Bespoke Investment Group

Earnings Revisions Turning Positive

Earnings estimates have been picking up nicely over the last few weeks for the S&P 1500 and most sectors.  These estimates collapsed in late 2008, but they are now back to pre-Lehman levels while the market is still well behind.  Keeping track of the trend in earnings revisions is an important part of the overall macro environment, and investors can find trade ideas based on positive divergences within sectors and individual stocks.  Each week at Bespoke Premium, we put out an in-depth report highlighting the changes in earnings revisions for the overall market, sectors, groups, and all S&P 1500 stocks.  To view our most recent Earnings Estimate Revisions report, please click the image below.  If you'd like to receive this report on a regular basis along with a multitude of other research products, sign up for Bespoke Premium today.

Consumer Mood Moving From Negative to Mixed

Gallup conducts a number of sentiment polls on a daily basis, and one with economic and market implications is their Consumer Mood poll.  While the percentage of Americans with a "positive" mood on the economy is only at 6%, the percentage of those that are "negative" has dropped significantly since early March when equity markets bottomed.  Americans whose mood is "mixed" has risen from the mid-teens up to 36% as the negativity has dropped.  This "mixed" mood goes along with the "green shoots" theory that some things are getting better and most things have stopped getting worse.  With Americans moving from "negative" to "mixed" before turning "positive," does this imply that we'll have a U-shaped recovery instead of a V?

 

Gold Analysts Not Expecting Inflation This Year

Below is a chart of gold since 2008 along with the year-end 2009 price targets of 17 gold analysts (from Bloomberg).  With gold creeping higher over the last few weeks to its current price of $958/ounce, many investors seem to be positioning themselves for a spike in inflation down the road.  But gold analysts collectively have an average year-end price target of $918, which means they don't expect the inflation trade to occur until at least 2010.  Will the analysts be right or will they have to play catch up as gold heads higher?  Please take part in our poll below and we'll report back with the results next Tuesday.

 

Where will the price of gold be on the last day of the year?
	<$900
	<$800
	<$700
	<$600
	>$900
	>$1,000
	>$1,100
	>$1,200
	>$1,300
Free polls from Pollhost.com

Eddie Lampert Heads Into Memorial Day A Happy Man

Making $561,000,000 in one stock on the Friday before the long Memorial Day weekend is a good way to start the summer, right?  Sears Holdings (SHLD) is currently up $8.50 on the day after reporting better than expected earnings after the close yesterday.  Eddie Lampert and his hedge fund own just over 66 million shares of SHLD, which represents more than 50% of the company.  Multiply 66 million by $8.50 and you have the $561 million number we mentioned earlier.  Lampert has definitely had his fair share of struggles with Sears, but today he has to be feeling good.

 

Percentage of Stocks Above 50-Day Moving Averages

The recent pullback has brought the percentage of S&P 500 stocks trading above their 50-day moving averages down to 72% from its high of 92% a couple of weeks ago.  As shown in the chart below, this number is still relatively high compared to where it has usually been over the last year.  During strong bull markets, the number will generally stay above 50% the entire time, bouncing from 50%-100% as the market trades up and down in an uptrend channel.  As long as it can remain above 50%, a pullback in the indicator is not worrisome.  Two defensive sectors -- Utilities and Telecom -- are the only ones with less than 50% of their stocks above their 50-days.  Energy and Materials currently have the highest breadth readings with 85% and 86% of stocks trading above their 50-days.

 

 

  

 

 

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Recent Performance of Key ETFs

For those interested in a quick snapshot of how various ETFs across all asset classes have performed recently, below we highlight their 1-day, 5-day, and 1-month performance.  As far as equities go, there was lots of red today, but there's still lots of green over the last month.

 

S&P Cuts UK's Credit Outlook to Negative...We're Shaking In Our Boots

The fact that the major credit ratings agencies still make news is one of the more peculiar financial topics of the 21st century.  After being worthless during the credit crisis and then being labeled worthless after the fact by the media, somehow S&P's cut of the UK's credit outlook to negative is reverberating through global markets today.  And now investors are wondering if the US is next. 

Without laying out a thousand more reasons why no one in the world should pay attention to this, below we highlight a chart of the credit default swap (CDS) price per year to insure $10,000 of UK sovereign debt for 5 years.  Since default risk peaked in late February, the cost to insure UK debt is down 50%!  The S&P outlook cut today moved the CDS price from 72 bps to 82 bps.  This move barely shows up on the chart and highlights that the bond market surely doesn't care about S&P's call.  And where the heck was S&P prior to and during the 900% (yes 900%!) rise in UK default risk in 2008 and early 2009? 

