AAII Bearish Reading Above 50%

Last week's American Association of Individual Investors' (AAII) survey of investor sentiment showed that bearishness among this group is back above 50%.  As of June 12th, the percentage of bullish investors came in at 31.25%, 53.58% were bearish, and 15.18% were neutral.  This week's bearish reading was the 11th time in the last year that negative sentiment based on this survey exceeded 50%.  The only other time since this survey began in 1987 that bearish sentiment reached these levels this many times in a one-year period was back in 1990-1991, when there were 14 weekly readings of bearish sentiment above 50%.


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This Week's B.I.G. Tips Reports at Bespoke Premium

Below we provide the titles of the in-depth B.I.G. Tips reports we released this week.  If any spark your interest, they are all available to our Premium subscribers.  These are anticipatory, ahead-of-the-curve research reports that cover markets, economies, stocks, commodities, housing and anything else related to making people money. 

This week's B.I.G. Tips reports: The Week In Review (summarizing the week's events), Extreme Divergence in Sector Performance (Energy and Financials move in opposite directions), Treasury Yields Rally (what happens to stocks and bonds after yields rally as much as they have?), Retail Sales by Category (interesting charts provide a breakdown of this month's Retail Sales report), Financial Declines (when will the bleeding stop), Largest Four-Week Declines in Oil Inventories (how do oil inventories affect oil prices), Global Technicals (chart analysis of 21 country stock markets), Throwing Good Money After Bad? (should investors be helping Financial firms raise extra capital?), Market Bottoms and 52-Week Lows (has the bottom been made yet?).

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Links for Friday the 13th

As if the market hasn't been bad enough lately, tomorrow is Friday the 13th.  For those readers who are superstitious, we calculated the historical performance of the S&P 500 on these days going back to 1960.  The average return on Friday the 13th has been a gain of 0.03% which is right inline with the average of all days since 1960.  Over the last ten years, though, the returns improve significantly with average returns of 0.28% and positive returns 63% of the time.


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Stocks Down, Bonds Down: Global Returns

Below we highlight the year-to-date changes of major equity indices and ten-year government bond yields for a number of countries.  As shown, the majority of equity indices are down, while the majority of bond yields are up (bond prices down).  Across the globe, stocks and bonds haven't really worked this year, as the money has all flowed into commodities.  China's Shanghai Composite is still by far the worst performing index at -45%.  China is followed by India, Hong Kong, Italy, France and Germany.  The US has held up relatively well, ranking 6th out of 21 countries analyzed in terms of market performance.  Mexico, Brazil, Canada and South Africa are the only countries with positive stock market returns.

Bond yields have risen the most in Singapore, where their 10-year government bond rate has gone up 47% in 2008.  South Africa, Japan, the UK and Switzerland trail Singapore with the highest rises in yields.  Again, the US hasn't done poorly when compared to other countries.  With yields up just 6% this year, government bonds here haven't gotten hit nearly as hard as elsewhere.




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Best and Worst Performing Stocks in the Russell 3,000 Year to Date

For momentum investors out there (both on the long and short side), below we provide the best and worst performing Russell 3,000 stocks year to date.  The list of winners is primarily made up of stocks in the Energy sector.  Clayton Williams Energy (CWEI) is up the most at 245%, followed by Patriot Coal (PCX), Finish Line (FINL) and Alpha Natural Resources (ANR).  Currently, 23 stocks in the Russell 3,000 are up more than 100% this year, and two-thirds of stocks in the index are down on the year.  The list of losers this year is mostly dominated by Financials, but a Health Care name tops the list- KERX.  Ambac and Thornburg Mortgage have been the second and third worst performers in the index this year. 

For those that think the current trend of Energy outperforming and Financials underperforming will continue, these lists could remain similar only with the performance of the winners getting better and the performance of the losers getting worse.  For those that think the trend will reverse in the second half of the year, these names could fall off the best and worst lists quickly. 



