Friday
Apr042008

Market Breadth Continues to Show Strength

As of the close yesterday, 67% of stocks in the S&P 500 were above their 50-day moving averages.  This is the highest level of the year for the breadth indicator, even though the index itself has not made new highs.  While spikes in this number typically signal that some short-term declines might be in store, it's longer-term implications are a positive for equity markets, since a majority of stocks are beginning to break out of their downtrends.

Above50day

This indicator can be tracked weekly for the S&P 500 and its ten sectors at Bespoke Premium.

Friday
Apr042008

Nonfarm Payrolls and the Market

Economists are looking for a decline of 50,000 jobs in today's Nonfarm Payrolls report.  Below we highlight a table of report days since the start of 2007.  As shown, the average report has come in weaker than expected by 10,000 jobs over the last 15 reports.  The S&P 500 has averaged a decline of 0.33% on these days.  So far this year, we've had three worse than expected reports, two down days and one up day. 

Nonfarmpayrolls403_2 

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Thursday
Apr032008

JP Morgan: Actions vs. Words

In today's testimony in front of the Senate Banking Committee, investors got a behind the scenes glimpse of what really happened over St. Patrick's Day weekend when Jamie Dimon and JP Morgan had the "luck of the Irish" on their side and acquired Bear Stearns for $2 per share.   

In his own words, Dimon told Senators that JP Morgan took on considerable risk in acquiring Bear Stearns, and that without the lending facility that was put in place, JP Morgan "could not and would not have assumed the substantial risks of acquiring Bear Stearns."  He added that the Fed's facility was not a way for JP Morgan to dump the bad assets on to the Fed when he testified that, "We kept the riskier and more-complex securities in the Bear Stearns portfolio for our own account. We did not cherry-pick the assets in the collateral pool.''   Finally, Dimon maintained that if JP Morgan had not stepped in to rescue Bear Stearns, the consequences would have been 'disastrous', and not just for Wall Street. The effects would have been felt by "...people all over America -- union members, retirees, small-business owners, and our parents and children..."

While it's easy to look back now and say that JP Morgan had the steal of the century, hindsight is always twenty-twenty.  No one really knows how stressful things were behind the scenes.  That being said though, judging by the company's recent actions, it appears as though JP Morgan knows what a great deal it got.  One week after announcing its deal with Bear Stearns, JP Morgan announced on March 24th that it would increase its bid by 400% to $10 per share. 

Tonight, we got even more information as to how badly JP Morgan wants this deal to get done.  In a filing after the close on Thursday, JP Morgan disclosed that it purchased 11 million shares of BSC stock at a price of $12.24 per share in the open market just minutes after agreeing to buy the company for $10 per share.  Additionally, they also stated that they plan to keep buying shares on the open market until they acquire 49.5% of the company.  They always say actions speak louder than words, and based on these actions, one would have to assume that JP Morgan thinks the benefits of acquiring Bear Stearns even at the $12 level are well worth the risk.

Thursday
Apr032008

Global P/E Ratios

As shown in the table and charts below, the trailing and forward P/E ratios of the S&P 500 and Nasdaq are high compared to the valuations of other markets in other countries.  While it has historically had high valuations, the Nasdaq's current trailing and forward P/E ranks highest among 12 other country indices, including China's Shanghai Composite.  The S&P 500's trailing 12-month P/E ranks 3rd, although it is in the middle of the pack when looking at forward estimates.  The lowest P/Es are currently in Europe.  Valuations in the US are higher because earnings haven't slowed as much in foreign markets and price declines in the US have been less extreme, even though we're the root cause of the global market selloff.

Countrype

Countrype1 

Thursday
Apr032008

Merrill's Thain Says It Again: No New Capital

Even as members of the Federal Reserve and US Treasury are testifying in front of the Senate Banking Committee saying that they are strongly encouraging financial firms to raise additional capital, Merrill Lynch's CEO John Thain is at it again saying that the company has no need to do so. 