 

Bespoke's Commodity Snapshot

Below we highlight our trading range charts of ten major commodities.  The green shading in the charts represents between 2 standard deviations above and below the commodity's 50-day moving average.  When the price moves outside of this range, the commodity is considered either overbought or oversold. 

As shown below, oil has rallied nicely but it is currently in overbought territory and at the top of its uptrend channel.  After staging a comeback in recent weeks, natural gas has sold off again in recent days.  Gold and silver have been rallying recently as well as the dollar has declined.  They aren't quite yet above their normal trading ranges, but they're getting close.  Corn, wheat, orange juice, and especially coffee, are trading near or above overbought levels.

 

 

 

 

 

S&P 500 Support Levels

The S&P 500 opened on a week note today, following up from yesterday's late day sell-off.  Looking at an intraday chart of the last 15 trading days shows that today's open brought us below support at the 900 level.  Going forward, the next key level of support comes into play at 880, which is about 10 points below current levels. Over the last two weeks, the S&P 500 has found support at this level twice.  If the equity markets attempt to rebound intraday, resistance at the 900 level should be expected.

 

Silent Majority Fools Intrade Traders

We like to follow the various contracts traded on Intrade for a number of reasons, including how well "prediction markets" actually predict.  Some of the more popular contracts on the betting website are the ones allowing traders to pick who will win American Idol, which ended last night.  Below we highlight the contract prices since the show began for the two finalists on last night's show.  Up until the final night of performances, the Adam Lambert contract trended higher and ultimately rested at around 75 (75% chance to win).  Leading up to the results show last night, the Lambert contract traded down but stayed above 50%.  As shown in the chart, the "crowd" definitely guessed wrong leading up to the finale, as the underdog Kris Allen actually won with the most votes.

 

Gold Breaks Downtrend And Dollar Breaks Down

Gold is up another $12.40 today to $939/ounce.  Ever since the metal hit support at its 200-day moving average in April, gold has been rallying nicely.  And based on technicals, gold has quite a bit of room to run on the upside before it starts to hit resistance again.  As shown below, when the metal broke its multi-month downtrend at the start of May, it turned the technicals from negative to positive. 

Gold's gain has coincided with the Dollar's demise.  The Dollar tried to mount a comeback after taking a big hit in March, but it didn't get close to a retest of its 52-week highs.  Once it tested and failed at support levels a couple of weeks ago, the trend turned from neutral to negative.  The next area of support for the Dollar doesn't come into play until it gets down to its December lows.  For now, investors should play the stocks with high international revenues as a play on the decreasing dollar. 

To find out which US stocks get the most revenues outside of the US, yearly subscribers to Bespoke Premium can access our International Revenues Database.

 

 

Nasdaq 100 Stocks Up An Average of 20% YTD

The Nasdaq has been the best performer of the three major US indices (Nasdaq, S&P 500, Dow 30) so far in 2009 (+10.9%).  The biggest stocks in the Nasdaq make up the Nasdaq 100 index, and it's up even more than the overall Nasdaq with a gain of 16.4%.  And the average stock in the cap-weighted Nasdaq 100 is up even more at +20%.

Below we highlight the 30 best performing stocks in the Nasdaq 100 year to date.  JAVA ranks first with a gain of 135% because Oracle is buying it, so it will be coming out of the index once the acquisition goes through.  Liberty Media ranks second at 97%, followed by Baidu (BIDU), Research In Motion (RIMM), and Expedia (EXPE).  We've highlighted companies that make up more than 1% of the index in grey.  These include Apple, Starbucks, First Solar, Google, eBay, and Adobe.

 

There are 23 stocks in the Nasdaq 100 that are down year to date.  PPDI is down the most with a decline of 31.75%, followed by Celgene (CELG), Cephalon (CEPH), and Apollo Group (APOL).  Most of the stocks on the list of losers aren't in the technology sector which makes up the bulk of the index.

 

2009 IPOs Making Investors Money

This morning's IPO of Solarwinds (SWI) opened up 20% higher than its original offering price of $12.50, so if you were lucky enough to get shares at the IPO price, you have made money.  If you bought at the open, however, you're staring at a loss of nearly 10% before lunch.  Who knows -- maybe people who bought at the open thought the company, as its name would suggest, was involved in alternative energy, and now they're unloading as they realize it's really a software company.

