Friday
May092008

Oil Up Six Days in a Row

Don't look now, but oil is only up $1.60!  We must have found a new oil reserve the size of China, or finally made peace in the Middle East.  Did President Bush and Mahmoud Ahmadinejad just have high tea in Crawford?  It's silly, but with oil up six days in a row and up $15 since the start of May, up $1.60 seems like welcome relief.  There's still a half hour left of trading for the commodity, however, so $1.60 could easily turn into $3 or $4.  Especially if it's announced that global demand has dropped 40% or something.  Just like February in the Northeast when you ponder whether it will ever get warm again, who knows if oil will ever go down again.

Below we highlight prior times since 1986 that oil has been up six days in a row.  It has now happened 37 times since then, and the commodity has actually gone up on day seven 52% of the time for a median return of 0.18%.  Over the next week, oil has gone up 58% of the time for a median gain of 0.42%.  The last time oil had a six-day winning streak was October 16th of last year.  The commodity did, however, go down on the next day and over the next week following that streak.

Update: Oil only went up another $0.75 in the last half hour of trading to settle at $125.90 or so.  It's a shame we have to wait a couple days for it to go up to $130.

Oilupsix_2 

Friday
May092008

AAPL, GOOG and RIMM Dominate the Nasdaq 100

As of the close yesterday, the Nasdaq 100 index was up 15.19% since the March 10th bottom.  A look at the impact of the stocks that make up the index shows that the gains have largely been concentrated in just three stocks -- Apple, Google and Research in Motion.  As shown below, AAPL has been responsible for 35% of the gains in the index, GOOG 9.87% and RIMM 8.50%.  Collectively, these three names have accounted for more than half of the gains in the index during the post-correction rally.

Ndx310

Friday
May092008

Default Risk Index Breaks Downtrend

Below we highlight a price chart of the CDX North American Investment Grade Index that tracks the credit default risk of 125 investment grade entities.  After declining 50% from its peak closing price on March 10th, default risk has risen over the past few days, breaking the steep downtrend that formed over the past two months.  Financials have been getting hit hard this week, and AIG's poor earnings report last night didn't help much.  Hopefully this isn't the start of a new uptrend.

Cdxrisk

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Friday
May092008

Overbought and Oversold Stocks That Typically Reverse At Similar Levels

In our Daily Morning Lineup available to Bespoke Premium members, we provide a list of the most overbought and oversold stocks that typically reverse when reaching these price levels.  To do this, we look at the price action of stocks in the S&P 1500 over the last three years.  Once we find the stocks that are the most overbought (oversold), we find the average performance over the next week and the percentage of the time the stock has been down (up) when it has been this overbought (oversold) in the past three years. 

In the table below, we highlight the ten stocks in the S&P 1500 that are overbought and typically go lower, along with the ten stocks that are oversold and typically go higher.  As shown, ACS, DOW, and ADBE are the four stocks that are overbought with the weakest performance over the next week when getting this extended in the past.

On the flip side, when KO has been this oversold in the past, it has gone up 85.7% of the time over the next week for an average return of 1.06%.  WFR has averaged a return of 4.22% over the next week when it's this oversold.

Obosupdown_2

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Thursday
May082008

Global Long Term Interest Rates

Long term government bond yields have been on the rise recently, although the degree has varied depending on the country.  In the US, UK, and Japan, bond yields are at or near their highs of the year and have broken downtrends that have been in place since the onset of the credit crisis.  Interest rates in the Euro region and Canada have also risen, but the downtrend in rates for both regions is still mostly intact.  Finally, in Australia, where rates have been in a steady uptrend for the last two years, yields are currently testing the upper end of that range.

Interest_rates_0508_2

Interest_rates_0508a_3

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Thursday
May082008

Bespoke's Sector Snapshot

Below we highlight our trading range charts for the S&P 500 and its ten sectors.  The red shading and above it is overbought territory, while the green shading and below it is oversold territory.  As shown, after breaking just above its longer-term downtrend, the S&P 500 has stalled at resistance even though it remains slightly overbought.  The next level of support for the index is at the 1,380 level. 

On a sector basis, most of them have moved back into neutral territory after trading overbought for a week or so.  Short-term uptrends remain, but we'll need to see support hold soon if they are to stay intact.  Energy, Materials, Telecom and Technology are still slightly overbought, with Energy and Materials at or close to their 52-week highs.

Spxte

Finlindu

Inftenrs

Condcons

Hlthmatr

Utiltels

    

Thursday
May082008

Google Price Target Raised to $700

Google (GOOG) is trading higher this morning after its price target was raised by a sell-side firm from $570 to $700.  Looking at prior calls by this analyst shows that while they have had a buy on the stock since March 2007, their price target changes haven't exactly been ahead of the curve.  The chart below shows GOOG's price and price target from the analyst since March 2007.  As shown, practically every bump up in the price target followed a rally in the stock, while every bump down in the price target was preceded by a fall in the stock. 

So how has the stock acted following these changes in price target?  GOOG's average percent change following the four price target increases was -7.8% over the next month with declines each time.  One month after the analyst lowered their price target, the stock was lower two out of three times, but the one time the stock went up, it was up big (+23.1%).

Goog_and_ubs_target

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Thursday
May082008

Yesterday's Declines Led by Prior Winners

The Russell 1,000 was down 1.73% yesterday.  We broke the index into deciles (10 deciles of 100 stocks) based on stock performance during the current rally to see which ones led the declines.  As shown in the first chart below, the decile of stocks that were up the most from the 3/10 bottom through 5/6 were down the most yesterday, signaling that investors were simply taking profits in winners.

