Friday
May302008

Weekend Reading: Technical Analysis Using Multiple Timeframes

Shannonbook_2 We recently read Brian Shannon's new book, Technical Analysis Using Multiple Timeframes: Understand Market Structure and Profit from Trend Alignment.  As the title of the book suggests, Brian is a believer in trend trading.  For those unfamiliar with Brian's work, he does some unique analysis on his Alpha Trends blog site where he has done a great job of combining YouTube and technical analysis in order to analyze and explain his thoughts regarding specific stocks.  We definitely suggest taking a look at his site.

In the book, Brian does a good job of clearly explaining his methods and approaches to technical analysis without the incoherent jargon typically associated with some books.  He also highlights numerous examples using clear and coherent charts, making this book is an excellent resource for anyone looking to add to their investment 'toolkit'.  Brian closes the book with a chapter titled, "Trading Tips and Truisms To Think About".  Our favorite on the list?  "Smart Money" doesn't always do smart things with their money.

Friday
May302008

Global Interest Rates

Views towards the run-up in the yield on the ten-year US Treasury are split.  Equity bulls say that investors are allocating out of bonds and into stocks, which are cheap relative to bonds.  Equity bears, on the other hand, say that the sell-off in bonds reflects the realization on the part of investors that inflation is out of control, which is ultimately bad for stocks.  One point that can't be argued though, is that the recent trend of rising yields is not just confined to the US, it's global.  Furthermore, relative to the moves in some other markets, the move in yields of US Treasuries has been minor.

The charts below show the yield on ten-year treasuries for six major markets.  As shown, so far during this move, the yield on the ten-year US and Canadian treasuries remain well below their levels from late 2007.  However, the yields on the ten-year notes of the Euro region, UK, Australia, and Japan are at or above their levels from six months ago.

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Friday
May302008

3% Down Days in Oil

While yesterday's 3% decline in the price of oil has many oil bears celebrating that the top is in, we would note that yesterday's decline was the 29th one day decline of 3% or more in the last two years.  Looking back at those prior occurrences shows that the average return of crude oil the following day is 0.58% with positive returns 75% of the time.  Some would argue that yesterday was different given the large drop in oil inventories, but until proven otherwise, the bulls have history on their side.

Oil_down_3_percent

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Thursday
May292008

Rising Interest Rates: It's Global

Earlier today, we highlighted the rising interest rates in the US based on the 10-Year US Treasury.  But a look at global interest rates shows that they are rising all over the world.  In Japan rates are rising at an even faster pace than they are in the US.  As shown below, the ratio between the yield on 10-Year US Treasuries vs. the yield on 10-Year Japanese bonds recently reached as low as 2.2 times i.e., the yield on the US Treasury is just over twice the yield of the Japanese Treasury.  You have to go back to 1999 to find the last time the ratio was this low.  What's next?  Parity?

Us_vs_japan_yield

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Thursday
May292008

Energy Inventories Show Largest Drop Since 2004

This morning's inventory report from the Department of Energy showed the largest weekly drop (8.88 mln barrels) in crude oil stocks since September 2004.  As shown in the chart below, crude oil inventories are now over 20 million barrels below their historical average.  Oil, which had been trading down by over $2 quickly reversed to a gain of over $1.

Crude_oil_inventories052908

Thursday
May292008

Sector Relative Strength

Below we have updated our charts of sector relative strength.  In each chart, rising lines indicate periods where the sector is outperforming the S&P 500.  Charts with red shading indicate that the sector has underperformed over the last year.  Additionally, in each chart we have also included red dots that highlight each of the Fed rate cuts since August.  We have also included a chart of the relative strength of the Transportation sector versus the S&P 500.  While it has not been considered an 'official' sector since 2001, we thought readers would be interested in seeing the chart given the recent attention on the sector in the face of higher oil prices.

While the economy remains weak, sectors that typically benefit from a weak economy have not been faring particularly well.  Recent action in the Consumer Staples and Health Care sectors has been nothing short of poor in recent weeks.  Additionally, Telecom Services and Utilities continue to run into resistance at current levels.  It's not just defensive sectors that have been acting poorly though.  Financials remain in a pronounced downtrend, and with things going the way they have been going, the lower end of its range seems inevitable.  The Industrials sector has also been showing weakness lately.  This sector had been a stalwart through the energy crisis, but recently broke slightly below support, so the potential for additional weakness in that sector exists.

On the positive side, Consumer Discretionary stocks have been consolidating their outperformance and continue to hold support.  Barring any additional weakening of the economy, this sector should move higher.  Energy's uptrend keeps steepening.  While the upper end of the range has remained roughly intact, as shown in the chart, the bottom end of its range has been steepening.  Finally, Materials and Technology continue to trade in nice uptrends.  Although both of these sectors are trading at the upper end of the range, any weakness in them as they approach resistance is likely to be temporary.

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Thursday
May292008

Deja Vu: Ten-Year US Treasury Yields

As the yield on the the 10-Year Treasury climbs above 4% for the first time this year, we couldn't help but notice how the path of long-term interest rates bears a striking similarity to last year.  The one major difference seems to be that this time less people are talking about it.  Last year, there was near hysteria when long term interest rates rose to their highs of the year and above 5%.  This year, rates are once again at their highs of the year (although 100 bps lower), but this time around it's not nearly as big a story...yet.

