Bespoke Investment Group

Meredith Whitney Ratings

Meredith Whitney made news this morning when she upgraded Goldman Sachs from a Neutral to a Buy.  For those interested, below we highlight what Whitney's ratings currently are for the other financial stocks that she covers.  Whitney doesn't have a Buy rating on any other stocks, but she has Neutral (Hold) ratings on Morgan Stanley (MS), Bank of America (BAC), JP Morgan (JPM), and American Express (AXP).  Whitney has a Sell rating on Capital One Financial (COF), Wells Fargo (WFC), and Citigroup (C). 

We also provide what Whitney expects each of these companies to report for earnings in the second quarter.  Compared to consensus estimates, Whitney is more bullish than the average on Goldman Sachs, Morgan Stanley, Bank of America, and JP Morgan.  She is more bearish than the average analyst on Capital One, American Express, Wells Fargo, and Citigroup.

 

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June Short Interest Shows Slight Increase

Final short interest figures for the month of June were released after the close on Friday, and like a lot of indicators we track, they are stuck in a range as investors look for signs of which direction markets are headed next.  The average stock in the S&P 1500 (Large Cap, Mid Cap, and Small Cap Indices) now has 7.3% of its float sold short.  This is the third straight increase since Mid-May, although as the chart below highlights, short interest has generally been in a sideways range for the last few months.

   

Most Overbought and Oversold ETFs

After the market's recent pullback, most equity ETFs are trading below their 50-day moving averages.  Below we highlight the key ETFs that are currently trading the furthest above and below their 50-days.  As shown, the Financial Preferred ETF (PGF) is the furthest above its 50-day (+5.84%), followed by the Yen (FXY), Long-Term Bonds (BLV), and Biotech (BBH).  The majority of ETFs trading above their 50-days are Fixed Income related, while the majority trading below are equity related.  This is a much different picture from a few weeks ago when bonds were tanking and equities were rallying.  The Natural Gas ETF (UNG) is trading the furthest below its 50-day at -16%.  UNG is followed by Russia (RSX), Oil and Gas Exploration (XOP), and Emerging Markets Europe (GUR).

 

 

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Arm Yourself For Earnings Season

Now that earnings season has started, the quarterly numbers and subsequent price reaction for stocks will be making news over the next few weeks.  There's no way better to prepare yourself for earnings season than with the Bespoke Interactive Earnings Report database.

This database provides detailed earnings analysis for nearly 3,000 stocks.  We take the analysis to the next level by not only highlighting how the actual reports compare to analyst estimates, but also how the stock price reacts to the report.  Users of this database can easily find how a stock or basket of stocks typically reacts to earnings in order to prepare themselves for future quarterly releases.  Traders can also see how stocks trade after gapping up or down on earnings to develop trade ideas.  If IBM opens down $2 on earnings, what does the stock typically do next?  This database can answer that question and much more for the majority of US stocks that trade today!

Please click the link below to view a sample of the database. The sample database allows you to pull up earnings information for four stocks -- AA, GLW, MMM, and QCOM.  Simply enter each of these tickers in the small green box and press enter on the keyboard.  All of the company's historical quarterly reports going back to 2001 will then populate.  Remember, the full database contains this info for nearly 3,000 stocks!  If you own stocks, you should undoubtedly have this information at your fingertips when the companies report in the coming weeks. 

Download Bespoke Sample Earnings Database.xls

The Interactive Earnings Database is only available to Premium Plus members.  With Premium Plus, you'll get everything included in the regular Premium service, full use of all of our Interactive Databases, and much more access to the Bespoke research team.  Click here or call 914-315-1248 to become a Premium Plus member and begin using our unique earnings database today!