Anyways, while SWI has been disappointing in its first day of trading, IPO investing so far in 2009 has been profitable for investors.  So far this year, IPOs are up an average of 21.7% from their IPO price.  And even if they weren't lucky enough to get in at the IPO price, this year's IPOs are currently up an average of 2.5% from their first trade.  The year's biggest winner has been Chinese ADR Changyou.com (CYOU), which is up 91% from its IPO price and 39% from the price where it opened for trading.  CYOU is an online game developer that was spun off from Sohu.com (SOHU) and has been riding the coattails of Shanda Interactive (SNDA), which is up 68% year to date.

With SWI now out of the gate, focus will now shift to OpenTable.com (OPEN) which is also slated to price this week.

 

  

Bank of America (BAC) Sellers Burned in After Hours Trading

Last night after the close, Bank of America (BAC) stock fell an additional 7% in post-market trading as news of a stock offering was reported by various media outlets.  As shown in the chart, while the stock weakened in the afternoon, the sell-off accelerated in the after-hours session and sent shares as low as $10.51.  However, as fast as the stock declined in after-hours trading, it made up those losses nearly as quickly this morning, opening at $11.91, which was up from Tuesday's close.  In this case, investors who sold anywhere near the low in after-hours trading are now staring at a loss of over 10% compared to where the stock opened today.  Examples like these highlight how a lack of liquidity and incomplete news flow can create a highly volatile (and potentially costly) situation.

 

World and Country Market Cap

From its peak in October 2007 to its low in early March, global equity markets fell $37 trillion from $62.5 trillion to $25.5 trillion.  At the low, the value of all public companies worldwide fell 59%!  Since the March 9th low, global market cap has now risen by $9.5 trillion back up to just over $35 trillion.

 

Below we highlight all countries whose market cap makes up more than 1% of world market cap.  As shown, the US accounts for 30.64% of world market cap, which is more than four times Japan in 2nd place.  China ranks 3rd at 7.64%, followed by the UK, Hong Kong, and France.  Interestingly, the BRIC countries (Brazil, Russia, India, China) account for 13.53% of world market cap, while the UK, France, and Germany account for 13.37%.  Maybe it's time for the BRICs to no longer be considered emerging markets.

 

Since March 9th, major US stock indices are up 25%, but since other countries are outperforming, the US' market cap as a percentage of world market cap has actually fallen about 75 basis points.  It initially spiked in the early days of the rally, implying that the US sparked the global rebound, but as the rally progressed, investors have spread their sights elsewhere.

 

Year to Date Country Returns; US Lags

With global equity markets still in rally mode, below we highlight the year to date performance of the major indices for 83 countries around the world.  After nearly every country was down earlier in the year, 62 out of the 83 are now up in 2009.  Peru is up the most at 72.92%, while Costa Rica is down the most at -39.94%.  And the BRIC (Brazil, Russia, India, China) countries are significantly outperforming the developed G-7 countries.  Russia, India, and China rank 2nd, 3rd, and 4th in terms of year to date performance, and Brazil isn't far behind in 10th place.  Canada has been the best performing G-7 country with a gain of 12.62% in 2009, but it ranks 35th out of 83.  The rest of the G-7 countries are bunched up in the 0%-5% range, which is closer to the bottom of the list than the top.  And the US is the worst of the seven with gains of less than 1%.  While the markets here in the states have rallied nicely off of their March lows, most other countries have bounced back even more 2009.

 

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DJIA Daily Intraday Range

It looks like the dog days of Summer have come early this year.  If the current intraday range (0.88%)holds, today will go down as the least volatile day since December 26th.  So far this month, only one day (yesterday) has seen an intraday high/low range greater than the average for 2009.

 

Best Analyst Ratings in the S&P 500

Bloomberg has a rating scale for analyst recommendations from one to five (worst to best) based on the number of buy and sell ratings for each stock.  Below we highlight the stocks in the S&P 500 that analysts are the most positive on.  Thermo-Fisher Scientific (TMO) is the only stock in the index that scores a five.  Philip Morris (PM) is the second highest rated stock, followed by Baxter (BAX) and MetLife (MET).  Other notables in the top 20 include GameStop (GME), Hewlett-Packard (HPQ), and Google (GOOG).

 

We also found the stocks with the biggest increase in their analyst ratings over the last month.  As shown, analysts have gotten the most bullish on Bank of America (BAC) over the last four weeks, followed by LNC, TDC, TJX, SHW, and IP.  Other stocks with big increases recently include Morgan Stanley and Walt Disney.

