Monday
Mar312014

Q1 Snapshot of the Dow 30

The Dow Jones Industrial Average finished the first quarter down about 120 points from where it ended 2013, which represents a minimal decline of 0.7%.  As of the close today, 18 of the 30 Dow stocks are in the red for the year, while 12 are in the black.

Below is a look at the year-to-date performance numbers for the Dow 30, and we also provide where each member is currently trading within its normal range (overbought, oversold or neutral).  A detailed description of how to read the screen is provided at the bottom of this post, but basically, the dot is where the stock is currently trading, while the tail is where it was trading one week ago.  Moves into the red zone mean the stock is "overbought," or extended above its normal range, while moves into the green zone mean the stock is "oversold," or extended below its normal range. 

Merck (MRK) was the top Dow stock in Q1 with a gain of 13.43%.  Microsoft (MSFT) ranked second at +9.57%, followed closely by Caterpillar (CAT) at +9.43%.  On the downside, Boeing (BA) fell the most at -8.06%, with General Electric (GE) and Goldman Sachs (GS) not far behind at -7.6%.  Nike (NKE) was the fourth worst Dow performer in Q1 at -6.41%.

While the majority of Dow stocks are in the red for the year, they have actually been doing well lately.  You can see the upside momentum in the screen because most of the dots are green and to the right of their tails, meaning they are up versus where they were a week ago.  17 of the 30 Dow stocks are currently "overbought," or more than one standard deviation above their 50-days, while just 1 of 30 is oversold (Visa).  Stocks like Cisco (CSCO), Intel (INTC), Chevron (CVX), McDonald's (MCD), 3M (MMM), Procter & Gamble (PG), Microsoft (MSFT), United Tech (UTX) and Exxon Mobil (XOM) all had strong finishes to Q1.

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Monday
Mar312014

Gasoline Rising But Less Than Normal

Prices at the pump have been on a steady incline so far in 2014.  Since the recent low in November, the average national price for a gallon of gas has risen 12% to $3.56.  In just the first quarter alone, gasoline prices have risen on 60 out of 90 days.  If you are a consumer, it never feels good to pay more and more each time you pull up to the station.  All else being equal, the more money that goes to filling the tank, the less money you have for other items.

While rising gas prices are never welcome, it is important to put the increase that we have seen so far this year into perspective.  Yes, prices are up, but they always rise at this time of year.  Going back to 2005, the average price of a gallon of gas has risen in the first quarter every year for an average gain of 15.4%.  That is more than twice the gain that we have seen so far this year.  In fact, since 2005 there has not been a single other year where gas prices rose less in Q1 than they did this year.

The chart below compares the daily change in the average price of a gallon of gas so far this year to the 'typical' annual pattern going back to 2005.  Here you can clearly see how this year's gain in gas prices have trailed the normal pattern, even as we approach the time of year where gas prices level off for the year.  If the current trend continues, prices for the summer driving season may be relatively tame.

March has been a month of rotation out of what had been working into what had not been working.  As we head into April, the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Monday
Mar312014

Bulls Step Up

Bullish sentiment in our weekly Bespoke Market Poll increased 5 percentage points over the weekend up to 54% from a level of 49% last week.  It looks as if investors have so far been unfazed by the recent downturn in areas like the Internet and Biotech stocks and instead are choosing to focus on the way the broad market has held up.

March has been a month of rotation out of what had been working into what had not been working.  As we head into April, the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Sunday
Mar302014

Sector Rotation in March

Below is a good look at sector rotation in the month of March.  As shown, the S&P 500 as a whole had 68% of its stocks above their 50-day moving averages at the end of February, and 67% are above their 50-days with one day left in March -- basically unchanged.  On a sector basis, however, there has been a real shift over the last month.  

As shown, Health Care, Consumer Discretionary and Technology were big leaders coming into March, and they all had more than 70% of their stocks abover their 50-days.  These three sectors have been weak lately, though, and now they have the worst breadth readings in the market.  Health Care is a real standout due to Biotech's recent fall.  At the end of February, 83% of Health Care stocks were above their 50-days, ranking it second behind Utilities for the strongest breadth reading.  Now just 46% of Health Care stocks are above their 50-days, which is the worst reading of any sector.  

