Thursday
May012008

Oil Stocks Versus Oil

Below we highlight the historical ratio of the S&P 500 Oil and Gas group versus the price of oil over the last ten years.  When the red line is rising, oil stocks are outperforming the commodity and vice versa when the line is declining.  For the last year, the red line has been trending downward, meaning the commodity has been outperforming oil stocks.  The ratio got down to 5 in mid-March, which was the lowest level seen since March 2003.  At these levels, the ratio typically bounces and heads higher for awhile, meaning oil stocks would begin to outperform the price of oil.  This could mean oil prices rise less than oil stocks or fall at a faster pace.

Oilstocksoilratio

Thursday
May012008

It's the First of the Month

Yesterday, we sent out a B.I.G. Tips report to Bespoke Premium members titled "It's the First of the Month."  In the report, we calculated the cumulative change in the S&P 500 since the bull market began in late 2002 on the first trading day of the month versus the rest of the month.  The "first of the month" strategy buys the S&P 500 at the close on the last trading day of the month and sells at the close on the first trading day.  The "rest of the month" strategy buys at the close on the first day of the month and sells at the close on the last day of the month. 

Heading into today, the cumulative performance of the "first of the month" strategy was up 31.18% during the current bull market, while the "rest of the month" strategy was up 20.41%.  That means a whopping 60% of this bull market's gains have come on the first trading day of each month. 

With the market up another 1%+ today, the strategy once again seems to be working well.  Click the image below to view yesterday's report to Premium members.  If you would like to subscribe to receive our in-depth B.I.G. Tips reports on a regular basis, please click here.

Thursday
May012008

Oil Closing In On $110 Support Level

Oil has been trading in $10 ranges for some time now.  Before it broke above $100, oil bounced back and forth between the high $80s and high $90s.  After moving above $100, it traded up to $110 and then back down to the $100 support level twice before eventually breaking above $110.  Once it moved above $110, it quickly traded up to $120 before once again pulling back.  Today's declines in the commodity have pulled it back down to just under $111.  The $110 level should act as support here just as $100 did before.  If $110 doesn't hold, oil will be in danger of breaking the uptrend that formed from the double bottom made in February.

Oilranges

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Thursday
May012008

Bespoke's Commodity Snapshot

Most commodities have pulled back significantly in recent weeks -- with oil, natural gas and corn being the exception.  While these three are still trading close to the top of their historical trading ranges, the rest of the commodity sector is at or near oversold territory.  As we noted yesterday, the price chart of gold looks horrible, as its head and shoulders pattern has now been confirmed with the lower low that was just made.  Wheat is another commodity that has endured significant declines.  From its peak in early March, the price of wheat is down 35%.

Oilnatgas

Goldsilv

Platcopp

Cornwheat

Ojcof

    

Thursday
May012008

Two Year Anniversary of Bernanke's First Mistake

While Fed Chairman Bernanke is often criticized for his handling of the current credit crisis, it isn't the first 'mistake' he has made as Fed Chairman.  That occurred two years ago today.  Shortly into his tenure, back in 2006, the markets rallied after incorrectly interpreting the Chairman's Congressional testimony as a signal that the Fed was done raising interest rates. 

Traditionally, when the Fed and the markets were on different pages, the Fed would set markets straight on a gradual basis through speeches by its Board of Governors.  This time, however, Mr. Bernanke used the blunt approach and simply told CNBC's Maria Bartiromo in an off-camera interview that his testimony had been "misunderstood."  When Bartiromo announced this news on air, the market quickly reversed 1% lower intraday.  The result of his blunt approach was a global sell-off that lasted through the Summer.  Nothing like some "on the job" training.

Sp_500_2006_correction_2

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Wednesday
Apr302008

Another Month of '08 In The Books

The year is now a third over, and the S&P 500 is down 5.64% year to date.  Below we provide the year to date performance of the ten sectors of the S&P 500.  Telecom is down the most at -11.25%, followed by Health Care (-10.69%), Technology (-9.52%), Financials (-9.26%) and Utilities (-6.03%).  Industrials, Consumer Staples, Consumer Discretionary, Materials and Energy are the sectors that are outperforming the overall market, with Materials and Energy the only ones in the black this year. 

Sectorytd

Below we highlight the best performing stocks in the Russell 3,000 through the end of April (>$5/share).  As shown, Finish Line (FINL) is up the most at 171.49%, followed by IDIX, CAO, MMR and CWEI.  Of the stocks in the index that are currently trading over $5 per share, 37.9% are trading up on the year, 6.9% are up more than 25%, 1.26% are up more than 50%, and 0.19% are up more than 100%.

Russell3kytd 

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Wednesday
Apr302008

Gold Makes Another Lower Low

While investors are once again worried that the Fed's action and statement will lead to more fears over inflation, a look at the chart of gold shows a different picture.  After closing significantly below its uptrend line earlier this week, gold made a new low today, trading below its early April low.  This is not the type of pattern one would expect to see if inflation was going to be the number one worry down the road.

Gold_through_april_2008_2

Wednesday
Apr302008

Sacrificial Bear

On the day that Bear Stearns was initially sold to JP Morgan for $2/share, we mentioned that the firms with the ability to make it out of this mess would end up in better positions since they could snap up business from one of their major competitors.  Ever since Bear pretty much went under, major banks and brokers have come back quite a bit.  While LEH is still down 29% on the year, GS, MS, BAC and MER are now down less than 10% year to date, while WFC and JPM are in positive territory.  As shown in the charts below, BSC has pretty much been the sacrificial lamb to keep Wall Street afloat. 