Since the Bear Stearns (BSC) blow up in mid-March, and even more so since Lehman (LEH) announced its $4 billion offering this week, the shorts have been taking aim at MER, saying the company would have to raise capital because of more writedowns.  Back on March 19th, following Thain's last comment that MER would not need to raise new capital, we noted that given the situation with BSC, Thain had better be sure he was right.  Based on his reiteration today, it appears as though the shorts may need to find a new target.

Thursday
Apr032008

Most Volatile Stocks on Earnings Report Days

The unofficial earnings season starts next week when Alcoa (AA) reports first quarter results.  At Bespoke Premium, we provide continuous coverage of earnings results as well as expected price reactions to the reports.  We also offer detailed historical report analysis through the Bespoke Earnings Database.  We recently searched the Database to find stocks that have the most volatility on the first trading day following quarterly reports.  Many traders like to use various strategies to trade this volatility.  We calculated the average absolute 1-day percent change on earnings report days for all stocks that have at least 10 quarterly reports under their belts.  If a stock goes up 20% on the day following one quarterly report and then goes down 10% after another quarterly report, the average absolute 1-day change would be 15%. 

As shown below, MFLX, ISRG and BCSI have the highest price volatility on earnings days from our Database.  MFLX has an average absolute change of 19.12% on report days.  ISRG ranks second at 17.81%.  Remember, this doesn't mean the stock always goes up a lot on report days, rather that it typically goes up or down a lot.  Check back in the coming days for more earnings season info.

Earningsvolatility403_2 

Subscribe to Bespoke Premium to find the top rated stocks on earnings reports.

Thursday
Apr032008

Best and Worst Performing Russell 1,000 Stocks Since the 3/10 Bottom

Below we highlight the best and worst performing Russell 1,000 stocks since the market made its short-term bottom on March 10th.  We also include the change in each stock from the 10/9/07 market top to the 3/10 bottom.  As shown, TMA is up 81% since March 10th, but it's only a $1 stock.  The real winners have been VRTX, FRE, FNM, SPWR, CFC, LEN and FSLR.  Each of these have had moves of more than 40% in less than 4 weeks.  There are quite a few homebuilders on the best performing list, as the group gets more and more attention from investors who think their bottom might be in.  Just 14% of stocks in the index are down since March 10th.  BSC, MF, MGI and NCC top the list of losers.

Best310

Worst310

We performed our decile analysis on the stocks in the Russell 1,000 to see if the best or worst performing stocks during the market's declines (10/9 to 3/10) were leading or lagging the market during its recent rally.  The top 100 performing stocks from 10/9 to 3/10 represent decile one, while the bottom 100 performing stocks represent decile ten.  As shown below, there is not a clear trend, but the performance gets better and better as you move from best to worst.  This means that the stocks that were down the most during the markets declines have generally performed better during the market's rally.

Decile310   

Thursday
Apr032008

Bespoke's Commodity Snapshot

Below we highlight our trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity's 50-day moving average.  When the price moves above or below this trading range, the commodity is considered overbought or oversold. 

After a pullback from $110 to $100, oil is now trading at $104, which is just above the middle of its trading range.  Natural gas declined sharply on the commodity pullback a couple of weeks ago, but it has since moved higher and is almost back to new highs.  Declines in silver, platinum, wheat and copper left prices right in the middle of their trading ranges, while declines in gold and coffee put them close to oversold territory.  Corn has actually moved back to new highs and is now trading above the top of its trading range.

Oilnatgas

Goldsilver

Platcopp

Cornwheat

Ojcof    

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Wednesday
Apr022008

Price Charts of Top Performing Stocks

Yesterday, we published a list of the best and worst performing Russell 3,000 stocks in the first quarter.  Below we highlight price charts of four of the top five on the list. 