Aside from Utilities, whose reading is unchanged at 90% month-over-month, the other five sectors with breadth levels currently stronger than the overall market all had below-market readings at the end of February.  Consumer Staples, Energy and Financials have all seen big bounces is the percentage of stocks above their 50-days this month.

March has been a month of rotation out of what had been working into what had not been working.  As we head into April, the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.  To find out which way Bespoke thinks this market is headed, be sure to check out our 30-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke NewsletterBespoke Premium or Bespoke Institutional services.

Saturday
Mar292014

ETF Performance Matrix: Post Fed, Rotation Out Of US

Following the Federal Open Markets Committee (FOMC) meeting last week, US rates sold off in the front end and the Treasury curve flattened, while US equity markets have been mired in a sideways trend.  The below matrix perfectly illustrates the nature of the change in fortunes for global equity markets since the Fed meeting: US equities slightly down, foreign markets up, and US rates markets rallying in the long end.

The worst performing US equity family this past week has been the Russell 2000.  Small caps have been roughed up consistently over the last week and a half, while Nasdaq 100 stocks have also had a rough go.  US large caps have been surprisingly resilient led by Energy and Utilities stocks, while the worst performers have been the Consumer Discretionary and Financials sectors.

In global markets, every major country ETF we track outperformed the US this past week, led higher by Brazil, China and India as EM markets have come roaring back.  Commodities have also outperformed, with the exception of precious metals.

This picture gives a pretty strong endorsement to the view that the FOMC meeting last week has put an end to trends we have seen in place since the start of the year.  The question is, are we seeing a repricing or the beginning of a new downward trend in US equities?

To find out which way Bespoke thinks this market is headed, be sure to check out our 30-page Bespoke Report newsletter published Friday after the close.  Read by the largest institutions on down to beginner investors, our newsletter stands as one of the most widely read pieces on "the street" each week.  Get it now with a 5-day free trial to either our Bespoke Newsletter, Bespoke Premium or Bespoke Institutional services.

Friday
Mar282014

S&P 500 Higher or Lower from Here?

The broad market traded down a bit this week, but areas like Biotech and the Internet group got crushed.  Which way will we head from here?  Please take part in our Bespoke Market Poll below by letting us know whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating and have a great weekend!

Looking for more research from Bespoke?  Check out this week's Bespoke Report newsletter, due out later this evening.  To get access to this week's newsletter, sign up couldn't be easier.  We offer a free 5-day trial to let you see what Bespoke is all about.  And as a special offer this weekend, you can sign up for the Bespoke Newsletter or Premium services for 10% off.  Just use the coupon code 'bespokereport' at our Subscribe page to receive the discount.

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
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Free polls from Pollhost.com

Friday
Mar282014

Bonds Trounce Stocks in Q1

While there is still one more trading day left to go, perhaps the biggest surprise of the first quarter is the performance of stocks relative to bonds.  Heading into 2014, the stock market was often referred to as the TINA market, as in There Is No Alternative.  A look at the numbers, though, suggests otherwise.  

The charts below compare the performance (on a total return basis) of both the S&P 500 and the BofA/Merrill Lynch 10+ Year Treasury Index over the last year and so far this quarter.  Over the last year, stocks are still trouncing treasuries by a wide margin (+20.33% vs. -3.31%).  This quarter has been a different story, though.  Following a strong start out of the gate, Treasuries haven't looked back.  Heading into the weekend, long-term treasuries are up 7.81% on a total return basis compared to a total return of just 0.53% for the S&P 500.

Thursday
Mar272014

Rotation In To Emerging Markets

Emerging markets have had a rough go in 2014, with the broad emerging markets ETF (EEM) down 3.3% and the BRIC ETF (EEB) suffering an 8.3% decline thanks to a brutal year in Russian equities.  Meanwhile, Brazil has outperformed the rest of EM on the year (down a scant 27 basis points) and is within sight of an outperformance versus the S&P 500, which is down 9 bps on the year as of trading today.  

It's also worth pointing out that while biotechs and internet stocks were flying high earlier this year, EM weakness was commonly blamed for difficulties in US equity markets.  Now, the shoe appears to be on the other foot, as outperformers in the US get brought back to earth and the emerging world gets a much needed reprieve from the grinding sell offs of the fall and winter.