Banksbrokers430

Banksbrokers43008 

Wednesday
Apr302008

Sell in May and Go Away?

It's that time of year again.  As the old phrase claims, now that May is here, it's time to sell stocks and 'go away' as the stock market enters the period of the year which has supposedly been the weakest.  Looking at the historical results, however, shows that the record of this indicator is mixed at best. 

The chart below shows the average performance of the Dow Jones Industrial Average from May 1st through September 1st using various time frames.  Depending on your window, the results vary widely.  Over the last five years, the Summer months have been positive, with an average return of 3.2%.  However, when we look back ten years, the average return over the same time period is a loss of 1.16%.  If we look back 25 years, the average return jumps back up to 2.4%, and then over a fifty-year period it falls back down to 0.84%.  "Sell in May and go away" makes for a nice catch phrase, but it's not really an indicator to bank on.

Sell_in_may_and_go_away_2008

Wednesday
Apr302008

You Can't Always Get What You Want

On Monday we asked Bespoke readers for their opinions on today's FOMC meeting.  We specifically wanted to know what readers think the Fed will do with rates and what they want the Fed to do with rates.  As shown in the results below, the majority of respondents want the Fed to leave rates at 2.25%, while the majority thinks the Fed will lower rates to 2%.  If the Fed does lower today, will investors sell stocks since they didn't get what they want, or are they already positioned for one more rate cut?  Only time will tell.

Wantfed

Thinkfed

Wednesday
Apr302008

Crude Oil Inventories

Crude oil inventories are set to come out at 10:30 this morning, and the consensus is calling for a build of 900 thousand barrels.  So far this year, over half of the weekly inventory reports have shown a larger than expected build in inventories, yet oil was trading at an all-time high and up over 20% on the year just this Monday.  So what gives?

In the chart below, we show weekly crude oil inventories this year versus their long-term weekly average.  As shown, at the start of the year total inventories were well below average, and while the gap has narrowed, total crude oil inventories are still less than their long-term trend.  While the narrowing of the gap is a step in the right direction for those who would like to see lower oil prices, the current environment shows that oil supplies remain tighter than normal.

Crude_inventories_3

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Wednesday
Apr302008

Fed Days Throughout The Most Recent Hiking and Easing Cycles

Below we highlight the actions of the Fed and the S&P 500's performance around Fed days since Greenspan began hiking rates back in June 2004.  Since then, the Fed Funds Rate has gone from 1% to 5.25% and back down to the 2.25% level that it's at today (with many expecting another 25 bps cut).  On these days, the S&P 500 has been up 17 times and down 15 times for a median gain of 0.32%.  March 18th was the third best day for the market on a Fed day since 1990, but the best when eliminating inter-meeting Fed days.  Over at Bespoke Premium, we have run a more in-depth screen based on performance around Fed days for those interested.

Fedays_2

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Tuesday
Apr292008

S&P Case-Shiller February Home Price Data

Caseshillerfeb_2The February S&P/Case-Shiller Median Home Price data was released today, and as shown in the table at right, the Composite 10-City and Composite 20-City year-over-year declines were once again extremely negative.  Las Vegas, Miami and Phoenix all registered 20% year-over-year declines, while Los Angeles, San Diego, Tampa and San Francisco weren't far behind.  While Miami has fallen 22% from its highs, it still has the highest median home price at $218,740.  Chicago was down 8.5% from 2/07 to 2/08, while New York was down 6.5%.  Charlotte was the only city that maintained year-over-year gains at 1.48%.

And the median home price in Detroit has now fallen below $100,000 for the first time since December 1999.  The average person buying a house in this decade is now down on their investment in Detroit, which has the lowest median home price of all 20 cities analyzed.

Caseshillerdetroit_2 

Below we highlight the monthly year-over-year percentage changes of the 20 S&P/Case-Shiller cities and the two composite indices.  As shown, the fall from the cliff hasn't hit the ground yet. 

Caseshiller1

Caseshiller2

Caseshiller3

Caseshiller4   

Tuesday
Apr292008

First & Last Day of the Month Returns

After five straight months of negative returns and its longest monthly losing streak since 1990, the S&P 500 is poised to finish the month of April in positive territory.  But how does the market typically perform on the last day of the month?  In the table below, we calculated the average performance of the S&P 500 on the first and last trading day of each month since 1980.  The average return on the last day of April is 0.15%, which is above the overall average of 0.10% for the last day of all months.  As we head into May, the S&P 500 has averaged a return of 0.20% on the first trading day of May, which is slightly below the overall average for first of month returns.

Day_of_the_month_returns

Tuesday
Apr292008

Market Rallies Since the Start of the Credit Crisis

Since the onset of the credit crisis last Summer, the S&P 500 has now had four rallies of more than 5% (using closing prices), which are highlighted in the chart below.  Many investors believe that the market has a different and more positive feel during the current rally, and when we compare it to the prior two rallies, they have a point.  Prior to this run, the S&P had two rallies that lasted two weeks or less.  With the current rally continuing on for more than thirty trading days, things should feel different. 

However, before we all call an official end to the market's declines, we would note that from last August through October, the S&P 500 rallied by more than 11% over a 38-day period.  The current rally, on the other hand, has shown a gain of 9.77% over a 33-day period.  Until this rally shows that it has more staying power (in time and/or magnitude) than any of the prior head-fakes, investors should continue to keep a cautious stance, and keep tight stops on their short-term positions.  With a flood of economic and earnings reports, an overbought market, as well as a Fed meeting which could set the stage for a pause in rates, the reaction to this week's news will tell a lot about the market's health.

5_rallies