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 

Monday
Jul072008

Second Quarter Earnings Season Is Upon Us

Alcoa's (AA) quarterly report after the close tomorrow kicks off the second quarter earnings season.  Below we highlight the percentage of US stocks that have beaten earnings estimates on a quarterly basis over the last ten years.  As shown, "beat" rates in the last two reporting periods were the lowest they've been since the '01/'02 bear market.  We'll be watching this indicator closely in the coming weeks to see how companies are reporting versus estimates that have already been lowered significantly.  If "beat" rates can at least remain in the high 50s, it could go a long way in helping this market hold onto support levels throughout earnings season.

Beatrates707

For those interested, we released our mid-year strategy piece at the end of last week titled Halfway There: Where We've Been and What's To Come For The Rest of 2008.  Please click the thumbnail below to visit Bespoke Premium, where you can become a member and receive your copy today.

Monday
Jul072008

VIX and Declines

While the market has been oversold for some time now, one of the arguments against a snap back rally is that we still haven't seen a big spike in the VIX.  While we would never place all of our bets on one indicator, a look back at prior 10%+ declines since 1990 (when VIX data begins) shows that the average reading on the VIX is typically considerably higher on the day of the market low than it is now.  In fact, since the VIX data begins in 1990, the S&P 500 has never bottomed with a VIX reading this low.

Vix_during_declines_2 

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Monday
Jul072008

Dow 30 Price Targets -- Too Much Optimism?

Below we highlight the 30 stocks in the Dow Jones Industrial Average.  For each one, we include its price, year-to-date change, consensus analyst price target, and the current distance from that price target.

The average stock in the Dow has a price target that is 32.47% above its current price.  AIG's price target is the furthest above current levels at 92%, followed by BAC, C, GM, BA and MSFT.  JNJ, CVX, WMT and IBM have price targets that are the closest to current levels.  As shown by the year-to-date changes for each Dow stock, the ones down the most have price targets the furthest above current levels and vice versa for the ones that have held up the best this year.  The fact that the price target closest to the actual stock price is still looking for an 11% gain (JNJ) highlights the bullish pervasiveness that stays on the street.  Clearly analysts haven't been able to keep up with falling stock prices.   

Dowpricetargets

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Monday
Jul072008

Presidential Politics: Wall Street Votes

While fund raising statistics suggest that Barack Obama has strong support in the Wall Street community, the performance of the stock market in relation to Mr. Obama's popularity suggests that investors may have a different view.  In the chart below we show the S&P 500 (red line) versus the price of the Intrade futures contract for Barack Obama to become president (blue line). 

We have broken the chart into three periods.  In the first period, the Obama contract rose from under 20 to near 60 in the first two months of the year.  Over that time period, the S&P 500 fell sharply.  In early March (beginning of shaded region), Obama's popularity stalled out and the S&P 500 rallied.  Beginning in late May, the Barack Obama contract broke out of its range and since then has been steadily rising to new highs.  At about the same time, the S&P 500 peaked and has been down hill ever since.  While the Presidential election has not been the only issue in the market over the last six months, the trends shown in the chart make it hard to argue that Wall Street is not embracing the odds of an Obama Presidency.

Obama_contract

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Monday
Jul072008

Hopes for a Second Half Recovery Fading

As we highlighted earlier, analysts are expecting second quarter earnings to show an 11.2% year over year decline.  While consensus estimates throughout the first half of the year were calling for a second half recovery, these numbers as well as trends in recent analyst revisions show that hopes for a rebound in the second half of the year appear to be fading.  In our weekly look at analyst EPS revisions for the stocks in the S&P 1500, we found that over the last month, analysts have raised EPS forecasts for 375 companies, but lowered forecasts for 608 companies.  As shown in the chart below, this net differential of -233 (-15.5%) is the weakest reading we have seen since the end of April.

Net_earnings_revisions_070708_2

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Monday
Jul072008

Second Quarter Earnings Expectations

With earnings season starting this week, below we highlight the current estimated second quarter earnings growth for the S&P 500 and its ten sectors.  As shown, Financials and Consumer Discretionary are once again expected to drag down the index as a whole.  Financials are expected to see earnings decline by 60.1% versus the second quarter of 2007, while Consumer Discretionary earnings are expected to drop 23.5%.  The index as a whole is expected to see earnings decline by 11.2% versus Q2 '07. 

