul092008

Heavily Shorted Lead The Declines

Yesterday, the shorts covered.  Today, the shorts piled back in.  The average stock in the Russell 1,000 was down 2.26% today.  As shown below, the two deciles (100 stocks in each decile) of stocks with the highest short interest were down the most, while the deciles with the least short interest were down the least.  Any thoughts that yesterday's move higher was some kind of turnaround day were quickly shot down today.

Deciledown

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Wednesday
Jul092008

Quantifying Frustration

How do you quantify frustration with the market?  The chart below may help.  Recently it seems that every time the market has an up day, it goes down the next day by a greater amount than it was up.  Based on a historical analysis of this scenario, the last 50 days are about as annoying as they get for the bulls. 

As shown below, an up day followed by an even greater down day has happened 15 times in the last 50 trading days.  Since 1940, this is easily the most times it has happened in this short of a time period.  And looking at the trend over the long term, it seems as though this scenario has been happening more and more since the start of the decade. 

Uponedownnext

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Wednesday
Jul092008

Energy Stocks Down 5 Days In A Row

The S&P 500 Energy sector has declined 9.3% over the last 5 trading days and closed the day lower every day.  Below we highlight prior times where the S&P 500 Energy sector has had a 5-day losing streak in the last ten years.  Following these losing streaks, the average return for the sector has been 0.43% on day six and 0.45% over the next week.  As shown in gray shading, the sector has closed higher on day six the last seven times it has had a 5-day losing streak.

5daylosing

Wednesday
Jul092008

USO Short Interest Ratio

Below we highlight a price chart of USO (oil ETF) along with its historical short interest ratio.  Up until the last month or so, the short interest ratio for USO was increasing steadily as the price of oil rose.  But the last couple of short interest reports have shown the ratio decreasing, meaning the shorts may have finally given up with the last big spike in oil. 

Usoshortinterest

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Wednesday
Jul092008

High Yield Credit Spreads

Even before today's reversal of yesterday's gains, credit spreads in the high yield corporate bond market were widening even as the market rallied yesterday indicating that conditions in the credit market remained shaky.  As shown below, after pulling back sharply from their March highs, spreads bottomed in mid-June and have since widened by 24% to 787 basis points and now sit 8.7% (less after today) below their March highs.

High_yield_spreads_070908

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Wednesday
Jul092008

First Quarter Earnings Triple Plays

An earnings "triple play" occurs when a stock beats earnings and revenue estimates and guides future earnings higher.  There were about 70 stocks that had "triple plays" during the first quarter earnings season.  As we enter the second quarter earnings season, investors may want to look at these stocks to find momentum plays or ones that had strong reports but fell by the wayside as the overall market declined.

In the first table below, we highlight "triple play" stocks from the first quarter that are up the most since they opened for trading following their last earnings report.  These stocks had a solid earnings report and haven't looked back since, even in one of the worst markets in decades.  For momentum traders out there, these names currently have great relative strength.

In the second table, we highlight "triple play" stocks that had strong reports and went up initially on earnings, only to fall significantly since then.  These stocks all traded higher on the first day following their first quarter reports, but have now fallen more than 10% since then.  Investors looking for stocks that may have been "thrown out with the bathwater" might start with stocks in this list.

Tripleplaysup

Tripleplaysdown 

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Wednesday
Jul092008

The Running of the Bulls Bears

In Pamplona they have the bulls, but in the US we have bears.  Today's weekly sentiment reading from Investors Intelligence showed that 47.3% of newsletter writers are currently bearish.  This is the highest reading of bearish sentiment since September 1998 when Russia defaulted and Long Term Capital blew up.

Investors_intelligence_0709

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Wednesday
Jul092008

Bespoke's Commodity Snapshot

Even after oil's $8 pullback in two days, the long-term uptrend line for the commodity hasn't been tested.  For oil to test the bottom of its uptrend, it needs to get down to the $132-$133 range.  Until then, talk of a "bubble" bursting is pointless. 

Along with oil, most other commodities have seen pretty big declines in the last two days.  Based on their trading range charts shown below, the declines in copper, coffee and corn seem to be the most extreme.  However, none of the ten commodities shown below are even trading in oversold territory after this week's selloff. 

Oilnatg

Goldsilv

Platcopp

Cornwheat

Ojcof

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