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%.  

To receive daily market briefings and actionable commentary right in your inbox.  Sign up for a 5-day free trial to Bespoke Premium today!

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.

To receive daily market briefings and actionable commentary right in your inbox.  Sign up for a 5-day free trial to Bespoke Premium today! 

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.

To receive daily market briefings, actionable commentary, as well as our Short Interest report in your inbox.  Sign up for a 5-day free trial to Bespoke Premium today! 

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.

Daily market briefings, actionable commentary and tips in your inbox.  Sign up for a 5-day free trial to Bespoke Premium today! 

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.

Daily market briefings, actionable commentary and tips in your inbox.  Sign up for a 5-day free trial to Bespoke Premium today! 

Tuesday
Mar252014

2013's Top Performers Drag the Market Lower

Following the close last night, we analyzed the performance of stocks in the S&P 1500 over the last week compared to how they performed in 2013.  In the chart below, each decile of stocks is grouped based on how they performed in 2013.  Decile one contains the 150 best performing S&P 1500 stocks of 2013, while decile 10 contains the 150 worst performers.

While the S&P 500 is basically flat over the last week, chances are that if you had a really good 2013, you got crushed this week.  Over the last week, the decile of stocks comprised of 2013's top performers (decile one) were down an average of 1.37% over the last week.  This is by far the worst performance of any of the ten deciles and more than four times worse than the next worst decile of stocks (decile three).  In fact, while decile one is down nearly 1.4%, the average performance of the remaining 1,350 stocks is a gain of 0.11%.

So what has caused this downdraft in these top performers from 2013?  While valuations and the prospect of higher interest rates are possible explanations, it may be as simple as the calendar.  A lot of investors are realizing that after a good year in the market in 2013, their tax liabilities are higher than they may have previously thought.  Now, with less than a month to go before taxes are due, one source of funds is likely the stocks where investors have the biggest profits.

Looking for ideas to stay ahead in a volatile market? Sign up for a 5 Day Free Trial of Bespoke Premium today!

Monday
Mar242014

Another Rough Monday

Mondays have not been kind to the stock market so far in 2014.  As shown below, the S&P 500 has averaged a decline of 0.41% on Mondays this year, with only 3 up days out of 10.  Fortunately for market bulls, the market has quickly reversed the Monday declines on Tuesdays.  On the 11 Tuesdays that have been open for trading this year, the S&P has averaged a gain of 0.56%, with positive returns 9 out of 11 times.  Let's see if we can make it 10 out of 12 tomorrow.  

Monday
Mar242014

Nasdaq Getting Nuked

The Nasdaq fell more than one percent today and despite a bounce after an absolutely brutal open, the technicals for the index aren't looking pretty.  Growth names have gotten taken to the woodshed, with companies like Netflix (NFLX) down over 6%.  Below is a list of the 30 stocks with market caps over $250 million from the Nasdaq Composite Index that are down the most from their peaks this year.  The price action for these names has been awful lately.  The top two names are both biotech companies, and number 8 on the list is a 3D printing play.  We covered the rough times both biotech and 3D printing have been having last week, and it shows up in the screen below as well.

Among larger cap stocks in the Nasdaq 100 Index, the selling has been a bit more restrained but still extremely painful.  The table below shows the current Nasdaq 100's largest sell offs from their peaks on the year to their current price.  Big names that are widely traded like Amazon.com (AMZN), Netflix (NFLX), Celgene (CELG), Biogen (BIIB), Facebook (FB), Yahoo! (YHOO) and priceline.com (PCLN) are all down more than 10% from their highs.  

Looking for ideas to stay ahead in a volatile market? Sign up for a 5 Day Free Trial of Bespoke Premium today!

Monday
Mar242014

Internet Bloodbath

After outperforming from mid-November through early March, the Nasdaq Internet group has gotten slaughtered over the last couple of weeks.  Through mid-day today, the group was down 10% from its recent highs, and as shown in the chart below, it blew right through its 50-day moving average at the open this morning.  Even after a 10% decline, though, it's worth noting that the group is still above its lows made during the last market pullback in late January/early February.  

Below is a look at where the 30 largest stocks in the Nasdaq Internet group are trading within their normal "trading ranges."  15 of the 30 names in the screen are now oversold, with Pandora (P) at the most extreme oversold levels.  Right now, the average year-to-date change of the 30 stocks shown below is -0.50%, so after a strong start to the year, they're now in the red.  Market bulls certainly don't like this action. 

