Bespoke's Market Timing Model


Market_indicators031008_2During times when the market is seemingly in free-fall and all your stocks are going down, it is easy to let emotions take hold and lose the proper perspective.  In order to help avoid these pitfalls, our Bespoke Market Timing Model analyzes a series of forty widely (and not so widely) followed market indicators to see what they are telling us about the market.  For each indicator, going back at least six years, we isolate all of the prior occurrences where the indicator was moving in the same direction and stood at similar levels as it does now.  We then calculate how the S&P 500 performed over the next week, two weeks, and month following each prior occurrence.  After running the numbers for each indicator, we calculate an overall outlook for the market, which is included in each night's report for Bespoke Premium subscribers. 

As shown at the top of this post, on Monday our Market Timing Model hit its highest reading ever (click the thumbnail image to view the report).  Historically, high readings in this indicator signify an oversold market where conditions are favorable for a short-term rally. Whenever the model reaches these high levels, all it needs is a spark to get things going, and this morning that spark came in the form of the Fed's liquidity injection plan.

So the next time you feel like stocks are going to fall of a cliff, before making quick decisions, check to see how your emotions compare to what the market is telling you.  The Bespoke Market Timing Model is available to Bespoke Premium members on a daily basis.


Largest Positive Point Days Ever For The Dow

Today's gain of 415 points ranks 4th on the list of the top positive point days for the Dow.  Below we highlight all +300 point days for the Dow.  While investors should really look at the daily percentage change for comparison's sake, big up days based on points are significant because of their impact on investor sentiment.



S&P 500 Technicals

Based on the bounce off the January intraday lows that we are seeing today, technicals suggest a rally to the top of the downtrend line as shown in the chart below.  If we can break through that downward channel, it will be a good sign for the bulls (and mark one of the prettiest double bottoms that we've seen in awhile).  However, it's still important to not treat this as anything but a rally in a downtrend unless the downtrend is broken.




Short Covering Rally?

The average stock in the Russell 1,000 is up 1.75% today.  We broke the index into deciles based on stocks' short interest as a percentage of float (100 stocks in each decile) and calculated the average change of each decile on the day.  As shown below, the deciles of stocks that are most heavily shorted are outperforming the deciles of stocks with the least short interest.  While the differences are not that extreme, it does indicate that short covering can be attributed to some of today's moves.  Expect this trend to continue when the market gets bounces like this.  With so many shorts out there, it doesn't take much for the skittish ones to run for the hills.


Below we highlight the best performing stocks in the Russell 1,000 on the day.  As shown, TMA is up a whopping 50% to just over one whole dollar.  CFC and IMB are up more than 12%, and DFS is up 10%.  Other notables on the list of today's winners are MOS, WM, MS, FRE, LEH and C.



More Strategists Lower Stock Forecasts

Three strategists lowered their price targets on the S&P 500 last week.  JP Morgan lowered its price target from 1,590 to 1,450, Strategas lowered its target from 1,640 to 1,480, and Merrill Lynch lowered its target for a second time from 1,475 to 1,425. 

So far, nine out of the fifteen equity strategists surveyed by Bloomberg have lowered their 2008 forecasts this year.  Merrill now has the lowest price target at 1,425, while Goldman still has the highest target at 1,675.  Based on the average of all the forecasts, strategists are looking for gains of 21% from current levels to the end of the year.




Pre-Market Movers

31108With S&P 500 futures up more than 2% this morning, the market is set to open significantly higher.  At right we highlight the stocks that are currently trading up the most in the pre-market in terms of point change.  As shown, GOOG is set to open up more than $15, followed by CME, ISRG, BIDU, FSLR and FXI.  Will these stocks be able to hold their gains throughout the trading day?  We'll check back at the end of the day and see.

If you're looking for a complete run down of all the morning's financial news, the Bespoke Morning Lineup has got it covered.  Each morning before the open, we summarize major international market events, stock specific news of note, analyst actions, and economic indicators/events.  In addition, we outline what major indicators, events, earnings reports, conferences, dividends, splits, and upcoming index changes are due the following day so that you can plan ahead and be ready. 

This one-page report is widely read each morning across Wall Street because it is concise and easy to read, yet it covers everything investors need to know to tackle the trading day.  Click the image below to view a recent Morning Lineup report.  If you would like to receive it on a daily basis, it's available to all Bespoke Premium subscribers.


Dollar Doldrums Continue

The US Dollar Index is now trading more than 2 standard deviations below its 50-day moving average and is as oversold as it has been since April 2006.  As shown below, however, it has even further to go on the downside before it reaches the bottom of its downtrend.  The pain of rising oil prices, rising commodity prices, falling stock prices and the falling dollar continues.


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Oil and Gold Creeping Up on Stocks?

We were recently doing some historical research for a Bespoke Premium report and created the chart below as a byproduct.  The chart highlights the performance of Oil, Gold and the S&P 500 (total return) over the last 40 years.  As shown, stocks are up the most at 4,903%, but Oil and Gold are creeping on up.  If recent calls come true and stocks continue to accelerate to the downside, we could see a new king of the asset classes.  Let's hope not for the sake of humanity.