Last Quarter Is Going To Be Hard To Beat

While Alcoa (AA) reported earnings on Wednesday, no other key names are set to report until next Tuesday.  On Tuesday morning, Goldman Sachs (GS) will report, and Intel (INTC) will report after the close that day.  Heading into this earnings season, expectations are very high because last quarter's stellar numbers are the freshest in investors' minds.  As shown below, the average US stock that reported went up 1.70% on the first trading day following its report.  (For companies that report in the morning, we use that day's change, while we use the next day's change for companies reporting after the close.)  The next closest quarter was +0.90% in Q1 '03.  The market did extremely well following the strong numbers in Q1 '03, so the bulls like to compare that quarter with last quarter.  While the positive results hopefully mean that last quarter was indeed a turnaround one for both earnings and the market, investors hoping for a repeat performance are probably wishing for too much.  Let's all be happy if we get any gains.

 

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Stocks With The Highest Short Interest

Below is a table of the S&P 500 stocks with the highest short interest as a percentage of equity float.  For each name, we also provide its year to date performance, so you can see if the shorts have been winning or losing.  Be on the lookout for these names as they report earnings this quarter.  Ones that come in better than expected should do very well since shorts will be forced to cover.  If the overall market continues to head lower, these names will most likely be some of the worst performers as shorts continue to pile in.

As shown, KB Home (KBH) has the highest short interest as a percentage of float at 27.77%, followed by Mylan (MYL), Citigroup (C), and Zions (ZION).  The list of names is mainly made up of Financial and Consumer Discretionary stocks that investors are very familiar with.  Companies like Wynn Resorts, Nordstrom, Harley Davidson, and Abercrombie & Fitch are household consumer names that the shorts flock to if they think retail will continue to struggle.  If or when retailers do begin to thrive again, these names should be some of the best performers.  Other key names on the list include Intuitive Surgical (ISRG), US Steel (X), and Legg Mason (LM).

Bespoke Premium and Premium Plus offers an in-depth Short Interest report twice a month for those interested.  Click here to subscribe.

Performance During the Pullback

We recently broke the S&P 500 into deciles (10 groups of 50 stocks) based on stock performance during the last rally (3/9-6/12) to see what impact it has had on performance during the pullback.  The market is down more than 7% since June 12th, but the 50 stocks that were up the most during the last rally are down an average of 15.1%.  The 50 stocks that were up the least during the rally are only down 2.1%.  Investors have clearly been selling or shorting the big winners and moving into more defensive sectors.

 

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Investment Grade Corporate Bonds Holding Up Well

Even though equity markets have pulled back since the June 12th top, investment grade corporate bonds have continued to perform well.  Below is a year-to-date price chart of LQD, which is an ETF that tracks the investment grade corporate bond market.  Since bottoming in early March, the ETF has been in a very strong uptrend, bouncing off of the bottom and top of an upward sloping channel as it has worked its way higher.  While the S&P 500 is off more than 7% from its recent high, LQD is on the verge of breaking out to a six-month high.

 

62% Is The Magic Number

If the market is going to be able to trade higher this earnings season, the percentage of companies beating earnings estimates needs to be equal to or higher than the 62% reading we saw last quarter.  The market did well during the last earnings season because the earnings beat rate finally saw a quarter over quarter increase.  Prior to the 62% reading, the number had gone down every quarter since the second quarter of 2007 when the bear market started.  It's going to be hard to top 62% because analysts have been raising earnings estimates instead of cutting them this quarter. 

To keep track of the earnings beat rate and the rest of earnings season, subscribe to Bespoke Premium or Premium Plus.

AAII Bearish Sentiment At Highest Level Since March

The first meaningful pullback since the March lows has brought the bears out of the woods.  According to the weekly poll from the American Association of Individual Investors (AAII), bearish sentiment is currently at 54.65%, which is higher than any other point since March 5th.

 

Winners and Losers Since the 6/12 Market High

The Russell 1,000 is now down 7.19% from its high on June 12th, while the average stock in the index is down 9.11%.  For investors wondering which stocks have taken it on the chin the hardest and which ones have held up the best, below is a table of the biggest winners and losers since the 12th.

AIG is down the most at 59.32%, followed by CIT, BPOP, CCO, MBI, VHI, and FST.  The sectors represented the most in the loser list are Energy and Financials.  Only 14% of the index is up since the 12th, and Oshkosh (OSK) has been the best performing stock with a gain of 39%.  Amgen (AMGN) is up the second most at 18.06%, followed by GLG, CI, CLWR, and CPA.  Health Care and Consumer Staples stocks make up the bulk of the winners list.

