S&P 500 10-Day A/D Line: Extreme Oversold Readings

Heading into Monday's open, the 10-day A/D line for the S&P 500 is at -1,696 which is the eleventh lowest reading in the last ten years. The charts below compare the S&P 500 to its 10-day A/D line.  In the lower chart, red circles denote every daily occurrence where the 10-day reading was below -1,500, while in the top chart the red circles denote the first occurrence during each period where the 10-day A/D line was below -1,500.  As one can imagine, the days after 9/11 include 10-day A/D line readings of -1,500 or less, but what is somewhat surprising is that the first occurrence of -1,500 occurred the day before on 9/10.

   

Key ETF Performance: 7/27/07

On Friday, we saw much of the same action that we saw in the prior four days: another down day for equities, another up day for Treasuries.

Three One Percent Down Days This Week

This week marked the first time since April 2005 that the S&P 500 was down more than 1% on three of the five trading days.  We went back to 1980 and found other Monday-Friday periods where the index was down -1% on three trading days to see how the market has performed going forward.  While there are no conclusions to be made to the upside or the downside, the absolute percentage changes in the right columns below highlight that we are in store for more volatility.

Government Bond Buying Spree: A Look at 10-Year Yields

A month ago, we highlighted where global 10-year government bonds stood across the globe after the Financial Times published a timely article wondering "when will world markets fly to quality," since investors had been buying into risky assets.  Fast forward one month and that flight to quality has arrived.  Below we highlight the change in 10-year government bond yields of the G7 countries.  The flight to quality has been most apparent in the US, although its yield remains the second highest behind the UK.

 

Friday Link Dump

From our database of historical upgrades and downgrades, we went back and tracked the daily number of upgrades versus the daily number of downgrades since the start of 2002.  Since January 2002, we found a whopping 32,140 downgrades and 27,528 upgrades -- indicating a slight lean toward the negative side by analysts.  Below we highlight the 50-day moving average of the daily number of upgrades minus downgrades.  Our hope was to see if any trends emerged in relation to equity markets (are more downgrades/upgrades bad/good for the market, etc.) but so far we have been hard pressed.  What we did find is that analysts as a whole tend to be seasonal in their recommendations.  Over the past few years, the number of upgrades have been more frequent during late Spring/early Summer, while the number of downgrades have been more frequent during late Fall/early Winter.  Any theories?  You can list them in the comments section below. 

To inquire about our interactive database of upgrades and downgrades, including searchable functions by stock, firm and performance, please email info@bespokeinvest.com.

The Earnings Roller Coaster Descends

We are on the downslope of second quarter earnings season, with the past two days marking the peak of companies reporting their quarterly numbers.  You would hardly even know earnings season was going on right now with all the attention being paid to the market's creditbility credibility. 

Below we highlight key companies reporting earnings next week.  Verizon (VZ) starts us off on Monday, followed by ADP, AVP, IACI, COH, GM, VLO and WFMI on Tuesday, TWX, DIS, ERTS and SBUX on Wednesday, and IP and NYX on Thursday.

Corporate Bond Spreads

While rising spreads in the high yield corporate bond market have been the center of focus recently, the rise in spreads in the overall corporate bond market (including investment grade debt) has been just as dramatic.  In fact, yesterday spreads increased by 13 basis points which was the largest one day increase since July 2002.

Once the News Hits Main Street...

Yesterday, when the Dow dropped below 400 at around 3 PM ET, we pulled up Drudge to see if non-finance related media sites were picking up on the day's declines.  It surely was, as red bold letters proclaimed, "Wall Street Plunges; Dow Drops 400."  Drudge is definitely a go-to site for news, but when large drops (or rises) in the stock market make headlines, it's typically time to take the other side of the tape.  We even took a screen shot of the headlines to see if it was marking a bottom: 

By the end of the day, the market had risen over 100 points from its lows to close down just over 300 points; still a very large decline, but also a pretty significant reversal from -400+.  We pulled up Drudge again to find a more toned-down version of the day's declines:

 

US Group ETFs: Where Are They Trading Now?