Te_year_yield_053008

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Wednesday
May282008

Breadth Sits in Limbo

Below we highlight our trading range and 10-day advance/decline line charts of the S&P 500.  As shown, the S&P 500 is resting nicely just above its 50-day moving average, while breadth levels (A/D line) sit in limbo just below the neutral line.  Over the next few trading days, the market should pick up steam in either direction as investors decide which way to take this market in the short term.

Spxtradingrange_2

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Wednesday
May282008

Energy Speculators at Intrade

The US average national price for regular unleaded gas is currently $3.944.  Intrade has contracts for where the average will be on June 30, 2008, and as shown below, the last trade on the $4/gallon contract was at 70 (effectively putting Intrade's odds at 70%).  While gas could be headed higher, traders over there might be getting a little ahead of themselves.  With the current price still less than the contract price of $4/gallon, the odds should be at or below 50/50.  While there is a big debate over the impact that speculators are having on actual oil prices, they seem to be out and about at Intrade.

Intradegasoline 

Wednesday
May282008

Investors Intelligence Correction Forecasts

In this week's update of the Investors Intelligence sentiment data, the number of newsletter writers forecasting a correction of 10% rose to 29.9%.  This is the highest reading since January when it reached as high as 31.5%.  While Investors Intelligence data is often considered contrarian, recent high readings of advisors looking for a correction have been pretty good calls.  In the S&P 500 chart below, the red dots represent periods when the percentage of respondents looking for a correction was 29% or more.  While the ensuing declines were not always 10%, each occurrence has been followed by at least a minor decline.

Investors_intelligence

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Wednesday
May282008

Analyst Buy and Sell Ratings for Stocks and Sectors

We recently gathered analyst buy and sell ratings for stocks in the Russell 1,000.  Below we highlight the average percentage of buy and sell ratings for stocks in each sector.  Not surprisingly, the Energy sector has the highest percentage of buy ratings, while Consumer Discretionary and Financials have the lowest.  The average Energy stock has 54% buy ratings, while the average Financial stock is well below all other sectors at 33%.  Technology, Materials and Health Care are all behind Energy each with 52% buy ratings.  Overall, the average stock in the Russell 1,000 has 44% buy ratings and just 8% sell ratings.

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Below we provide a list of Russell 1,000 stocks with the most buy and sell ratings (with at least 5 analysts covering them).  As shown, nine stocks in the index have 100% buy ratings, with Staples (SPLS) topping the list because it has the most analyst coverage.  The stock is up just 1.13% on the year, so analysts must know something that investors don't.  Any hint of negative news will probably not be good for the stock because at this point analysts can only lower ratings.  Other notables on the list of stocks with the most buy ratings include FWLT, UTX and AAPL. 

On the downside, Western Refining (WNR) and New York Times (NYT) have the highest percentage of sell ratings at 63%.  Sears Holdings (SHLD) is also up there with 57% sell ratings.  Analysts clearly don't have much faith in Eddie Lampert.

For those interested, Intel (INTC) is the stock in the Russell 1,000 with the most sell-side analyst coverage.  A total of 40 analysts currently have recommendations for Intel!

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Sellstocks

Wednesday
May282008

Yahoo Free Real-Time Quotes

Yhoo_real_time_4While many investors already have access to free-real time quotes, most sources of this information require the user to either have a paid account or at least register for access.  This morning though, Yahoo! Finance announced that they will now once again offer free real-time prices on most US equities.  For more information check out the company's release.

Wednesday
May282008

Materials and Energy Sectors Decline

Energy and Materials were the only two sectors in the S&P 500 that declined yesterday, and each have now been down four days in a row.  As shown in the trading range charts below, the declines have moved the sectors from extreme overbought territory down to the top of their trading ranges.  As of now, the uptrends remain intact, but it has been awhile since these sectors have been oversold, so we could see more of a selloff in the coming days.

Energymaterials_2

Below we list the worst performing Materials and Energy stocks since the two sectors peaked on May 20th.  As shown, KWK is down the most at 11.78%, followed by TRA, GGC, ATI and TIN.  While big names like XOM, CVX, MON, DOW and DD aren't on the list of worst performers, they are all down between 4% and 6% over the last week.   

Energymaterialsstocks

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Tuesday
May272008

Currency, Commodity, and Fixed Income Trading Ranges

Even after crude oil's three dollar plus decline today, it and other energy related commodities remain in short-term overbought territory.  The chart below is published each morning as part of our Daily Morning Lineup, and it shows the current levels of major currencies, fixed income, and commodities versus their typical trading ranges.  For each asset we show the current level (circle) as well as the change over the last week (tail).  When the circle is in the white area, it is considered neutral, while readings in the pink and red areas indicate overbought levels.  Conversely, readings in the green areas indicate oversold levels.

As previously mentioned, energy related commodities are all still in overbought territory even after today's declines.  The dollar is in neutral territory versus the Euro and Yen.  In the major metals, gold and silver are both in neutral territory, while copper is oversold.  Finally, US Treasuries remain weak as both the 2-year and 10-year notes are in oversold territory.

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Tuesday
May272008

Historical New Home Sales Chart

Newhomesalesgoogle

As shown from the Google News search above, New Home Sales rose 3.3% in April.  Had we gone into a coma in 2003 and just woken up today, we might look at these headlines and think things were pretty good.  But a look at the chart below paints a much better picture of the current state of the housing market.  If you get real close to your computer, you can see the blip of a rise in the historical chart of New Home Sales since 1963.  While New Home Sales did rise 3.3% in April, it was a month over month comparison.   The real story is that sales declined 42% year over year.    

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