Monday
Mar242014

Sentiment Remains Slightly Bearish

Sentiment as measured by our weekly Bespoke Market Poll remained unchanged this weekend.  As shown below, 49% of poll respondents were bullish, while 51% were bearish.  There's not much to glean from this data other than that investors don't seem to have a very strong opinion one way or the other right now.

To get access to this week's Bespoke Report 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' when you sign up to receive the discount.

instantaccess

Friday
Mar212014

DDDemolition

Earlier today we noted that biotech stocks have collapsed since late February.  Biotechs are often accused of being in a bubble.  "Bubble" is an extremely vague term and it's very difficult to call one as it builds.  Looking back though, hindsight is always 20-20, and we can usually figure out what was a bubble and what wasn't.  In the case of 3D printing stocks, we may have a winner.

Below are 6 month price charts for four 3D printing stocks (DDD, XONE, SSYS, VJET) that were endemic of the bubbly pattern among this group of comparables. The most egregious example is probably the VJET chart, which went parabolic in late October and early November before crashing back to earth.  Of the four names, three have been below their 50-Day Moving Averages since mid-January, and the only one that spent time above (SSYS) got absolutely smoked today, closing down 6.89%.  On the year, DDD is down -38.7%, XONE is off over 40%, SSYS is lower by almost 21%, and VJET has lost more than 30% of its value.

We don't have a view on any of these stocks currently other than to say that bubble talk is now not applicable to the four...any bubble that may have existed last fall is now firmly popped, and may deflate even further.  As for biotech?  The rollover in that group has been sharp, and eerily similar to the beginning of the sell off in 3D-printing stocks.  Biotech bulls might be well served looking to the printers for caution.

Friday
Mar212014

S&P 500 Higher or Lower from Here?

The market finished the week higher, but based on the action we saw following the Wednesday Fed announcement, it didn't feel like a very strong week.  So which way will the market 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.

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

To get access to this week's Bespoke Report 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' when you sign up to receive the discount.

instantaccess

Friday
Mar212014

Botched Biotech

It's been a wild ride for biotech investors in 2014.  From New Years Eve to February 24th, the S&P 500 Biotechnology Index jumped from 2802.96 to 3172.94, or 13.2%.  The Nasdaq Biotechnolgy Index (NBI), tracked by the popular ETF IBB, was up 20.46%.  Since late February, however, times have gotten tough for biotech names.  How tough?  The NBI was down 8.42% off its highs today, with 66.9% of the index down since the 25th of last month.  To get our heads around what's been going on in biotech, we broke up the NBI into quartiles based on performance through 2/25, then charted their cumulative returns since the start of the year.  The bottom 25% are the first quartile, while the best 25% performers are the fourth quartile.  We've also included the cumulative performance of the NBI as a whole over that time period.

To create the composites, we took a simple average of each quartile's returns.  Keep in mind that the NBI is weighted by market cap, while our quartiles are equal weighted; the fact that the NBI performed almost exactly between the second and third quartiles indicates that the participation in the rally was broad across the different market capitalizations in the biotech sector.  As the next chart shows, the sell off has not had the same uniformity.

Since their peak, we've seen drastic underperformance from the highest flyers of the rally, with the fourth quartile down more than any other group...except the NBI index itself.  Huh?  Usually, we'd expect an index to perform roughly in the middle of its consituent quartiles, because it's an average of the underlying stocks in those quartiles.  But in this case, the NBI is market cap-weighted, while our quartiles are simple averages with equal weightings.  Drastic underperformance by large-cap and therefore more heavily-weighted names like Celgene (CELG), Gilead (GILD), and Vertex (VRTX) has crushed the performance of the NBI: those three are down 11.6%, 13.1% and 11.4% respectively since the start of the sell off on February 25th.  Meanwhile, the middle of the distribution from the run up this year has held in the best, with the second and third quartiles performing best in the sell off.

If you're interested in biotech, sign up now for a five day free trial of Bespoke Premium.  You'll get access to the B.I.G. Tip report we sent our subscribers on March 6th comparing the group's run since the beginning of the bull market with historical bubbles in other equity groups, a must read for anyone trading biotech.

instantaccess