Have a good evening...

 

 

Just 24% of S&P 500 Stocks Are Above Their 50-Day Moving Averages

After resting above 75% for most of the past three months, the percentage of stocks above their 50-day moving averages in the S&P 500 has tanked to just 24%.  There are currently zero stocks in the Energy and Telecom sectors that are trading above their 50-days.  Industrials are the third worst at 3%, followed by Financials at 6% and Materials at 7%.  Utilities, Consumer Staples, and Health Care are all above 60%, so there has been quite a bit of rotation during this market pullback.  The last time the overall numbers were this weak, all sectors were down in the dumps.

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Bespoke's Commodity Snapshot

Below we highlight our trading range charts of ten major commodities.  The green shading represents between two standard deviations above and below the commodity's 50-day moving average, and a move above or below this green shading is considered overbought or oversold.

On the energy front, oil and natural gas have declined quite a bit over the last week.  Oil remains in the center of its trading range, however, while most other commodities are now in oversold territory.  Gold, silver and platinum have all pulled back sharply since early June, while corn, wheat, and coffee have fallen off a cliff.  The one commodity that has bucked the overall downtrend is orange juice.  It was in oversold territory just a couple of weeks ago, but it has rallied nicely in recent days.

 

 

 

  

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Dow 6,787,047?

Ever wonder where the Dow would be if it had various annual percentage gains over time?  If you're expecting annual gains of 5-10%, you should at least know where this would put the Dow in 25, 50, or 100 years.  Just as investors in 1900 probably couldn't imagine the Dow ever getting to 14,000 when it was at 70, it's crazy to think that the Dow would be at 6,787,047 in 100 years if it averages the yearly change that is has had since 1900 (+6.95%). 

Looking ahead to just 2020, if the Dow averages a yearly gain of 6.95%, it will be at 18,356.  If it averages 10% yearly gains, it will be at 25,723, and if it averages a more modest 3.5% gain (similar to fixed income), the Dow will only be at 12,385.

By 2050 things look a lot different.  If the index averages 6.95% a year, it will be at 137,783, and if it goes up 10% a year, it will be at 448,843!  At 10% a year, the Dow would cross the 1 million level by the end of 2059.  At 6.95%, it would cross 1 million in 2080.  At 3.5% annually, it would only be at 255,645 in 100 years.  At 10% a year, the Dow would be at 112,945,899 in 2108.  These big discrepencies in price levels show just how much difference a few percentage points annually makes.

If you're assuming the market will average yearly gains similar to what it has in the past, you're betting on Dow 137,000 in 40 years.  We guess it's possible, but it's still a crazy number to think about.  Just as stocks have a harder time growing as they get bigger and bigger, the same holds true for overall markets.  While the Dow went up 6.95% a year from 1900 to 2008, the US was moving from an emerging market to the most developed nation in the world.  Unfortunately the same can't happen over the next 100 years.  In our view, this makes picking the right stocks, world markets, and various asset classes that much more important for the 21st century investor.

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Fool Me Once, Shame on You. Fool Me Twice, Shame on Me.

Only a little less than ten years after his first hedge fund blew up and threatened the stability of the financial system, John Meriwether has announced that his current fund, JWM Partners, will wind down operations after a loss of 44% from September 2007 through February 2009.  At the start of 2008, the fund had assets of over $1 billion.

Back in 1998, when Meriwether's first fund (Long-Term Capital Management) got into trouble, the Fed had to arrange a $3.6 billion bailout in order to 'save the financial system.'  Today, Fed bailouts to save the financial system cost trillions.  Talk about inflation!

Following the closure of his current fund, Bloomberg reported that, "For many investors, John Meriwether is by now just another hedge-fund manager.”  Just another hedge-fund manager?  How many other hedge fund managers do you know with a resume that includes a US Treasury trading scandal, Long-Term Capital, and now this?