Decile507

As in most rallies, stocks with high levels of short interest have been strong performers during the current rally.  We also broke the index into deciles based on short interest as a percentage of float to see if highly shorted stocks led the declines yesterday.  As shown, the decile of the most heavily shorted stocks was down the most yesterday, while the deciles with lower levels of short interest held up better.

Decile57 

Thursday
May082008

Wal-Mart (WMT) Raises Guidance

Wal-Mart (WMT) announced stronger than expected sales this morning and also raised its revenue guidance for the first quarter.  The stock has had a great run so far this year with a gain of just under 20%, and it is set to open higher on the news. 

Since the low on March 17th, one of the key traits of the market's rally has been the ability of stocks to rally on bad news.  As the chart below details, WMT has seen some profit taking over the last few days, so it will be interesting to see how the stock actually reacts to some good news.  If today's news can't help the stock reverse its trend of the last few days, it will be an indication that investors are on hold for the short term.

Wmt_050808

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Wednesday
May072008

S&P 500 Down More Than 1% For the First Time in 26 days

For the first time since April 11th, the S&P 500 closed down more than one percent.  As shown in the chart below, this is the longest stretch since last Fall that the S&P 500 did not have a one-day decline of one percent or more.

1_days_may

So where do we go now?  The S&P 500 recently broke through a downtrend line that had been in place since the index's all-time high in October.  Past resistance usually acts as future support.  If so, the current sell-off should be short-lived.  If support is not held, expect sentiment to take a turn for the worse in the next few days.

Sp_500_to_may

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Wednesday
May072008

DCR Net Asset Value Now at Zero

In early April, we pointed out the DCR/UCR trade to Bespoke readers, noting that if oil closed above $111 for three consecutive days, the two notes would hit termination at the end of the quarter at wherever their NAVs were trading.  UCR is the "oil up" note and its NAV is calculated by dividing the price of oil by three.  DCR is the "oil down" note and it is calculated by subtracting UCR's NAV from 40. 

Once oil closed above $111 for three days in a row (seems so long ago), the termination triggered, so at the end of this quarter, the notes will be distributed to holders at their NAVs.  But now that oil is trading above $120, DCR has no NAV [40-(120/3)=0].  Surprisingly, DCR's price is still trading at a premium to its NAV, and if oil is above $120 at the end of the quarter, owners will lose all of their money, effectively making it an option play on oil's decline at this point.  UCR, on the other hand, will distribute $40 per share if oil is above $120, even though its price is trading at $37.26. 

Ucrdcr

The image above is from MACROshares' website.

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Wednesday
May072008

The US Dollar: A Marathon, Not A Sprint

The US Dollar has come in favor to many Wall Street participants in recent weeks.  As shown in the charts below, the short-term action of the currency has been bullish, but the longer-term technical picture remains bleak.  Using one of the oldest sports cliches in the book, Dollar bulls need to treat this as a marathon and not a sprint.

At its current level of 73.54, the US Dollar index is trading just off the bottom of its long-term downtrend.  The next level for bulls to watch is the top of that downtrend at 77.  If the currency can break above there, the marathon for a strong Dollar will be about 10% complete.

Usdollarchart

Wednesday
May072008

Bespoke On CNBC Wednesday at 2:00 PM

Street_signs_4Paul Hickey will appear on CNBC's Street Signs today at 2:10 PM ET to discuss the current market environment.

Wednesday
May072008

Market Volatility Drops

In late March, the average absolute daily change of the S&P 500 over the last 50 days got all the way up to 1.29%.  That means the market was averaging gains or losses of more than 1.25% every day.  Since its peak, the average daily change of the index has dropped to 1.03% and looks to fall below 1% in the coming days.  While the pickup in volatility was extreme, it was amplified by the fact that volatility had been so low for the years leading up to 2007.  As shown in the first chart below, the average absolute daily change was at or above the 1.29% peak in March multiple times from 1998 to 2002.   

Abschange

We also provide a chart of the more widely followed VIX volatility index below.  After peaking at 32.24 on a closing basis on St. Patrick's Day, the VIX has fallen back below 20 to 18.21, signifying a definite calming of the markets.

Vix507

 

Tuesday
May062008

NYSE April Month End Short Interest

After the close Tuesday, the New York Stock Exchange released its updated short interest figures for the end of April.  Since April 15th, short interest actually increased fractionally, and still remains only 2.4% below its all-time high which was reached right before the Bear Stearns collapse.  In the chart below we show the historical short interest for the NYSE since 2003.  As you can see, short interest has steadily risen through the entire period.  While rising short interest is typically interpreted as a sign of increased pessimism towards the market, the increased popularity of hedge funds and long/short mutual funds has caused short interest to have a constant upward bias.  However, looking at the trends of overall short interest is still useful to gauge investor sentiment.

For example, in the chart below the red dot represents the levels of short interest when the S&P 500 hit its all-time peak.  While short interest was not "low" in absolute terms, the fact that it had declined steadily over a three-month period indicated that sentiment was becoming increasingly bullish.  Unlike the October peak, however, short interest during the most recent rally has barely budged.  This indicates that there is more skepticism towards the market today than there was back in October.

Nyse_short_interest_043008

Looking at short interest of individual stocks, rather than measuring total short interest, a more useful indicator is short interest as a percentage of a company's float.  With that in mind, in the table below we highlight the NYSE listed S&P 1500 stocks with the highest short interest as a percentage of float.  As the table illustrates, even though the Consumer Discretionary sector has been the third best performing sector in 2008, most investors still have doubts about the stocks.  Of the 20 companies with the highest short interest as a percentage of float, 15 of them come from the Consumer Discretionary sector.  HOV tops the list with 63% of its float sold short.  While the backdrop for homebuilders seems bleak, we would note that HOV is up 65% year to date and has seen significant buying by insiders.

Sp_1500_043008_short_interest_2

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