But all is not expected to be bad.  In fact, seven of the ten sectors are still expected to see earnings growth in Q2 '08 versus Q2 '07, with Energy at the top of the list at 25.4%.  Technology trails Energy at 13.1% growth, followed by Consumer Staples (8.5%), Health Care (4.9%) and Industrials (3.3%).

Epsgrowth

For those interested in specific stocks, below we highlight ones in the S&P 500 that have seen the biggest increases and decreases in earnings estimates for the current quarter over the last month.  As shown, TEG has seen its earnings estimates increase by nearly 37 cents.  COP and CVX trail TEG at $0.30, and other names on the upside list include XOM, AIG, EOG, EK, X and GS.

The list of stocks with the biggest decreases in earnings estimates is littered with Financials, including MER, C, LM and LEH.

Epsgrowth4wk

Epsgrowth4wk1

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Sunday
Jul062008

Bespoke in Barron's

BarronsbearFor those interested, one of Bespoke's recent Premium reports was featured in the Barron's cover story this weekend by Randall Forsyth.  Please click the link below to view the article.

The Bear's Back (Barron's subscription)

The Bear's Back (on MarketWatch)

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Thursday
Jul032008

Bespoke's July 4th Prediction Poll

The winner of last week's Bespoke Prediction Poll guessed that the Dow would close the week at 11,285.5 -- just 0.02% percent from today's actual close of 11,288.54.  Congratulations on the prediction and winning one free month of the Bespoke Premium service!  Please enter your prediction for where the Dow Jones Industrial Average will close next Friday.  The index is currently trading at 11,288.54.  Predictions must be in by this Sunday at midnight.  The person with the closest answer will receive one free month of the $40/month Bespoke Premium service.  Thanks for participating!









Where will the DJIA close on Friday, July 11th?
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Looking for some holiday reading?  Pick up our informative mid-year market report only available at Bespoke Premium. 

Thursday
Jul032008

Bespoke Readers on the Market, Oil, Housing and the Election

On Tuesday we asked Bespoke readers for their thoughts on the market, oil, real estate and the election in the second half of 2008.  Based on the results, it looks like the consensus is looking for higher stock prices, lower oil prices, lower real estate prices, and Barack Obama as the next President.  Contrarians would take these results as a hint to continue selling stocks and go long oil, however, we consider Bespoke readers the "smart" money!

Spxhigherlowermid

Oilhigherlowermid

Homepricesmid

Obamamccainmid_2

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Thursday
Jul032008

At Least We Won't Have a Late Afternoon Sell Off

Looking at the bright side, given the early close today, at least we won't have a late afternoon sell off in the Dow.  Although with the market staying open until 1PM, there's still a chance for a brief afternoon decline.  If you are reading this in the US, have a Happy Fourth of July.  Otherwise, enjoy the weekend.

Dow_intraday_0703

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Thursday
Jul032008

Central Bank Rates: US vs Euro

With today's 25 basis point increase in the ECB's benchmark interest rate, the spread between central bank rates in the US and the Euro region is now at its widest level since the ECB's inception in 1998.  While some will argue that the ECB is being too hawkish in the face of a weaker economy, given that their sole mandate is on price stability, the strength or weakness of the economy is of little concern to them.

Fed_funds_spread_vs_ecb_3   

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Wednesday
Jul022008

Bin Laden Comment From '01

The Drudge Report today pointed us to this article from the New York Times back in October 2001.  The key quote from the article is below:

''If bin Laden takes over and becomes king of Saudi Arabia, he'd turn off the tap,'' said Roger Diwan, a managing director of the Petroleum Finance Company, a consulting firm in Washington. ''He said at one point that he wants oil to be $144 a barrel'' -- about six times what it sells for now.

With oil now trading at $144, bin Laden looks to have gotten his wish.  Pretty incredible.

Wednesday
Jul022008

It's Still All About Oil

Earlier in the week we highlighted a chart of the intraday performance of oil and the S&P 500 last week, which showed how each up (or down) move in oil was met with an opposite move in the S&P 500.  Looking at the relationship between oil and the S&P 500 this week shows that it's still all about oil.

Oil_vs_sp_500

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