Below are charts for EEM, EEB and the Brazil ETF EWZ.  All three have burst through a downtrend that had served as resistance since the rally in EM ended last October.  Brazil was the canary in the coal mine, and as we noted in a tweet last week, the 5 straight up days for the Ibovespa Index were a bullish sign.  EWZ broke its downtrend in the middle of last week, and now EEM and EEB are confirming the move upwards after a tentative move above resistance yesterday.

Thursday
Mar272014

Bulls Retreat

Normally, following lousy market action like we have seen over the last several days, it is typical to see investors become a bit more cautious, especially during the current bull market.  As shown in the latest poll of individual investor sentiment, that is exactly what we saw this week.  According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment dropped from 36.8% down to 31.2%.  That was the lowest reading of bullish sentiment since February.  Additionally, since the start of 2013 (65 weeks) there have only been ten other weeks where bullish sentiment was lower.  

While bullish sentiment has plummeted by 10 percentage points in the last two weeks, most of those bulls have merely become neutral rather than bearish.  Over the last two weeks, AAII's reading of bearish sentiment has only increased by 1.8 percentage points to 28.6%.  

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Thursday
Mar272014

Jobless Claims Better Than Expected Again

This week's release of jobless claims came in lower than expected for the fourth straight week.  While economists were forecasting claims to come in at a level of 323K, the actual reading came in at 311K.  This is the lowest level since late November.  Interestingly, since the calendar flipped to March, every jobless claims report has been better than expected.  For those who argue that weather was behind the weak economic data over the last few months, the trend in claims would bolster that argument.

With the better than expected reports of late, the four-week moving average for claims has also been moving lower.  This week, it moved down by nearly 10K to 317.75K.  This is the lowest level for the four-week moving average in 26 weeks (9/27/13), which also happens to be the last time we saw a post-recession low in this indicator.

On a non-seasonally adjusted (NSA) basis, jobless claims came in at 273.4K.  This is the lowest reading for the current week of the year since 2007, when we saw the exact same reading!  Taking a little bit of a longer-term view, this week's level was more than 68K below the average for the current week of the year going back to 2000.

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Wednesday
Mar262014

The (Not So) Good, the Bad, and the Ugly

The broad market has held up well over the last two weeks, even as some areas of the market have gotten slaughtered at a rate that we haven't seen in quite a long time.  Moves lower of 10%, 15%, 20%, 25% and even 30%+ in stocks that were last year's winners on no news has investors on edge, and rightfully so since it is so out of the norm for this bull market.  Investors right now just aren't willing to pay the same premium they were a few weeks ago for expected earnings growth.  If the strong, stable blue chip names can maintain their uptrends here, it's not a bad thing for the froth to come out of the areas of the market that had gone parabolic.  If not already, then pretty soon all of the weak hands will have been played in these areas.  The thing to watch, though, is what the areas of the market that have held up well lately do when the areas that have been weak stop going down.  If investors simply shift their selling, the broad market is in trouble.

Below are a few six-month price charts of the major US indices that we track closely.

As shown, the S&P 500 is still well above its February lows and just off its all-time highs.  The index remains above its 50-day moving average and it closed today just above the 1,850 level that so many traders are keeping an eye on for support.

The Dow Jones Industrial Average had been lagging the S&P and the Nasdaq all year up until the last few weeks, but it has been meandering sideways as growth stocks have tanked recently.  As of the close today, the Dow is still above its 50-day, but it also failed to take out its prior all-time highs when it peaked earlier this month.

Now on to the bad...

As shown below, the Nasdaq 100 broke below its 50-day moving average today for the first time since the pullback that occurred earlier this year.  The gains off of the early February lows are quickly eroding, and the break of the 50-day is not a positive technical sign.  

The smallcap Russell 2,000 also broke hard below its 50-day once again today.  Back in January, the index experienced a similar break, and it continued lower by a few more percentage points before it found a bottom.

There has been tons of IPO talk lately, but the Bloomberg IPO index that is made up of the companies that have gone public over the last 12 months is showing signs of breaking down.  Along with the Nasdaq 100 and Russell 2,000, this IPO index also broke below its 50-day today.  Back in February, the break below actually marked a solid bottom for the index.  Will it bounce yet again?

Now on to the ugly...