The top stock on the list, BPZ Resources (BZP), was up 94% in the first quarter.  As shown below, the stock has declined in the first two days of the second quarter, however, and has broken its short-term uptrend.  IDIX, the second best performer, is a biopharmaceutical company that develops treatments for Hepatitis C and HIV.  Its price chart has developed a classic stair-step pattern.  The technical expectation would be for some short-term consolidation and then another step-up.  EBS is another biopharmaceutical company, and it has a very similar pattern to IDIX.  The last stock highlighted is Walter Industries (WLT), which was up 74% in the first quarter.  The majority of WLT's revenues come from coal, but they also have natural gas, mortgage financing and homebuilding operations (weird mix).  WLT remains in a solid uptrend, and until that breaks, the bulls will be in charge.

Bzp_2

Idix

Ebs

Wlt

   

Wednesday
Apr022008

S&P 500 P/E Ratio -- Breaking Out

Recent gains in equity markets along with weak earnings have caused the S&P 500's P/E ratio to break to new highs.  Even though the index is still well below its highs from last October, the S&P 500's trailing 12-month P/E has recently moved to a six-month high of 20.76.  During the bull market rally from 2002 to 2007, investors were waiting for the P/E expansion that usually accompanies stock prices moving up faster than earnings.  Unfortunately, this time we're getting P/E expansion due to falling earnings.

Spxpe

The rise in the S&P 500's P/E ratio is largely a result of the extremely weak earnings in the Financial sector.  As shown below, its P/E is now all the way up to 19.07, which is much higher than normal levels.  The P/E ratio for Industrials, on the other hand, has not broken to new highs, even though the sector has recently made a nice move to the upside.

Finlindupe

 

Wednesday
Apr022008

"Gold Tumbles on Bank Losses"

The first news headline below from yesterday morning is one of the more peculiar that we've seen in some time now.  Sometimes reasons for price moves are hard to come by.

Goldtumbles_2

Isn't gold supposed to rally during times of crisis in the financial markets? 

Wednesday
Apr022008

Market Bellwethers Show Promise

Many investors look at the performance of Wal-Mart (WMT) and General Electric (GE) to judge the overall health of the US economy and stock market.  We all know that Wal-Mart has been on a tear lately, up 19.62% since the S&P 500 peaked on 10/9/07.  But recently, GE has also made a big move upward.  Since bottoming on March 10th, GE is up more than 21%.  Those that track GE know that a move like that doesn't happen often.  Big buying in these stocks suggests that investors are putting their money into proven, large-cap companies that should be able withstand a weak economy.  But when these companies are providing healthy returns, it helps out the performance of major indices and also improves investor confidence.

Wmt402

Ge402

Gewmtspx

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.   

Wednesday
Apr022008

0 For His Last 6, Will Bernanke Finally Get A Hit?

When Bernanke speaks, the market drops.  At least that is what has happened the last six times the Fed Chairman has taken the microphone.  As we previously highlighted, the last time Mr. Bernanke spoke on March 14th, the market dropped more than 2%.  Since taking over as Chairman, the S&P 500 has averaged a decline of 0.12% on days when Bernanke has either made a speech or provided testimony (from the Fed's website).  Hopefully he can break his market losing streak today.

Bernanke

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Wednesday
Apr022008

Relative Strength of Stocks vs Bonds

Each morning in our Daily Morning Lineup, one of the charts we include is the relative strength of stocks vs bonds (treasuries) over the last year.  When the line is rising, stocks are outperforming bonds, and when the line is falling, bonds are outperforming stocks.  As the chart below illustrates, since June of last year the line has made a series of lower highs, indicating steady outperformance of bonds.  Following yesterday's rally in stocks and the sell-off in bonds, however, there are some signs that this trend may be shifting.  As shown below, yesterday's trading has resulted in a break of the downtrend where stocks have underperformed bonds.

Rs_stocks_vs_bonds_040108

Subscribe to Bespoke Premium to receive our Daily Morning Lineup and other in-depth reports.

Wednesday
Apr022008

Short Term Declines in the VIX

Yesterday's 11.4% decline in the VIX caps off a two-week decline of nearly 30% for the index. Below we highlight the performance of the S&P 500 following 25% declines in the Volatility index over a two-week period.  While sharp increases in the index have historically been a positive for the short-term performance of the market, sharp declines in the index do not necessarily have the opposite effect of negative short-term returns.

Vix_changes

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.