Each Friday, members of our Bespoke subscription services receive our Week in Review newsletter.  This report provides Bespoke's current market thoughts through commentary and the unique graphs and charts that our clients have come to love.  If you're looking to get a better grasp of the market, subscribe to one of our membership packages today and download our Week in Review newsletter.

In this week's newsletter:

• 30 Days and counting without a 1% decline.
• What Happened to all the volatility?
• Are CDS markets confirming the rally?
• An update of the Torture Indicator.
• Sentiment - bullish or bearish.
• Is this rally the real thing or another false start?
• The juggernaut that is Apple (AAPL).
• Economic Scorecard.
• An update of Q4 earnings season.
• 'Fixed Income' Equities.
• Bull market breakouts.

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While they're still negative, guidance numbers have also gotten slightly better recently.  Below is a chart showing the spread between the percentage of companies that have raised guidance minus the percentage that have lowered guidance on a quarterly basis going back to 2003.  As shown, this earnings season, the spread is -3.3 percentage points, meaning more companies have lowered than raised.  This is the most negative reading since the first quarter of 2009.  Last week at this time, the spread was at -4.2%, however, so guidance did get better this week.

Regardless of what companies have reported, as a whole, they have performed well on their report days this season.  As shown below, the average stock that has reported this season has gained 0.44% on its report day.  This is the second consecutive earnings season and the fourth out of the last five where stocks have averaged gains on their report days.

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We consider triple play stocks the cream of the crop of earnings season, and all of the stocks are worth looking into more once they have reported such strong numbers.  We analyzed the price charts of the 49 triple plays so far this earnings season and found the ones that we believe currently look the most attractive from a technical perspective as well.

Below are the twelve stocks that we believe have the best chance of rallying from now until their next earnings reports based on their chart patterns.  On the following pages we provide charts and descriptions for each of the twelve stocks listed, and on the final page of this report, we provide a list of all 49 triple plays.

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As shown below, the 50 best performing S&P 500 stocks YTD heading into today are down an average of 1.41%, while the 50 stocks that were up the least YTD are down 0.72% today.  While the spread in performance across the deciles isn't that wide, traders are clearly taking some profits in this year's winners today, which have mostly been highly cyclical stocks.

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Below we highlight our trading range charts for the S&P 500 and its ten sectors, which is one section of the report.  In each chart, the light blue shading represents the sector's "normal" trading range, which is one standard deviation above and below the 50-day moving average.  The red shading represents between one and two standard deviations above the 50-day, and moves into or above the red zone are considered overbought.  The green shading represents between one and two standard deviations below the 50-day, and moves into or below the green zone are considered oversold.

As shown, the S&P 500 has been in overbought territory basically for the last month now, and it's currently close to two standard deviations above its 50-day. 

Eight of the ten S&P 500 sectors are currently overbought, with the Technology sector clearly the most extended.  Financials, Industrials, Consumer Discretionary and Materials are all extremely overbought as well, but they're not quite as overbought as Tech.  Utilities and Telecom are the two sectors that aren't overbought at the moment.  These two sectors have lagged severely all year as the "risk-on" trade has driven money out of defensives and into cyclicals.  A pullback by the cyclicals from overbought levels would likely see money flow back into the defensives, however.

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The run has been so strong for the Tech sector that it has been up for 10 consecutive trading days and 17 out of the last 18.  Below are the five other 10-day winning streaks that the sector has had since 1990.  We also provide how the sector performed on day 11, over the next week and over the next month following these five streaks.  As shown, the sector has declined on day 11 three out of five times, but it has been up over the following week all five times for an average gain of 1.62%.  Over the next two weeks, the sector has been higher three out of five times for an average gain of 0.88%. 

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One case in point is Warren Buffett.  In his annual letter at the end of 1999, Mr. Buffett argued that, “our optimism... is also tempered by the expectation — indeed, in our minds, the virtual certainty — that the S&P will do far less well in the next decade or two than it has done since 1982.”  Staring at a bull market in its 18th year, where equities were trading at historically high multiples, Buffett was on the defensive side and hoarding cash.

Today, though, Mr.  Buffett seems to be firmly entrenched in the equity camp.  In a recent article he wrote in Fortune (adapted from this year’s annual letter), Buffett argued that: “Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks.  I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined.  More important, it will be by far the safest.”

Investors who remain risk averse but are still looking to dip their toes in the water and gain some exposure to equities should consider high quality dividend paying stocks.  To some, this may sound like last year's trade, but there are still many stocks out there that provide better yields than Treasuries and have payouts that most would consider to be safe.  To that end, earlier today we published a list of high yielding dividend paying stocks that have consistently raised their payouts and have more than enough earnings to cover the payout.  Clients wishing to view this diverse list of companies can click on the link below to download the report.  If you are not yet a client and wish to join, sign up today!

Is It Morning Again in the Stock Market?

Below are lists of the best and worst performing leveraged ETFs year to date.  As shown, the double long silver ETF (AGQ) is up the most with a gain of 47.61%.  The triple long financial ETF (FAS) is up the second most with a gain of 40.30%, while the triple long small cap ETF (TNA) ranks third with a gain of 37.79%.

The inverse ETFs of the three best performing leveraged ETFs year to date have been the worst performers in 2012.  The double short silver ETF (ZSL) is down the most with a decline of 36.67%.  The triple short financial ETF (FAZ) is down the second most with a decline of 30.83%, while the triple short small cap ETF (TZA) is down the third most at 29.23%.

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Platinum sure has precedent to trade at much higher levels than gold, as shown in the chart of the historical ratio below.  We'll definitely be watching this relationship closely throughout the year.

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