Thursday
May222008

Oil Stock ETFs See Reversal on Big Volume

Even with oil up nearly $5 yesterday, oil stocks sold off sharply towards the end of the day.  Below we highlight two leveraged energy stock ETFs that saw their biggest one-day volumes ever yesterday on big price reversals.  DUG is the Ultra (2X) Short Oil & Gas stock ETF, while DIG is the Ultra (2X) Long one.  As shown, the inverse oil stock ETF (DUG) was up yesterday while DIG was down.  We put out a note to Premium members earlier highlighting that this is the first time since February 2005 that energy stocks were down more than 1% while oil (the commodity) was up more than 3% on the day.  Does yesterday's selloff in energy stocks signify the start of rotation out of these names or just one day of profit taking?

Dug_2

Dig 

Thursday
May222008

IEA Warns of Potential Supply Shortage

Energy_watchdog_3Oil is trading higher once again this morning to record highs.  Today's rise is being attributed in part to comments made from the International Energy Agency.  As the Journal reported, "The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand."

The world's premier energy monitor is just beginning to consider the possibility of oil supply not being able to meet future demand?  What do you think tipped them off?  Was it oil's 105% gain over the last year?  Or do you think they just happened to see CNBC's interview with Boone Pickens on Tuesday?

Yy_change_in_oil

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Wednesday
May212008

Analyst Calls: Almost as Timely as the Newspaper

In this morning's Wall Street Journal, the "Heard on the Street Column" highlighted how investment banks could face additional write-downs related to the hedges they put in place to offset losses in their real estate and other credit related securities.  Apparently, these hedges haven't quite worked the way they were supposed to.  According to the article, Lehman Brothers (LEH) is the biggest loser based on comments they made in a conference call last week.

Wsj_hedges

At around noon today (six hours after the Journal is typically delivered), Merrill Lynch (MER) issued a research report titled, "Hedge reversal drag on 2Q, cutting ests", and the report opened with, "Based on comments made at a conference last week, and continued sluggishness in key markets, we are taking our EPS forecast down for the May quarter and for 2008." One would think that an analyst who focuses solely on the brokerage industry would be a more timely source of information than a newspaper, but apparently in this case the Wall Street Journal scooped the analyst.

Wednesday
May212008

Headline of the Day

"High Gas Prices Drive Farmer to Switch to Mules." -- AP

"High gas prices have driven a Warren County farmer and his sons to hitch a tractor rake to a pair of mules to gather hay from their fields. T.R. Raymond bought Dolly and Molly at the Dixon mule sale last year. Son Danny Raymond trained them and also modified the tractor rake so the mules could pull it."

Mule

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Wednesday
May212008

Oil Price Chart Since 1990

Doesn't it seem like forever ago that oil was in the mid $60s?  Those were the days...Fergie's "Big Girls Don't Cry" topped the charts, LeBron James and the Cleveland Cavs were locked in an unforgettable series with the Detroit Pistons, and News Corp was in a battle to buy Dow Jones.  It all happened just one year ago.

Below we highlight a chart of oil since 1990 with various price points included.  It would be hard to draw a more vertical line since oil hit a low of $50.48 in January 2007.

Oilparabolic1

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Wednesday
May212008

Looking For Some Action? Most Volatile Stocks

For traders with a more short-term time horizon, we have compiled a list of the S&P 1500 stocks that have the largest intraday high-low ranges (based on the average percent spread between the intraday high and low over the last fifty days). We then grouped the stocks based on whether they have a rising or falling 50-day moving average. Stocks highlighted in gray are new to the list this month.

Even though the market hit its recent lows 50 trading days ago, the majority of stocks in our list of most volatile stocks still have declining 50-day moving averages (10 rising, 40 falling).  Two names of note on the list of most volatile stocks with rising 50-day averages are FNM and FRE.  Not only is it surprising that these stocks that were once considered 'safe' are now among the most volatile stocks in the market, but both have been in steady downtrends for a number of quarters, so the fact that their short-term moving averages are rising could (we stress could) indicate that things are looking up for these names. 

052108

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Wednesday
May212008

T. Boone Pickens Hedge Fund Holdings

T. Boone Pickens helped lift oil prices once again yesterday with his "$150 in '08" call on CNBC.  For those interested, below we provide the holdings of Mr. Pickens' hedge fund at the end of the first quarter.  As shown, just 5 of his 23 positions are down on the year, while the S&P 500 is down 3.32%.  His top ten holdings are all up an average of 21.7% this year, with his top holding (OXY) up 27%.  It's good times for energy funds.

Tboone

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Tuesday
May202008

Still Overbought?

You would think that the next stop is the March lows with all the talk about today's sell-off.  To put things into perspective, however, the S&P 500 finished the day down less than 1%, and based on its 50-day moving average spread, the index is actually still trading at the upper end of its trading range.  As shown in the chart below, which we update daily in our Morning Lineup, the S&P 500 has been and continues to be in overbought territory.

Sp_500_trading_range

Each morning, we also update where sectors are trading with respect to their trading ranges.  In the chart below, the circles represent where the sector is currently trading with respect to its trading range (white area is neutral, pink and red areas are overbought, and green areas are oversold), while the tail shows where the sector was one week ago.  As shown, there are currently no sectors that are oversold.  In fact, five of the ten sectors (Energy, Materials, Technology, Telecom Services, and Utilities) are still overbought.  While the remaining five are within their normal ranges, three of them (Consumer Discretionary, Health Care, and Industrials) are near the upper end of their ranges.   

