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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Tuesday
Jul082008

Today's Rally Led By Heavily Shorted Stocks

The average stock in the Russell 1,000 was up 2.42% today.  We broke the index into deciles (100 stocks in each decile) based on each stock's short interest as a percentage of float to see how the most and least heavily shorted shares performed today.  As shown below, the decile of the most heavily shorted stocks was up an average of 4.42% today, while the decile of the least heavily shorted shares was up 2.02%.  The market definitely saw its fair share of short covering today.

Russell1000

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Tuesday
Jul082008

S&P 100 Default Risk

Below we highlight the credit default swap prices of the S&P 100 stocks currently with the highest and lowest default risk.  As shown, General Motors and Ford clearly have the highest default risk based on their CDS prices.  Other names on the risky list include Clear Channel, AIG, Sprint, Lehman and International Paper. 

Names on the safest list are not surprising.  Consumer Staples giant Johnson&Johnson has the lowest risk of default in the S&P 100, followed by XOM, BAX, ABT and MRK.  If default risk starts rising for these firms, we're in real trouble.

Defaultrisk_2

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Tuesday
Jul082008

Dow 30 Earnings Reports

While much of the news surrounding earnings reports focuses on how much a company earns, the real test of how good or bad the report is depends on how the stock reacts.  For those interested, below we highlight the percentage of up days on the first trading day following an earnings announcement for the 30 Dow stocks since 2001.  For companies reporting in the morning, we use that day's trading.  For companies reporting after the close, we use the following day's move.

As shown, Boeing (BA) has generated positive one-day returns following earnings two-thirds of the time since 2001.  This is the most positive price reaction of any of the 30 Dow stocks.  BA is followed by UTX, T, IBM and MRK.  On the other hand, GM has only gone up 25% of the time following earnings reports.  Other Dow stocks that are generally weak in response to earnings are MCD, PFE, AA and XOM.

Dowreportdaymoves

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Tuesday
Jul082008

Alcoa (AA) Earnings After the Close

Bespoke's Interactive Earnings Database is a useful tool for traders that like to play earnings reports.  For more than 2,500 stocks, we provide the trading patterns around each quarterly report since 2001.  With Alcoa (AA) reporting after the close today, below we provide a snapshot of its historical earnings from our database.  As shown, we provide the percentage of the time that the stock beats estimates and guides higher, along with the stock's average percent change when the company beats or misses estimates.  We also provide the average change from the open to the close based on the direction that the stock gaps following earnings reports.

Alcoa has only beaten estimates 37% of the time since late 2001.  The stock averages a decline of 88 bps on the first trading day following earnings reports as well, so it usually reacts negatively.  When the stock gaps up on earnings, it averages a decline of 1.35% from the open to the close, and when it gaps down, it averages a decline of 27 bps.  So regardless of the direction the stock takes after hours, traders typically sell shares from the open to the close.

Alcoa isn't a great example, but there are many stocks that show significant trends in regards to trading higher from the open to the close, or beating estimates, or gapping higher, etc.  These trends can all be found in our Earnings Database, of which you can purchase by emailing justin@bespokeinvest.com or calling 914-315-1248.  Please click here to learn more.

Aaearnings_2

Tuesday
Jul082008

Intraday Volatility

And you thought the back and forth action in the Federer/Nadal Wimbledon match was a lot?  On Monday, the S&P 500 started out higher, reversed sharply lower, clawed its way back to positive territory, only to close convincingly in the red.  Putting the recent intraday moves into perspective, we calculated the 200-day average intraday high/low spread for the S&P 500 going back to 1983.  Periods highlighted in red represent when the average was higher than the current level (1.62%), while blue periods indicate when it was below current levels.  As shown in the chart, intraday volatility has not been this high in five years, and over the entire period, the average high/low spread has only been higher 18% of the time.

Sp_500_intraday_high_low_spread

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Tuesday
Jul082008

Interesting Yale Confidence Indicators

The Yale School of Management has a number of stock market confidence indices that question US investors.  Recently, two of the confidence indices have been showing some interesting trends. 

The first chart below highlights historical results for Yale's One-Year Confidence Index.  The index surveys both institutional and individual investors for their confidence that the market will be up in the next year.  As shown, market confidence from individual investors has ticked lower and lower since 2004 and is currently just over 70%.  Institutional confidence peaked in mid-2006 and then fell significantly later that year.  In recent months, however, institutional confidence has picked up and a big divergence has been created between institutional and individual investors.  Hopefully the weak individual confidence and higher institutional confidence means a rally is coming soon.

Oneyearconfidence

Another index that the Yale School of Management conducts is Crash Confidence.  This survey asks institutional and individual investors for their confidence that there will not be a market crash in the next six months.  In the most recently monthly survey (June), confidence that there won't be a crash from individuals fell to its lowest level in the survey's history.  The prior low occurred in November 2002. 

Crashconfidence