Below we highlight the various US Industry Group ETFs that we track in our ETF Trend report over at Bespoke Premium.  As the table clearly shows, there aren't many areas that haven't gotten hit hard over the past 5 trading days.  BBH, the biotech ETF, is the only one up in the last week.  We have sorted the list below by the percentage each ETF is currently trading from its 50-day moving average.  It should come as no shock that the homebuilder tracking ETF (XHB) is trading the furthest below its 50-day.  XHB is followed by Private Equity (PSP), Real Estate (IYR), Financial Services (IYG) and Investment Services (IAI).  Oil & Gas Services (OIH), Clean Energy (PBW) and Medical Equipment (IHI) are currently the furthest above their 50-days.

Now if the Dow lost three THOUSAND points...

After today's market declines, we went through the S&P 1500 to find stocks that have had declines since the market's top on 7/19 yet are still trading above (not more than 5%) their 50-day moving averages.  We then filtered the list even further by finding only stocks that score highly in the fundamental category of our Bespoke Stock Scores database.  The list below highlights the results of the filter.

Yesterday's Key ETF Performance

The numbers speak for themselves:

"There's No Credit Risk; No Bank is Going to Lose Money on this Subprime Fear"

Chief Executive of TrimTabs Investment Research, Charles Biderman, noted that outflows in US mutual funds hit an estimated $5.5 billion on Tuesday; their second biggest selloff of '07.  This comes from an article on www.marketwatch.com.  The key takeaways from the article, though, were Mr. Biderman's harsh words toward retail investors and his disbelief that anything going on right now is really going on:

"Fear and ignorance seem to be gripping retail investors these days," said Charles Biderman, chief executive of Santa Rosa, Calif.-based TrimTabs on Thursday, pointing to ongoing concerns about subprime lending and slumping housing markets. "There's no credit risk; no bank is going to lose money on this subprime fear," he added. "Income-tax collections are strong, and you don't have a housing collapse when wage income and job growth are surging." Biderman said that Tuesday's outflows seem to have trickled into Wednesday, although final estimates won't' be available until later in the week. "This is a complete panic by individual investors," he commented. "They just don't know what's going on."

We're pretty sure quite a few people on the Street disagree with some of those comments.

Russell 1,000 Stocks with the Lowest PEG Ratios

Below we highlight the stocks in the Russell 1,000 with the lowest PEG ratios.  The PEG (PE/Growth) ratio measures a stock's P/E ratio versus its growth rate.  Companies with PEG ratios less than 1 are generally considered attractive since their growth rate is at least in line with its P/E ratio.  The stocks below currently have an estimated (over the next 4 quarters) PEG ratio of 0.7 or less.  We have also included each stock's performance since the recent market top on 7/19.  Stocks that have declined quite a bit and have a low forward PEG ratio may be attractive here and warrant some further analysis.

Want More Investment Ideas? Try Bespoke Premium.

XOM Trading Down on Earnings; Still Well in the Lead in its Quest for Global Dominance

Exxon Mobil (XOM) is currently trading down $3 after reporting their first year over year profit decline in more than 3 years.  We decided to take a look at the market caps of the two largest companies in the world (XOM and GE) to see who's winning in the quest for global dominance.  As shown, XOM has taken a large lead in recent months with a current market cap of $502 billion.  GE remains behind at $413 billion.

S&P 500 Trades Into Oversold Territory; China Makes New Highs

The S&P 500 has traded into oversold territory (1 standard deviation below its 50-day moving average) for the first time since March 16th.  The index is also now trading below the 1500 level.  There is support between 1490 and 1500, but a fall below 1490 will be very bearish for technicians.

ln the meantime, it didn't take long for China's Shanghai Composite to make a new all-time high today.