Sector_trading_ranges_2 

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Tuesday
May202008

Sector Relative Strength

Below we have updated our charts of sector relative strength.  In each chart, rising lines indicate periods where the sector is outperforming the S&P 500.  Charts with red shading indicate that the sector has underperformed over the last year.  Additionally, in each chart we have also included red dots that highlight each of the Fed rate cuts since August.  This week, we also added a chart of the relative strength of the Transportation sector versus the S&P 500.  While it has not been considered an 'official' sector since 2001, we thought readers would be interested in seeing the chart given the recent attention on the sector in the face of higher oil prices.

One of the main trends we've been highlighting over the last several weeks is that even with heightened concerns over the economy, defensive sectors such as Consumer Staples, Health Care, Telecom Services, and Utilities are all underperforming the S&P.  At the same time, cyclical sectors such as Consumer Discretionary, Energy, Industrials, Materials, and Technology are all either holding up well or outperforming.  Finally, the Transports have been one of the strongest groups in the market, even though their largest cost (oil) has been hitting record highs practically every day.

Relative_strength_a

Relative_strength_b

Relative_strength_c   

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Tuesday
May202008

Volume Seasonality

Since the market's closing low on March 10th, volume has been anemic.  This has led many to complain that the current rally lacks staying power and is nothing more than a sucker's rally.  While the ultimate outcome of this rally is up for debate, the weak volume argument is weak.  At least part of the decline in volume can be explained by seasonal factors.

In the chart below, we show the daily volume on the New York Stock Exchange (NYSE) versus its 50-day moving so far this year.  We also created a composite yearly chart of NYSE volume versus its 50-day moving average using data since 1926.  As shown, while volume has been drying up leading up to this Summer, volume usually trends lower from early January through the end of the Summer. 

Volume_vs_50day_moving_average

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Tuesday
May202008

How High Will Oil Go?

How high will oil go before experiencing a 10% correction (which would only be down to $117 based on current prices)?  Please let us know what you think by taking part in our poll below.  We'll report back with the results in a couple of days.


How high will oil go before experiencing a 10% pullback?
$130
$140
$150
$160
$175
$200
>$200
  
Free polls from Pollhost.com

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Tuesday
May202008

Ben Franklin Speaks From The Grave

Quote of the Day: "Certainty? In this world nothing is certain but death and taxes and higher oil prices." -- Benjamin Franklin

Tuesday
May202008

Largecap, Midcap and Smallcap Performance

As we did yesterday with growth versus value, below we highlight the performance of large, mid and smallcap indices over the entire bull market and since the correction started last October.  As shown in the first chart, largecap stocks (as measured by the S&P 500) have lagged mid and smallcap stocks significantly since October 2002.  The S&P 500 is up 83.7%, the Smallcap 600 is up 129.2%, and the Midcap 400 is up 136.3% since 10/9/02. 

Since the October 2007 top, smallcap stocks have fared the worst and are still down 11.45%.  The S&P 500 is down 8.85%, while the Midcap 400 is down just 3.95%.

Largemidsmalllong

Largemidsmall

 

Tuesday
May202008

Strategist Price Targets of the S&P 500

Below we highlight the updated S&P 500 price targets of equity strategists surveyed by Bloomberg.  After weeks and weeks of analysts lowering price targets, a firm finally upped its price target earlier this month.  Merrill Lynch recently raised its 12-month price target for the S&P 500 from 1,430 to 1,500.  The average price target of all analysts surveyed is now 1,519, which is 6.49% above the current level of the S&P 500.  At the start of the year, the average price target was 11.12% above the S&P 500.

Spxpricetarget_3   

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Monday
May192008

Mid-Day Sell Off

Given that some of the hottest stocks of the last few weeks sold off sharply this afternoon, you would think that today's reversal was simply profit-taking after a big rally.  However, when we looked at the average intraday sell off of stocks in the S&P 1500 grouped by deciles according to their performance since the March lows, we found that not only were investors selling their winners, but they were selling their losers too.  The two groups of stocks that had the biggest reversal off their highs of the day were the 150 stocks that have performed the best and the 150 stocks that have performed the worst since the March lows.  Each of these groups closed an average of 2.5% off of their intraday highs.

Intraday_reversal_0519 

Distance_from_52week_high_2 While the S&P 1500 is currently 6.1% off of its 52-week high, the average stock in the index is currently sitting more than 26% below its 52-week high.  As has been the case since last Summer, large cap stocks are holding up the best (down an average of 22.5%), while small caps have been hardest hit (-30.9%).

On a sector basis, even though the Consumer Discretionary sector has been one of the better performing sectors this year, they also fell the furthest from their highs last year.  For that reason the average stock in the sector is 31.1% off its 52-week high.  Financials and Technology round out the top three, with average declines of 29.3% and 29.1%, respectively.  Putting things into perspective, even though the Energy sector hit a 52-week high today, and the individual stocks seem like they are up every day, the average stock in the sector is currently 16.9% off of its high.  So even in the hottest of sectors, not every stock is close to 52-week highs.

Distance_from_52week_high_sectors05

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