Tuesday
Apr222008

Energy ETFs Soar Into Overbought Territory

Below we highlight our trading range charts of four ETFs that track oil and gas stocks.  The red area represents between one and two standard deviations above the ETF's 50-day moving average.  When the price moves above the red zone, extreme overbought levels are reached, and the risk/reward trade-off shifts to the risk side.  As shown in the charts below, the prices of these ETFs have turned parabolic in recent days as oil has shot to $120/barrel.  For those that own and have gains in these ETFs, it would be greedy to not take some profits here.

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Energycharts

Tuesday
Apr222008

Netflix (NFLX): Live By The Writers' Strike, Die By The Writers' Strike

Netflix (NFLX) had its largest decline (-23.70%) in more than three years today after reporting inline expectations and lowering guidance for the rest of the year.  One reason for the loss of earnings momentum going forward may be related to the Hollywood writers' strike that began in November 2007 and ended in February.  While the period that different shows went on hiatus varied (using NBC's "The Office" as a benchmark), most shows started airing reruns in mid-November and didn't begin running new episodes until early April.  Overlaying those dates on the chart of NFLX shows that from the time that reruns began airing to the time that new episodes came back on the air, NFLX enjoyed a run of 52%.  While it could just be a coincidence, the fact that one of NFLX's key competitors -- original programming -- temporarily went off line had to have had at least some positive impact on the stock's performance.

Nflx_2

Tuesday
Apr222008

Two Down Days to Start the Week

After a nice rally on Friday, the markets have pulled back on the first two trading days of this week.  We broke the Russell 1,000 stocks into deciles (10 deciles of 100 stocks) based on performance from the 3/10 bottom through the close on Friday to see if this week's declines have been led by pullbacks from the winners or bigger declines from the losers.  The chart below highlighting the performance of each decile clearly shows that the winners during the rally have held up best this week, while the losers have continued lower.

Decile423

Below we highlight the 25 worst performing stocks in the Russell 1,000 so far this week.  As shown, the airlines have gotten killed as poor earnings and sky-rocketing oil have punished shares.

Worst423 

Tuesday
Apr222008

CME Down Over 10%

Shares of Chicago Mercantile Exchange (CME) are currently trading down more than 11%, which would make today's decline the second largest in the stock's history.  Below we highlight the three times CME has had a one-day percent decline of more than 10%.  Looking at the bright side, on each of the two prior days, the stock traded higher the following day and week.

Cme_2 

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Tuesday
Apr222008

Crisis Indicators Continue to Cool

On March 27th, we posted charts of three "credit crisis" indicators highlighting that the pain was beginning to subside.  We have updated these charts after about a month has passed, and they continue to show signs of relief.

The first chart below is an index that measures credit default risk for 125 investment grade companies.  After peaking on March 10th, the default risk index has fallen 45% back to levels seen at the start of the year. 

The second chart is an ETF that tracks the S&P National Muni Bond Index (MUB).  When the auction rate securities market froze up in late February, municipal bonds cratered as tax-free yields rose above those of many taxable bonds.  Since then, however, muni bonds have risen and stabilized as yield-hungry investors flocked to them. 

The last chart is Bankrate's national average for 30-year fixed mortgage rates.  When all is said and done, things won't get better until homes start selling again, whatever the prices might be.  For buyers to buy, rates need to be attractive, and the Fed has tried their hardest to lower borrowing costs by dropping the Fed Funds Rate.  Unfortunately, even as the Fed was cutting, mortgage rates actually in February and early March as banks shied away from risk.  By the end of March, mortgage rates finally dropped from the low 6s to the mid-5s.  Over the last week, however, rates have spiked as bonds in general have sold off.

Cdx423

Mub423

30yearfixed423   

Tuesday
Apr222008

Existing Home Sales Charts

Existinghome422Existing Home Sales came in at 4.93 million for the month of March -- the third worst reading in the economic indicator's history.  The indicator fell 1.99% month over month, less worse than the expected -2.2%.  The indicator fell 19.31% year over year versus expectations of -19.48%.  As shown in the table at right and chart below, the year-over-year changes are getting slightly less worse than they have been in recent months, but they still have a long way to go before a mention of "things are getting better" should surface.  However, things have gotten better for homebuilding stocks.

Later this week, New Home Sales for March will be released, and next Tuesday we'll get the updated S&P/Case-Shiller numbers.

Existinghome4222

Existinghome4221

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Tuesday
Apr222008

China's Worst Bear Market

From its peak on October 16th to its low last Friday, China's Shanghai Composite was down 49.2%.  This decline is the worst bear market for Chinese equities since at least 1995 (the index began in 1990, but we only have price data back to 1995).  As shown in the table of bull and bear markets below, the average Shanghai bear sees a decline of 32.91% and lasts 166 calendar days.  The bull market that preceded the current bear was also the biggest rally for the index since 1995 (+502%).  The more they go up, the harder they fall.  And just in time for the Olympics.

Chinabear

Chinabullbear 

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Monday
Apr212008

Earnings Beat Rates and Key Reports

Slightly more than 200 US companies have reported earnings since Alcoa (AA) kicked things off on April 7th.  As shown below, 57% of these companies have beaten analyst estimates.  After a weak showing last quarter, the "beat" rate is currently even lower this quarter.  But things still haven't gotten as bad as they did in late '98 and '01, and based on the performance of stocks since earnings season began, investors seem to like the 57% beat rate.

Epsbeatrates

Below we highlight key companies reporting earnings for the rest of the week.  For each stock, we include a portion of the data from our earnings calendar available to Bespoke Premium subscribers.  Along with current EPS estimates and its change over the last month, we also include the EPS "beat" rate for each stock based on quarterly reports since 2001, along with the average 1-day price change in reaction to earnings reports.

