While the S&P 500 has fallen 6%, and 7 out of 10 trading days this year have been 1% days, the VIX index (30-day expected volatility) has been relatively stagnant. When the index made lows in August and November, we saw the VIX spike above 30. The recent free-fall to new lows was met with a VIX move to just over 25. The VIX is also known as the investor fear gauge, so fear isn't currently as high as it was in late 2007. Bulls can interpret this as a positive (investors aren't really as scared as the market is implying) while bears can interpret this as a negative (still too much optimism out there). Please let us know how you interpret it in the comments section below.
2008 hasn't just been a bad year for US stock markets, it's been bad across the world. As shown below, with the exception of China, each of the major international equity indices highlighted are down on the year. Furthermore, eight different countries are currently within striking distance (2%) of hitting new 52-week lows.
Intel (INTC) traded down about 15% after-hours Tuesday when it reported slightly weaker than expected Q4 earnings and revenues. The company's outlook was not very strong either. While the top end of INTC's revenue forecast matched analyst estimates, using the mid point of their revenue guidance, the outlook was weaker than expected.
Was INTC's report really enough of a surprise to warrant an additional 15% decline? We realize that it was over ten days ago, which in this market is a lifetime, but INTC was already down 15% YTD after two analyst downgrades on January 2nd (Bank of America) and January 4th (JP Morgan), respectively. In both instances, INTC fell 5% or more after each analyst said that softness late in the quarter would make any upside surprise unlikely.
Referencing our Earnings Database, Wednesday morning's downside gap will be INTC's worst opening in reaction to earnings since it gapped down 18% on October 15, 2002. While the large decline would certainly be understandable if expectations were high heading into the report, the stock wasn't exactly rallying ahead of the report.
Odds for a recession at the prediction market, Intrade, are now at 70%. They were below 50 at the end of 2007. Things have gotten quite ugly very fast. With no GDP data for this year coming out until the end of April, we're going to have to wait a long time to even start to get closure if in fact we do have a recession this year. And we all know how much the market hates uncertainty.
Some of the high fliers of 2007 have had a tough start to the new year. And the worst performers of last year have fallen even more. Below we highlight the 25 best and worst performing stocks of 2007 along with their 2008 year to date returns. The Russell 3,000 is currently down 6.48% year to date, so each basket has done worse than the entire index. The best performer last year, FSLR, is down a cool 23% already. Some '07 winners are up this year, however. MOS, CF, TRA, RCCC, CPHD and BZP were up more than 150% in '07 and are up thus far in '08.
The average 2008 percent change of the 25 worst performers in the Russell 3,000 in 2007 is -18%. Just two of the 25 worst performers are up in 2008.
Buying the winners hasn't worked and buying the losers hasn't worked either.
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Not one brokerage firm that gave 2008 estimates* on the S&P 500 expected declines this year. While we don't fault them for expecting gains (we are looking for a positive 2008 as well), it is noteworthy that to reach even the lowest 2008 price target, the index has a lot of catching up to do already.
*Estimates are based on Bloomberg's weekly survey of analysts.
The P/E ratios of major country indices have moved much lower in the first 15 days of the year, as equities have suffered one of the worst starts in the history of equities. The average P/E ratio of the 22 countries we analyzed is 16.56. China's Shanghai Composite has the highest P/E at 49.49, followed by India at 29.10. The idea that emerging markets would severely underperform once global equity markets cracked has yet to play out. In fact, the opposite is occurring, as investors are putting a premium on growing economies even though equities there might be "overvalued." China, Russia and Malaysia are actually up on the year, and India is just barely down. The country with the lowest P/E ratio both now and at the end of 2007, Sweden, is also the country that is down the most in value (-10.48%).
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We recently received a MyBespoke request for the betas of stocks in the Russell 1,000.
When investors feel very strongly about the future direction of the market, they might look for high beta stocks to buy or sell. Beta measures the volatility of a security compared to the market as a whole (often times the S&P 500). For those not familiar with the term, a stock with a beta of 1 moves directly inline with the S&P 500. A stock with a beta less than 1 is less volatile than the market, and a stock with a beta greater than 1 is more volatile than the market. Since high beta stocks are more volatile than the market, investors might buy them in hopes of receiving higher returns if they think the market is due to go higher. Investors that think the market is due for a correction might short high beta stocks or stick with low beta stocks that are less correlated with the market as a whole.
Below we highlight the 25 stocks in the Russell 1,000 with the highest and lowest betas. We also provide the standard deviation of the beta (the higher the number, the more it varies). As shown, JOYG, CBG, AKAM, TIE, BGC and CLF have the highest betas. These stocks move twice as much as the market does regardless of the direction. SIE, LNCR, DGX, FIC and DF have the lowest betas. These stocks are less volatile and don't typically move as much as the market does.
