Friday
Feb082008

S&P 500 Advance/Decline Line

Yesterday, we highlighted our trading range charts for the S&P 500 and its ten sectors, noting that prices were still oversold.  However, the breadth of the market has actually remained positive recently.

The 10-day advance/decline line of the S&P 500 is one breadth indicator we use to measure market internals.  It takes the average daily number of advancers minus decliners over the last 10 days.  As shown in the bottom chart below, the S&P 500's 10-day A/D line is just about neutral compared to the trading range chart that shows the index in oversold territory.  Last week, the A/D line moved into overbought territory even though the price of the market was still well below its 50-day moving average.  When breadth gets very overbought, it is a short-term bearish signal.  Longer term, however, it's good to see that internals are not nearly as oversold as the current price is.

Spxte

Spxad 

Subscribe to Bespoke Premium today to view our A/D line charts for the S&P 500 and its ten sectors on a weekly basis.

Thursday
Feb072008

Confidence Improving?

While stocks appear poised to test or break below their January lows, various confidence measures of economic and market sentiment have recently shown some slight improvement.  Below we list the current levels of various confidence measures that we track versus their one-year range (circles in chart).  We also list the change in each reading over the last month (line).  Indicators plotted in green indicate improvement over the last month, while red indicates weakness. 

Conf020707

As shown above, four of the six indicators listed improved over the last month, while only two declined (Investor's Intelligence and ABC News Consumer Confidence).  This contrasts to last month when four of the six indicators were showing declines, with three of them being at 52-week lows.

Subscribe to Bespoke Premium today to view historical charts of all economic indicators with unique Bespoke commentary.

Thursday
Feb072008

Back to Oversold Levels; Downtrends Remain

Below we provide our trading range charts for the S&P 500 and its ten sectors.  When the price moves into the green zone, it is one standard deviation below its 50-day moving average.  When it moves below the green zone, it is two standard deviations below its 50-day.  The green zone indicates that the price is oversold versus its historical trading range. 

Last week, most sectors had bounced back from lows reached a couple weeks ago.  This week, however, prices have once again moved to the bottom of the green zone (extreme oversold territory).  Technology, Telecom and Energy are currently the most oversold, while Financials, Industrials and Materials are the least oversold.  Based on these one-year charts, the majority of sectors remain in steep downtrends, and until these downtrends are broken, it's important to take money off the table once prices move to the top of the downward channel.

Spx

Finlindu

Inftenrs

Condcons

Hlthmatr

Utiltels

Each week, we discuss these sectors and other indicators in detail in our Sector Snapshot only available to Bespoke Premium members.

Thursday
Feb072008

Pending Home Sales Plummet 24.2%

While the homebuilder stocks have recently formed an uptrend on a large pickup in volume, the outlook for the actual real estate market in 2008 has cratered.  The CME has housing futures that track the S&P/Case-Shiller Median Home Price indices.  Over the last 3 months, investors have been sending the November 2008 contracts much lower.  As shown in the charts and tables below, Los Angeles home prices are now expected to decline 16% from 11/07 to 11/08.  The 11/08 contract for Los Angeles has fallen 15% over the last 3 months.  The composite index of all 10 cities is expected to fall 10% from 11/07 to 11/08, down 7% over the last 3 months.  There are a few cities not expected to fall too much though.  Chicago and New York are expected to fall less than 5% by this November, and the New York 11/08 contract is actually up 2.32% over the last 3 months.

Expectations have clearly become very negative for housing this year.  We wonder if 11/08 is the capitulation point?

3monthhousing

3month

Subscribe to Bespoke Premium today to receive more unique analysis from Bespoke. 

Thursday
Feb072008

A Crash or a Fender Bender?

Fastest_15_declines3The declines of the type that the market has seen over the last month have resulted in some commentators bringing the crash adjective off the shelf.  While that may be too severe (at least for what's happening in the equity markets), we would note that the current decline off of the October 2007 highs is the fifth fastest decline of 15% or more from an all-time high in the S&P's history.  Below we highlight each of the five periods as well as how the S&P 500 performed going forward. 

Looking back at the past provides a mixed picture of what to expect over the coming months.  As shown, while the periods covering 1929 and 1987 top the list, when they reached the 15% threshold they were still in free fall and hadn't yet 'crashed'.  In the most recent two periods (1990 and 1998) however, once the 15% threshold was reached, the bulk of the declines were already over.

Fastest_15_declines

Fastest_15_declines1

Fastest_15_declines2

Want more in-depth research from Bespoke?  Subscribe to Bespoke Premium today. 