The Nasdaq Internet group was one of the biggest winners of 2014, as investors flocked into high fliers like Netflix (NFLX), Pandora (P), Facebook (FB), Twitter (TWTR), Amazon.com (AMZN) and priceline.com (PCLN) to name a few.  This is one of the trades that has come unwound over the last few weeks, however, and the last six trading days have just been brutal.  The group is currently in extreme oversold territory.  At some point it will bounce, but the old adage of not trying to "catch a falling knife" applies here.

The Nasdaq Internet group has plummeted, but at least it's still above its February closing lows.  The same can't be said for biotech.  After today's decline -- its sixth down day in a row -- the Nasdaq Biotech group is now below its closing low made during the January/February pullback.  As shown in the chart, the group went straight up from its early February low to its late February high, but it has gone straight down since then.  Until we see things stabilize in this group for more than a few days, we would stay far away.

Wednesday
Mar262014

Most Heavily Shorted S&P 1500 Stocks

Last night after the close both the NYSE and Nasdaq released their bi-monthly update to short interest levels.  The table below highlights the 25 stocks in the S&P 1500 which have more than 25% of their free-floating shares sold short.  As is normally the case, the majority of the stocks listed are small cap stocks.  In fact, just four of the stocks listed are not small caps.  Two of those are from the S&P 400 Mid Cap index (JC Penney-JCP and 3D Systems-DDD), while the remaining two stocks are large caps from the S&P 500 (Cliffs Natural-CLF and GameStop-GME).

Unlike most of the last several months, March is shaping up to be quite a good one for the short-sellers.  In the column to the right, we highlight the performance of each stock listed so far in March.  Of the 25 stocks listed, 14 are down on the month, and the overall average return for all 25 stocks is a decline of 1.52%.  This is 138 bps worse than the S&P 1500 as a whole.

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Wednesday
Mar262014

Most Oversold Russell 1,000 Stocks

Below is a list of the 30 stocks in the Russell 1,000 that are trading more than 10% below their 50-day moving averages.  For each stock, we also include its year-to-date change and its short interest as a percentage of float.  Most of these names have gotten absolutely crushed over the last couple of weeks, and the ones with the highest short interest levels would be expected to bounce the most on any rally.  

Stocks on the list like 3D Systems (DDD), Twitter (TWTR), FireEye (FEYE), SolarCity (SCTY), Tableau Software (DATA), Concur Tech (CNQR), Pandora (P), Splunk (SPLK) and LinkedIn (LNKD) are all widely followed growth names that traders sent sharply higher in 2013 and early 2014.  At least for the time being, the party is over for these high-fliers.  While they could certainly bounce at any point, trying to "catch a falling knife" is a big no-no, so we would recommend waiting for them to stabilize for more than just a couple of trading days before testing the waters on the long side.  You may miss out on some gains, but you'll be better off in the long run following this strategy.

Wednesday
Mar262014

Key ETF Matrix

Over the last week, US-related stock market ETFs have seen a pullback following the Fed's announcement that we'll eventually have higher interest rates.  Our ETF matrix below highlights the recent performance of various asset classes.  The left side contains US equity ETFs, while the right side contains international, commodity and fixed income ETFs.  You can clearly see that the left side has a lot of red, while international markets have mostly gone up over the last week.  Prior to the Fed decision last week, it was the US that was holding up better than the rest of the world, but Yellen & Co. changed the script.

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Tuesday
Mar252014

Tail Wagging The Dow?

One of the original stock market prognosticators was Charles Dow, a newspaper columnist and co-founder of the Wall Street Journal and the Dow Jones Company.  Dow developed a six-part theory of market performance that is still in practice today.  Among his observations of the pre-First World War American economy was that widely dispersed commodity producers and industrial concerns needed to transport their goods to their customers.  The American economy at the time relied upon railroads for long distance domestic shipping, so Dow theorized that any gains in railroad stocks would indicate an uptick in sales for industrial companies.

While the modern economy has a much more diverse array of transportation options (containerized shipping, long distance trucking, air freight), many traders still look to the transports for an indication of where the stock market might turn next; stocks in the Dow Jones Transportortation Index are often eyed for confirmation of rallies in the Dow Jones Industrial Index.  Below is a chart showing the cumulative outperformance of the transports versus the price chart of the Dow Industrials thus far year to date.

Interestingly, periods of outperformance by the Transports versus the Industrials have been leading indicators of weakness in the Industrials, not strength as Charles Dow's theory suggests.  The Transports are leading the Industrials by a cumulative 3.3% thus far this year.

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