Below we highglight the weekly Bespoke Commodity Snapshot with our trading range charts. The green area represents two standard deviations above and below the commodity's 50-day moving average, and when the price moves above or below this range, it is considered overbought or oversold. While oil has come in slightly after reaching overbought levels recently, natural gas, gold, silver, platinum, copper, coffee and corn are all extremely overbought. While the long-term uptrend might be up, these commodities are due for some declines in the short term.
For the second time in four trading days, the S&P 500 gained over 1% with net breadth (advancers minus decliners) that was under 250. In the chart below, we plot the daily percent change of the S&P 500 versus its daily breadth for all days since 2003. Since 2003 there have only been six days where the S&P 500 gained 1% or more and breadth was below +250. Of those six occurrences, four have occurred since August 2007.
Even though it was a foreign term to most investors six months ago, the TED spread (3-month Libor minus 3-month Treasury) has quickly become one of the main indicators investors look to as a gauge of stress in the credit markets. While the indicator rose to historically high levels as 2007 came to a close, since the start of '08, the TED spread has been in a rapid descent, indicating that stress in the credit markets is showing signs of improvement. Today the TED spread fell to its lowest level since August 13th.
Three-month LIBOR, which is one component of the TED spread (along with 3-month Treasuries), was also highly elevated as 2007 came to a close, but since then it has also come down sharply. In fact, as of today, 3-month LIBOR closed below the Fed Funds Rate for the first time since June 2003.
Does the rapid decline in the TED Spread and 3-month LIBOR have any impact on the stock market going forward? Since 1985, this marks the 12th occurrence where LIBOR traded below the Fed Funds rate after trading above that level for at least 100 days. Below we highlight the performance of the S&P 500 one and three months following each occurrence. While the S&P 500 outperforms its average performance over the one-month period, over a three-month period, its performance is inline with average, indicating that any major positive impact on stocks is short lived.
Fourth quarter earnings season really gets going this week, and Bespoke readers can gain an edge with the Bespoke Earnings Report Database.
The Bespoke Earnings Report Database is the ultimate earnings guide for traders and investors alike. The database provides detailed earnings analysis for over 2,700 stocks. We take earnings analysis to the next level by not only highlighting how the actual reports compare to analyst estimates, but also how the stock price reacted to the report. Users of this database can easily find how a stock or basket of stocks typically reacts to earnings in order to prepare themselves for future quarterly releases. Traders can also see how stocks perform after gapping up or down on earnings to develop trade ideas. If Apple opens down $2 on earnings, what does the stock typically do next? How does the stock do when it beats earnings estimates and guides higher? Which stocks beat or miss estimates the most? Which stocks react the most positively or negatively to earnings reports? This database can answer these questions and many more for the majority of US stocks that trade today!
Click the image below to try out a sample of the Bespoke Earnings Report Database. Enter in any of the following stock tickers once you download the sample to test out the database - A, AA, AAI, AAP, AAPL. Once you try it out, you'll quickly realize that owning this database gives you a clear advantage over anyone that doesn't. If you would like to purchase the entire database or a database of a select basket of stocks or indices, call us at 914-315-1248 and receive it today.
Below we highlight the US Index and Style ETFs that are part of our daily ETF Trends report available to Bespoke Premium subscribers. As shown, all of the ETFs listed are currently oversold. An ETF is oversold when it becomes more than one standard deviation below its fifty-day moving average. The percentage oversold number highlighted is the distance the ETF is trading below the one standard deviation level.
As shown, small cap ETFs are the most oversold (IWC, IJR, IWM), followed by mid caps (MDY, IJH, IWR) and then large caps. Value ETFs are more oversold than growth ETFs, with small cap value ETFs at the most extreme levels. IJS and IWN are both oversold by more than four percent.
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IBM is currently set to open higher by 7.91% this morning after issuing positive earnings guidance. This opening gap would be the largest for the stock since 10/02 and the 6th largest since 1968. At right we highlight all up gaps of 5% or more and provide how the stock traded from the open to the close that day. As shown, when the stock has gapped up 5% or more in the past, it has traded higher from the open to the close 65% of the time for an average change of 0.96%.
If you're looking for proof that Tech stocks are oversold, look no further than the percentage of stocks above their 50-day moving averages. Not one out of seventy-one S&P 500 Tech stocks is trading above its 50-day moving average.
Below we highlight the seventy-one stocks in the S&P 500 Technology sector along with their 50-day moving averages and their year to date performances. Along with no stocks being above their 50-day's, just one stock -- YHOO -- is up in 2008 (just 43 bps). For short-term traders, things don't get much more oversold than this.