Wednesday
Feb062008

Are Value Stocks A Good Value?

After growth stocks, and more specifically, the four horsemen of technology outperformed the market during 2007, some well regarded advisors think that 2008 may be the year for value stocks.  In fact, one popular value investor thinks that at current levels, value stocks are trading at one of their steepest discounts to the overall market since 1970.

Richard Pzena runs Pzena Investment Management (PZN), and in his fourth quarter newsletter, he highlights that the only other times where value stocks were cheaper than they currently are was in November 1999 (Internet Bubble), June 1973 (Bear Market/Nifty Fifty), and October 1990 (S&L and Real Estate Crisis).  In his example, Pzena classified value by looking at 100 stocks in the S&P 500 with the lowest price to book ratios.  On a side note, it's somewhat ironic that according to Bloomberg, Pzena's publicly traded company trades at a price to book ratio of 101.91, which is 38 times the level of the S&P 500!

Whatworks_on_wall_street_3While many investors often measure a stock's value based on its P/E ratio, Pzena's use of book value is hardly out of the norm.  In his book What Works on Wall Street, James O' Shaughnessy devotes an entire chapter to measuring the performance of stocks based on their book values.  He points out that many investors believe it is "a more important ratio than price-to-earnings...since earnings can be easily manipulated by a clever chief financial officer."  O'Shaughnessy's conclusion is that, "Over the long-term, the market rewards stocks with low price-to-book ratios and punishes those with high ones."

With Pzena's and O'Shaughnessy's findings in mind, we screened the S&P 500 for the 100 stocks with the lowest price-to-book ratios.  However, given the recent writedowns in the financial sector, we wanted to avoid names that looked cheap but may face further writedowns in the coming quarters.  For example, Ambac (ABK) and MBIA (MBI) both have some of the lowest price-to-book ratios in the S&P 500 (0.59 and 0.55, respectively), but over the last year ABK's book value has declined by 62% while MBI's has declined by 45%.  In order to avoid these companies whose book values have been falling by almost as fast as their earnings, we further screened the list for companies whose book values have increased by at least 10% over the last year.

Low_pb_2

While the names in the above list may not be the sexiest stocks in the S&P 500, we would note that while the S&P 500 has had a total return of negative 9.5% year to date, the twenty names on the above list have outperformed, declining by 6.2%.

The above analysis is an example of a recent B.I.G. Tips report available to Bespoke Premium members.

Wednesday
Feb062008

S&P 500: The Gravity Effect

"What goes up must come down" hasn't always applied to equity markets, but it sure has lately.  At the end of last week, all we heard was that stocks had their best one-week performance in five years -- up 4.87%.  Well, in the first three days of this week, all of last week's gains have been washed away (see chart below).

Spxgravity

And the stocks that were up the most last week are down the most this week.  We broke the S&P 1500 into deciles (150 stocks in each decile) based on their performance last week.  As shown in the chart below, the decile of stocks with the biggest gains last week are averaging declines of 8.2% this week.  The decile of stocks that were up the least last week are down just 3.71% this week.

Decilelosers_2

Below we provide a list of the biggest losers in the S&P 1500 so far this week.  A couple of years ago, this list could have represented the biggest losers for an entire year.  Now it represents losses over just three days.  As shown, NSR is down the most at -29%, followed by CWTR (-26%), RSYS (-26%) and WOOF (-23%). 

Biggestlosers_2

Bottom line = The downtrend continues.

Subscribe to Bespoke Premium to receive our widely read, anticipatory B.I.G. Tips reports.

Wednesday
Feb062008

Correlation Ticking Higher in Current Market Environment

We recently calculated the correlations between the S&P 500, its ten sectors, gold, oil and the 10-year Treasury note over two different time periods.  The first matrix below (click to enlarge) highlights the correlations (between daily % changes) from July 2007 to now.  The second matrix highlights the correlations over the last 10 years, and the third matrix compares the difference between the two sets of correlations.  In the third matrix, numbers highlighted in green indicate an increase in correlation, while numbers highlighted in red indicate a decrease in correlation (or more negative correlation). 

Since July, the market has had a change in personality from cool, calm and collected, to volatile, crabby and downright bipolar.  Based on our correlation matrix, it's easy to see that sectors and asset classes (with the exception of Treasuries) have become much more correlated.  All sectors have become more correlated with each other and the S&P 500 as a whole.  Most have become more correlated with gold and oil as well.  This new environment has put an even greater emphasis on macro-level investment strategies, because diversification is not really providing much diversification right now.

