SnapBack Rally

With equity ETFs moving into positive territory by the day's end, it was one of the few days in recent weeks that both Treasuries and stocks were up.  One point to note today was the performance of smallcaps.  The Russell 2,000 and the S&P Smallcap 600 held up much better than largecaps for most of the day.  Their ETFs went on to close up 2.06% and 1.49% respectively.  As we noted yesterday, Financials were due for a rally, and they were by far and away the best performers of the ten major sectors. 

 

Dow Jones Intraday Reversals

Today's intraday reversal in the Dow was the first time since July 2002 where the index recovered more than 2.5% after being down at least 2.5% intraday.  Below we highlight all the prior occurrences since 1987.  In regards to the following day's performance, there is no clear trend as far as direction is concerned, but many big moves have occurred.  Overall, the average return is a decline of 1.06%.  However, if we omit the 1987 period which contained several occurrences within days of each other, the return is a more respectable 0.14%, but even still the returns vary widely.

 

The Best are the Worst

The best performing stocks for the year going into today are the ones getting hit the hardest, while the worst performing stocks for the year are faring the best.  The 10% of Russell 1,000 stocks that were up the most for the year as of yesterday are down an average of -3.61% today (as of 3 PM).  The bottom 10% are down just 41 bps.  With the S&P 500 now down for the year and officialy in a 10% correction, investors seem to be locking in profits in the stocks they had gains in.

What's Your View?

At midweek, 55% of Bespoke readers have marked Bullish as their current view on the S&P 500.  Take part in the poll below and let us know what you think about the S&P 500 at these price levels.

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Nasdaq 100 vs. 200-Day Moving Average

The Nasdaq 100 fell below its 200-day moving average today for the first time since last Summer.  The chart below shows the Nasdaq 100 versus its 200-day moving average since 2004.  Since then there have been three other periods where the index traded significantly below the 200-day.  In each period we note the maximum oversold reading the Nasdaq 100 reached versus its 200-day moving average.

3 Month Treasury Yields in Free Fall

The yield on 3 month Treasury Bills has gone from 4.62% on Tuesday to 3.37% in two days.  That's what you call a flight to safety.

Global Declines From 52-Week Highs

Below we highlight the percentage declines from 52-week highs for various country indices.  As shown, none of the indices have reached the 20% bear market threshold yet, although Brazil is getting mighty close.  Interestingly, the US, whose housing problems seem to be the initial cause to the global market crisis, is among the markets that have declined the least.  The Dow Jones Industrial Average has declined 9.21% from its 52-week high reached on 7/17, holding up second best behind China's Shanghai Composite.

The most hated S&P 500 stocks

One commenter from our most loved stocks post asked for a list of the most hated stocks.  Below we highlight the stocks in the S&P 500 that have at least 25% "Sell" ratings by Wall Street analysts.  Overall, there aren't nearly as many "Sell" ratings as there are "Buy" ratings.  The stock with the highest percentage of "Sell" ratings is Eastman Kodak (EK) at 56%.  Other notables on this list that aren't surprising given their negative public sentiment are THC, GM, LEN, BOL, RSH, F, LXK and CFC.  The good thing about companies with negative analyst sentiment is that any hint of positive news usually means a strong up move in the stock.

10% Corrections and a Look at 1966

With the S&P 500 set to open lower this morning, it looks like the 10% correction threshold will be met.  This would make the period from 3/11/03 to 7/19/07 the second longest since 1940 without a 10% correction.  We looked back at all periods of 1,000 calendar days or more since 1940 without a 10% correction to see how much the market went down once we did break the -10% barrier.  As shown below, there have been three such periods and in two out of three, the S&P 500 moved into a bear market (-20%).

We also searched the Google News Archives for what was going on at the end of the 1966 rally (start of the 1966 bear market), and we found a Time Magazine article titled Overreacting that was published 23 days after the market peak.  The market was just starting to reel from a startling "shortage of investment money" and the Vietnam War.  The argument from the "overreacting" camp was a strong economy and strong valuations.  Excerpts from the Time Magazine article are provided below:

This week the U.S. enters what promises to be its sixth straight year of economic expansion, and almost everything is rising—except the stock market.  It has been falling since early February, and last week Wall Street's bull was still reluctant.

Measured by the important price-earnings ratio, stocks are lower than they were at the low point of the 1962 break.  They are now selling at an average 16.3 times expected 1966 earnings, compared to a 17-to-1 ratio in the bleak summer of '62.

Prices are low because worries are high, and investors are reacting—probably overreacting—to the economic implications of the Viet Nam war.  They are afraid of higher taxes and more controls on the economy, perplexed by the squeeze on credit and pressure on profit margins. 

Some of the stock market's troubles stem from a worsening shortage of investment money. Salomon Bros. & Hutzler, a leading bond-trading house, predicted that commercial banks will have $3 billion less to put into long-term credit this year than last.  With a swiftness that startled even investment men, the money shortage has driven interest rates on some new bond issues to 45-year peaks, prompting investors to sell stocks in order to buy bonds.  Last week $40 million of Long Island Lighting Co. bonds went on sale with a 5.13% interest return, one of the highest yields ever placed on a corporate issue of its type.  The Federal National Mortgage Association had to pay a record 5.38% to sell $250 million of 14-month debentures.

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

Bespoke's Paul Hickey will appear on CNBC's Street Signs today with Erin Burnett at 2 PM ET to discuss a potential tangential impact of the credit crisis.

Recent Fed Comments

The continued misery in the credit markets has many on the lookout for an inter-meeting Fed rate cut.  However, if tonight's comments by St. Louis Fed Governor William Poole (voting member) are any indication, investors shouldn't hold their breath.  Some of the highlights include:

"It's premature to say that this upset in the market is changing the course of the economy in any fundamental way."

"No one has called up and said the sky is falling", "As I talk to companies, their capital spending plans are intact."

"We're very much in touch with the markets."

On inflation: "moving in the right direction", "job is not done.''

Nasdaq, Dow 30 Down Five Days in a Row

Looking at the trading patterns of the major sectors over the last four years, we found that when the Financials sector has been down five days in a row (as it is now), it has been up the following day 83% of the time.  Conversely, when the Materials sector has been down five days in a row, it has been up the following day just 30% of the time.  Below we provide the current winning and losing streaks of the S&P 500, Dow 30, Nasdaq and ten S&P 500 sectors.

 

DJIA Thousand Point Milestones to the Downside

If Dow 14,000 seems like a faint memory to you, it's probably because it came and went so quick.  Since closing 0.41 points (yes points) above the thousand point threshold on July 19th, the Dow has quickly come in to trade below 13,000.

In the table below, we calculated all the periods where the Dow traded down through two thousand point milestones in a row (on a closing basis).  Now we realize that as the price of the index rises, the percentage impact of a thousand point move decreases, but for those interested, the 19 trading days it took to fall through two one thousand point thresholds would tie for the fourth shortest in terms of duration.

 

A Quick Look at Historical CFC Calls From Merrill and FBR

With plenty of attention being paid to Merrill's Buy to Sell downgrade of CFC today (after reiterating a Buy just two days ago), below we highlight their historical calls on the stock.  The blue area represents the period where they had a Hold on the stock, and the green area represents the period that they had a Buy rating on the stock.  We also provide the historical CFC calls made by Friedman, Billings, Ramsey & Co., the top rated analyst according to Bloomberg's BARR ratings.  As shown, FBR had two timely Hold downgrades in January and May of this year, and a timely Sell downgrade on August 2nd.

 

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