A Final Look at Fourth Quarter Sector Earnings Growth

With 98% of fourth quarter earnings reports now in, below we highlight some final growth numbers for the S&P 500 and its ten sectors.  As shown below, the S&P 500 as a whole saw year over year earnings decline by 22.8%.  But only three sectors actually saw year over year earnings decline -- Financials, Consumer Discretionary and Materials.  Financials are the underlying cause of the large declines seen by the S&P 500.  At -123%, earnings for Financials in Q4 were a complete and utter disaster.  The question now is whether or not they will be any better in the first quarter of this year.

While three sectors saw declines, the other seven had relatively strong growth in the fourth quarter.  Utilities, Technology, Energy and Telecom saw year over year earnings growth of 20% or more.  And the S&P ex-Financials was up 15.7%.  But the argument that sectors with strong Q4 earnings should be doing better is not a valid one.  As shown, many of the sectors that reported strong growth recently are down significantly year to date.  Since stocks are a discounting mechanism, there's clearly a slowdown on the horizon.





Drudge Says It Best

The $107/barrel mark has made its way to the top of the widely-read Drudge Report today, in one of the biggest fonts we've ever seen on his site.


This is one of the few instances in which a chart can look so good and be so bad at the same time.




S&P 500 Short Interest

As reported last week, short interest on the New York Stock Exchange rose to a record high last month to 14.4 billion shares.  Looking at the S&P 500 and its ten sectors, we calculated the percentage of each stock's float that was sold short.  For the S&P 500 as a whole, the average stock in the index has 5% of its float sold short.  Not surprisingly, the Consumer Discretionary and Financials have the highest percentage of their floats sold short (8.12% and 6.11% respectively).  Sectors with the lowest short interest include Utilities and Industrials (3.10% and 3.27% respectively).


On an individual stock basis, below we highlight stocks in the S&P 500 with over 15% of their float sold short.  Not surprisingly, the list is dominated by stocks in the Consumer Discretionary and Financial sectors.  One name on the list where the shorts are having a very good day is Bear Stearns (BSC).  The stock, which has 18.6% of its float sold short, is down over 10% today on liquidity concerns at the company.



Bespoke on CNBC's Street Signs Today at 2 PM ET

Street_signs_4Bespoke's Paul Hickey will appear on CNBC's Street Signs today at 2 PM ET.  Topics of discussion will include the impact of back to back negative employment reports on the market's performance.


Bespoke's International Equity Market Snapshot

For those that thought China was immune from any global economic slowdown -- think again.  As shown below, China's Shanghai Composite is currently the furthest below its 52-week high (-32.29%) of any of the major country indices that we track.  China is followed by Japan's Nikkei 225 (-31.51%), Sweden (-30.38%), Hong Kong (-29%) and Italy (-26%).  Comparatively, at 17.94% below its 52-week high, the US doesn't look all that bad.  South Africa, Brazil and Canada are the three countries that are the closest to their 52-week highs.


Below we provide our trading range charts of the country indices highlighted in the table above.  If the price is trading inside or below the green area, it is considered oversold.  If the price is in or above the red area, it is considered overbought.  South Africa, Taiwan, Mexico and Brazil are the closest to the red zone, while Australia, Switzerland, the US, India and Malaysia are the most oversold.  Malaysia was one of the countries that had been holding up relatively well until recently.  As shown in the chart, however, Malaysia has fallen on tough times in the past week or so.








Best and Worst Performing Russell 3,000 Stocks Year to Date

Currently, 17.5% of the stocks in the Russell 3,000 are up year to date, while the average stock in the index is down 13.67%.  Below we highlight the 25 best and worst performing stocks in the index since the start of the year.  As shown, ENCY is up the most at 171%, but it's a $2 stock.  ENCY is followed up by CSK Auto Corp (CAO), Finish Line (FINL) and Stillwater Mining (SWC).

On the downside, Fremont General (FMT) takes the cake -- down 91% year to date.  Not far behind are RHD (-85%), SCA (-83.5%), MGI (-83.2%) and NSTR (-82.8%).




Stocks With International Revenue Exposure -- Playing the Declining Dollar

The Wall Street Journal recently published an article titled Big Firms Offer A Money Haven As Dollar Skids.  With the US dollar seemingly in a continuous decline, the article suggests buying shares in large cap US companies that generate a bulk of their revenues from overseas.  Here's the Journal's explanation why:

When the dollar falls, investors in multinational companies get two benefits. First, any products made in the U.S. for export become more competitive against those made elsewhere. It's good for Boeing Co., bad for the Airbus unit of European Aeronautic Defence & Space Co. And second, it means foreign sales and earnings are worth more in dollars.

Meanwhile, the falling dollar has another, underreported and underappreciated effect: It makes U.S. shares much cheaper for foreign investors. This should attract more foreign buyers in due course -- pushing share prices back up.

Bespoke Premium is one of the only providers of international revenue data for US stocks.  So if you're looking for companies that do well when the dollar declines, you can access the Bespoke International Revenues Database by becoming a yearly Premium subscriber today.  Click here to learn more.