Matrix1_2

Matrix2

Matrix3

Want more in-depth research from Bespoke?  Subscribe to Bespoke Premium today. 

Wednesday
Feb062008

A New Line of Business For The Homebuilders: Stock Trading

While some may argue that that homebuilders don't do a very good job building houses, one thing they know how to do well is trade their own stocks.  Some may remember back in 2005, when insiders at TOL sold over $164 million in stock just days before the stock hit its all-time peak.  By not holding that stock, these insiders saved themselves nearly $100 million.

Tol_insiders2005_2

Not only are insiders at the homebuilders good sellers, but it appears that they are good buyers too.  During the month of January, insiders at Hovnanian (HOV), purchased 389,000 shares of stock at an average price of $5.3.  Now only six days into February, HOV's stock is trading at $9.8 for an 85% gain.  Not bad for less than a month's work.

Hov_insiders_last_year

Wednesday
Feb062008

Bespoke on Bloomberg TV

Jwaltersimage_2 Bespoke's Justin Walters appeared on Bloomberg TV at 9:10 AM ET this morning.  Justin spoke about a Bespoke Premium report sent out yesterday that highlighted the market's typical reaction on the day following a large down day. Bloomberg_4

Wednesday
Feb062008

Hang Seng Down 5% Overnight

Losses in the US market followed through to Asia overnight as Hong Kong's Hang Seng index fell 5.4%.  To find a bigger one day decline in the index, one needs to look no further than January 22nd when the index fell 8.2%.  In fact, even though the year is less than six weeks old, last night's decline ranks as only the third worst year to date.  So much for the whole global decoupling thesis.

Hang_seng_5_declines_4

Tuesday
Feb052008

Today's Russell 1,000 Winners and Losers

From our daily Stock Odds report available to Bespoke Premium subscribers, below we highlight the Russell 1,000 stocks that were up or down the most today.  We also highlight all prior days (over the last 5 years) that the stocks had similar moves and how they reacted the next day. 

For example, WHR has been up more than 10% just one other day over the last 5 years (today it was up 10.31%).  On the day following its prior +10% move, it was up another 4.42%.  On the other hand, WMG was up 9.39% today, but it has averaged a decline of 2.35% on the day following moves of 9% or more.

As shown, WOOF was the worst performing stock in the index today, declining 18.66%.  WOOF was followed by IMB (-17.87%), NYX (-14.14%) and SPWR (-12.32%).

Largeupdown_2 

Tuesday
Feb052008

Updated S&P/Case-Shiller Median Home Price Charts

As we typically do each month, below we highlight some updated housing charts based on the most recent S&P/Case-Shiller Median Home Price indices.  The first table below shows the percent change from each city's peak median home price (most occurred in 2006) to its current level (November 2007).  As shown, the composite 10-city index is down 9.4% from its highs.  San Diego has fallen the most at -16.3%, followed by Miami (-15.3%) and Las Vegas (-14%).  Chicago has fallen the least from its peak at -4.1%.  Denver, New York and Boston are the other 3 cities that have fallen less than the composite index.

Caseshiller

The charts below are historical monthly year-over-year percent changes in home prices for all 20 cities that S&P/Case-Shiller track.  We also include the composite 10-city and 20-city indices.

Case

Case2

Case3

Case4    

Want more in-depth research from Bespoke? Subscribe to Bespoke Premium today.

Tuesday
Feb052008

One Percent Moves Are More Common Than Uncommon

Typically, a daily move of one percent in the S&P 500 is considered a big up or down day.  This year, however, moves of one percent or more have become the norm.  Over the last twenty trading days, the S&P 500 has risen by at least one percent seven times and declined by more than one percent on eight occasions.  This makes a total of fifteen one percent days over a twenty day period.  In the chart below, we highlight prior occasions since 1990 where the S&P 500 had fifteen one percent days over a twenty trading day period.  As shown, the volatility we have seen in the market is extremely uncommon.

One_percent_moves

Subscribe to Bespoke Premium today.

Tuesday
Feb052008

A Short Covering Rally

From the 1/22 bottom through yesterday, the average stock in the S&P 500 was up 8.96%.  We broke the index into deciles (50 stocks in each decile) based on each stock's short interest as a percentage of float and then calculated the average percent change of each decile from 1/22 to 2/4.  As shown below, the decile of stocks with the highest short interest was up a whopping 17.1% from the bottom, while the decile of stocks with the lowest short interest was only up 5.3%.  This analysis clearly highlights that the most recent gains have come from large amounts of short covering.

Sidecile

To receive our widely read, anticipatory B.I.G. Tips reports, subscribe to Bespoke Premium today.