Keyreports

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Monday
Apr212008

International Long-Term Government Bond Yields

Below we highlight the ten-year yields on government debt for six international markets. With the exception of Australia, interest rates have been in steady downtrends since last Spring.  However, in many of these markets there are signs that this downtrend may be nearing an end, which could be a signal that investor aversion to risk may be waning.  While Treasury yields in the US, Canada, and Japan still have some room before breaking their downtrends, bond yields in Europe and the UK have already made higher highs.

Interestrates042108a

Interestrates042108b 

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Monday
Apr212008

Tech Sector Overbought

As of Friday's close, the S&P 500 Technology sector was trading 2.99 standard deviations above its 50-day moving average.  Since 1989, this represents the tenth most overbought reading that the sector has had.  Below we highlight the performance of the sector in the one week and month following each of the prior nine readings.  As shown, the results are quite lackluster.  Over the next week, tech stocks rise by an average of 0.14%, with positive returns in six out of nine periods.  Over the next month, however, the returns are less impressive with an average decline of 0.41%, and positive returns in only three of nine periods.

Ten_most_overbought_readings_in_t_2 

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Monday
Apr212008

Homebuilder Performance and Revenue Matrix

Much to many investors' surprise, homebuilder stocks have been strong performers so far in 2008.  The S&P 1500 Homebuilder group is up 15.5% year to date, and many stocks in the group are up 25% or more.  As shown below, MHO, SPF and HOV are each up over 65%, PHM is up 40.7% and MTH is up 39.8%. 

We created a matrix that highlights the 2007 regional revenue breakdown (data from Bloomberg) for some of the key stocks in the group.  The darker the green shading, the bigger the regional revenues for each stock.  Each company has different ways of categorizing their revenues, so unfortunately there isn't a standard North/South/East/West breakdown.  When analyzing the matrix, remember that California, Nevada and South Florida have taken the biggest hits in terms of real estate prices, while the Northeast, Mid-Atlantic and the Farm Belt have held up the best.  From the matrix, it seems that NVR, HOV, TOL and MHO have stayed away from the West Coast the most.

Homebuilders_2

Homebuildersmatrix

   

Monday
Apr212008

Q1 Earnings Growth Results with 20% Reported

Twenty percent of S&P 500 companies have now reported first quarter earnings results.  Year over year earnings growth currently stands at a combined -37% for these companies.  Financials are the main culprit for this large decline, but the bottom line number will most likely get better since more Financial stocks have reported results than any other sector at the moment.

As shown below, growth expectations for the first quarter stood at -9.9% for the S&P 500 on March 28th.  Consumer Discretionary EPS growth currently stands at -23% versus estimates of -13.3% on 3/28.  Other sectors with growth currently below estimates are Energy, Financials, Health Care and Industrials.  Technology has been the big winner this quarter so far.  EPS growth currently stands at 28.8% for the 21.1% of Tech companies that have reported (compared to estimates of 7.9%).  Consumer Staples and Materials are the two other sectors with EPS growth that is currently better than expected.

Epsgrowth1_3

Epsgrowth2   

Friday
Apr182008

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: Oil vs Transports (both at highs; which one will win), Earnings Season Update (how this quarter's reports stack up so far), GOOG Gaps Higher (typical trading pattern when GOOG opens higher), Brokers and the Homebuilders (comparing the declines), GOOG Earnings (don't expect things to be as bad as most think), April Options Expiration (typical market performance), IBM Earnings and the Market (does a strong report from IBM translate into market gains?), Anecdotal Evidence (historical "recession" newspaper word search), IBM and EBAY Earnings (typical performance on earnings reports), Shorts Underperforming (short sellers having trouble in a down market), Tax Day and Tax Stocks (two stock plays around tax season), S&P 500 International Revenue Exposure (our updated database), Golden Crosses (a list of stocks that have this bullish technical formation), Retail Sales by Category (a breakdown of the retail sales report).

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Friday
Apr182008

Overbought Stocks in the S&P 500

Currently, 47.8% of companies in the S&P 500 are trading in overbought territory.  Overbought levels are met when a stock's price moves more than one standard deviation above its 50-day moving average.  As shown below, this many companies haven't been overbought (green line) since the market peaked back in early October.  Likewise, the last time so few stocks were oversold was also early October.

Overboughtspx1

Below we highlight stocks in the S&P 500 that are the most overbought.  When individual stocks get this overheated, the risk/reward tradeoff begins to favor the risk side in the short term.  As shown, ETN is the most overbought, trading 4.29 standard deviations above its 50-day moving average.  ETN is followed by ALTR, GD, NSC and BLL.  Other notables on the list include CAT, SLB, ORCL, HAL and DD. 

Regardless of whether these overbought levels cause a pullback next week, after the declines that we've had since late 2007, it's a relief to know that stocks can in fact go up.

Overboughtspx

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Friday
Apr182008

Key Index Technicals

With oil up another $2 today to $117, it will be interesting to see how major equity market indices react during the last hour of the trading day.  If the Dow can hang onto most of its gains, it will have broken all three levels of resistance that formed in the first few months of the year.  The Nasdaq is also looking to close above its resistance levels after gapping up higher on Google's (GOOG) strong earnings.  The S&P 500 is having a tougher time getting through its 1,395 resistance level.  Over the last couple of months, the index has formed a reverse head and shoulders pattern, and a break above that formation will be another bullish signal for technicians.

Dowintra

Nasdaq_2

Spxintra