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Mortgage Rates Fly Higher

The national average for 30-year fixed mortgage rates has risen from a low of 5.62% on April 14th to 6.29% as of yesterday's close.  As shown in the first chart below, similar spikes occurred in the first half of 2006 and 2007 as well.  Anyone that wants the real estate crash to come to an end soon knows that a rise in rates like this is not going to help.  And clearly the rate cuts from the Fed have done nothing to move mortgage rates lower.  The national average for 30-year fixed mortgage rates was at 6.24% when the Fed first cut the Discount Rate from 6.25% to 5.75% on August 17th last year.  Since then, the Fed Funds Rate has declined from 5.25% down to 2.00%, but mortgage rates are now up 5 bps to 6.29% over the same time period.



Bespoke's Morning Lineup

One of the hardest things about this market for active investors is coming into the office in the morning and trying to catch up on all the news and events taking place.  For that reason, one of the more popular reports included in the Bespoke Premium product suite is the Bespoke Morning LineupThe report is your premarket source for up to date information concerning market events occurring overnight and in the pre-market.  On a daily basis, we summarize major international market events, stock specific news of note, analyst actions, and economic indicators/events.  In addition, we also outline what major indicators, events, earnings reports, conferences, dividends, splits, and upcoming index changes are due the following day so that you can plan ahead and be ready.  The report's concise format allows readers to get the information they need without taking up their valuable time.

We recently released our new redesigned version of the Bespoke Morning Lineup.  In this version, we have added an additional page that provides more essential information on the market heading into the trading day.  While page one still provides the information subscribers have become accustomed to, we have also added a summary of the Bespoke Market Timing Model so that readers can quickly see how the sentiment, technical, and fundamental indicators are stacking up.


Page two of the report can best be described as the market's "rap sheet." By looking at this page, readers get a quick perspective of the market's record and where it is versus where it has been.  In the left hand column of the page, we provide the historical 50-day moving average spread of the S&P 500, the daily number of stocks in the index that are overbought and oversold, and the relative strength of stocks vs bonds.  The middle column of the page summarizes the current market internals as well as a graphical depiction of where sectors, bonds, and commodities stand with respect to their current trading ranges.  Finally, in the right hand column we highlight yesterday's biggest movers, as well as overbought and oversold stocks that are the most likely to rise or fall based on their prior price patterns.


To see a sample copy of the new Bespoke Morning Lineup, please click the following link: Bespoke Morning Lineup.  The last two pages of the sample also contain a helpful explanation of each category within the report.  If you like what you see, sign up for Bespoke Premium to receive this report every day and take back your morning!


Consensus Economist GDP Estimates and Recession Odds

Bloomberg recently released their monthly survey of 65 economists, and below we highlight the results on GDP and recession odds.  For the first time this year, consensus GDP growth estimates for Q2 '08 increased from 0.10% to 0.50%.  Q3 '08 also increased, but Q4 '08 and Q1 '09 ticked lower.  Based on median estimates from all economists surveyed, a recession as measured by two consecutive quarters of negative GDP growth is not expected.


The economists are also asked what the odds of a recession are over the next 12 months.  That number ticked lower for the second month in a row after peaking at 70% in April.  Currently, economists are putting the odds right at 50%.  Below we highlight a historical chart of recession odds on a monthly basis from economists compared to the recession odds from traders on Intrade.  While economists lowered their recession odds this month, the odds went up slightly at Intrade from 27.3% in May to 32.9%. 


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Percentage of Stocks Above 50-Day Moving Averages

As shown in the first chart below, market breadth has taken a turn for the worse in the last week or so.  Currently, just 33% of stocks in the S&P 500 are above their 50-day moving averages.  Much of this weakness has come from the Financial and Industrial sectors.  After moving up to 80%+ in early May, only 17% of Financials and 25% of Industrials are above their 50-day moving averages.  These sectors clearly have some work to do to get back on track. 



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Oil: Like Nothing We've Ever Seen?

Up five dollars one day.  Up ten the next.  Down three.  Up five.  Down three.