 

Finally, we looked at the stocks that are trading the furthest below their average analyst price target.  Most of these stocks are down big for the year and analysts have been slow to reduce their targets, but some are up big and analysts still have price targets well above where they're currently trading.  CB Richard Ellis (CBG) is up 86% year to date and has a price target 55% above its current price.  AES, MU, GME, and CHK are other stocks trading the furthest below their price targets that are also up on the year.

 

Strategists Keep 2009 S&P 500 Price Target at 949; Just 4% Away

The Wall Street strategists that Bloomberg polls each week haven't changed their year-end S&P 500 price targets since mid-March.  But by doing nothing, they're collective price target has gotten much closer to the actual level of the index since the market has rallied so much.  At the start of the year, strategists as a whole were looking for a year-end S&P 500 price of 1,049, which would have meant a gain of 16.2% for the year.  When the market was down more than 20% in early March, this bullish price target was pretty bad.  As the market fell, strategists cut their year-end target, which is now 100 points lower at 949.  But as the market has risen, they haven't increased their expectations yet, so they are now just looking for another 4.19% gain through the end of the year.  UBS and JP Morgan remain the most bullish of the bunch with a target of 1,100.  And four strategists have price targets below the current level of the S&P 500, with Barclays the most bearish at 757.  At the start of the year, Barclays was looking for 874.

 

India Has Biggest One-Day Change Ever

India's Sensex rallied 17.34% today on unexpected election results for its biggest one-day gain ever in its 30 year history.  As shown in the bottom table below, the next biggest one-day gain came in March 1992 when the index rallied 13.14%.  From its peak in January 2008 to its recent low, the Sensex dropped 60.91%.  From its low, however, the index has now rallied 75.04% in just over two months.  Even after this 75% gain, India needs to rally another 46.13% to reach its old highs.

 

 

Now vs. 1938

Over the last several weeks, there have been numerous comparisons made between today's market and 1938.  As shown below, an overlay of the current S&P 500 over the period of 1936 - 1938 shows two similar patterns in both the decline from the peak and the advances off the lows.  With that in mind, we looked to see how the S&P 500 would have to perform going forward in order to keep the relationship going. 

As shown below, at its peak last week, the S&P 500 rallied 38.2% from the March lows.  In 1938, the S&P gained 50.5% in the four months following its low.  If the S&P 500 were to have a similar rally off of its lows today, it would top out at 1,018.  While breaking 1,000 on the S&P 500 seems remarkable given where we were in March, it is still nearly 200 points lower than where the index was trading before the Lehman Brothers bankruptcy.

 

Warren Buffett's Stock Holdings Outperform

Warren Buffett's Berkshire Hathaway stock holdings were released in the company's quarterly 13F last week.  These are the positions as they stood at the end of the first quarter, and below we have calculated their performance so far this quarter.  Overall, Buffett's stock holdings have outperformed the S&P 500 this quarter by nearly 1,000 basis points.  His positions are up 22.41% versus the S&P 500's gain of 12.96%.  His best performing stock so far this quarter has been Gannett (GCI), which is up 97.73%, but it's also one of his smallest holdings.  The next two best performing stocks are big positions.  American Express is up 86.57%, and it represents 8% of his overall stock holdings.  Wells Fargo is up 83.71%, and it was 16.4% of his portfolio at the end of March.  Coca-Cola (KO) is Buffett's biggest holding at 18.79%.  Only three of his positions are down so far this quarter -- Costco (COST), Wal-Mart (WMT), and Carmax (KMX).

 

Oil Seasonality

With gas prices steadily rising in recent weeks, drivers are nervously watching movements in crude oil and hoping that last week's sell-off is the beginning of a trend rather than a just a quick pullback.  Unfortunately, if crude oil's seasonal pattern over the last 25 years is any indication, we shouldn't expect any relief until September.  The chart below shows the average YTD percent change in the price of crude oil over various time periods.  For each period, we also show the date the high was reached.  As shown, over the last twenty-five (9/30), ten (9/19), and five (9/22) years, the price of crude oil has typically peaked in mid to late September.

 

Financial Sector Bounced Nicely So Far

After the close on Friday, we pointed out that the S&P 500 Financial sector was sitting at a key inflection point that could shape the direction of the sector in the months ahead.  The sector's action so far this morning favors the bulls, as it has bounced nicely off of the bottom of its uptrend channel.  If the Financials can hold onto gains into the close, technicians will expect a rally back to the top of the sector's trading channel.