With all the ups and downs in oil lately, the recent volatility in the oil market seems extreme.  We've even heard some traders say that in all their years of trading, the volatility in oil is like nothing they have ever seen.  However, while oil has been having large swings in dollar terms, based in percentages, the swings have hardly been historic.  The chart below shows the 10-day average intraday high/low spread of oil since 1986.  At current levels, the average daily intraday spread over the last ten days has been 4.4%.  While these intraday swings are considerably higher than the long-term average, calling them 'historic' might be somewhat of a stretch.




Commodity ETF Volume

As we all know, there has been a boom in commodity ETFs and ETNs over the last few years, and we recently counted 53 that trade on US exchanges.  Investors have increasingly plowed into these securities to trade the run-up in commodity prices as well as easily gain exposure to an asset class that was once difficult to get into.  We gathered the daily volume of these 53 commodity ETFs and ETNs from the start of 2006 and then calculated a 30-day moving average of the total daily volume of all 53 securities.  As shown in the first chart below, volume has soared since the start of 2006.  Given the significant rise in commodity prices, it's not hard to see why volume has surged.


Recently, there has been talk that the large number of new commodity ETFs has added to the rise in prices.  While it's hard to quantify the impact that they have had, it's important to note that relatively speaking, the volume is really not that big.  As shown in the chart below, the average daily volume of all commodity ETFs and ETNs is just 1/6th of the average daily volume for the S&P 500 tracking SPY ETF.



Nasdaq vs Homebuilders vs Oil

The price of oil has risen 729.58% from its low on November 19th, 2001 to its closing high of $138.54 on June 6th.  When compared to the tech bubble of the '90s and the real estate bubble earlier this decade, oil's rally is just about in between the two.  As shown below, from the Nasdaq's significant bottom on June 24th, 1994 to its peak on March 10th, 2000, the index rallied 639% over 2,086 calendar days.  From its bottom on March 14th, 2000 to its peak on July 20th, 2005, the S&P 1500 Homebuilder index rallied 839% over 1,954 calendar days.  Surprisingly, oil's rally is now longer in duration than both the tech and real estate bubbles at 2,391 calendar days.  As we all know, the tech and real estate bubbles eventually burst and fell by as much as they rose.  Their declines were very similar in both duration and size as well.  While significant gains in any asset class carry their own set of circumstances and positive arguments, it's hard to look at this chart and not expect to see oil's red line come down significantly at some point.  The demand argument for oil might be strong, but there were no shortage of "demand" arguments during prior bubbles either.


Note: we always maintain a certain allocation to commodities in our all-ETF portfolios, with regular rebalancing to keep the allocation inline.

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Erin Callan Out At Lehman

Lehman_erin_callan_3It's not too often that the WSJ features a head to toe picture of anybody, so less than a month ago, when the paper wrote a positive article on the cover of its "Money & Investing" section about CFO Erin Callan along with a full picture of her, it grabbed our attention.  The article was titled "Lehman's Straight Shooter" and said that the CFO instilled a "cool jolt of confidence to the credit-rattled street." 

Since then, Lehman's stock has been under selling pressure as investors have lost confidence in the company, claiming that Lehman's management has been anything but straight shooters in their explanation of the company's balance sheet.  This morning, LEH announced that it was replacing its CFO only three days after announcing it was raising $6 bln in new capital.  Like Sports Illustrated, does the WSJ now have a curse of its own?



Long-Term Ugliness

Below we highlight long-term stock charts of some of America's most well-known companies.  Needless to say, the last year (and in some cases many years) has not been good for them.  The real question is, will these firms remain the well-known, American companies they have been for decades, and if so, is now a good time to buy them?







Groundhog Day in Vietnam

Most of you are probably familiar with the movie Groundhog Day where Bill Murray plays the part of a local weather forecaster who wakes up each morning to find that he keeps reliving the same bad day over and over again.  That's exactly what it must feel like to be an investor in Vietnam right now.  In addition to being down 60% year to date, the index hasn't had an up day since April (25 consecutive down days).  That's right -- April!  Over that time span, the benchmark index has declined by 29%.  Investors in Vietnam are probably longing for the days pre-2002, when the exchange only opened every other day.