Bespoke Investment Group

Two 200-Day Breaks

Two big asset-classes had major long-term trend reversals today.  When a stock or index is trading above its 200-day moving average, it is considered to be in a long-term uptrend.  When the price is trading below the 200-day, it is considered to be in a long-term downtrend.  Today, the US Dollar index closed above its 200-day for the first time since last May.  China's Shanghai Composite Index closed below its 200-day for the first time since last March.  The dollar has been rallying for a couple of months now, while China has been struggling, but today's moves are confirmations that the trends could be in place for longer than some thought.

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S&P 500 Open Interest Put/Call Ratios

Below we highlight a list of S&P 500 stocks with the highest ratio of open put interest to open call interest.  Companies with high put option open interest compared to call option open interest have more bearish than bullish bets.  It's similar to a company with high short interest, and some investors view this as bullish or bearish.  Investors who view a high ratio as bullish tend to think that the negativity is already priced into the stock, meaning upside potential is greater than downside potential.  Investors who view a high ratio as bearish tend to think that it means the smart money is betting against the stock, indicating that more downside is to come.  Typically during market rallies, stocks with high ratios will outperform, while they will go down faster than the market during declines.

For those interested, we also list the S&P 500 stocks with the lowest open interest put to call ratio.

Ken Heebner: At Least He's Honest

A few minutes ago on CNBC, Erin Burnett asked her panel of guests if they would consider buying Apple's (AAPL) new iPad tablet computer.  The only panelist who raised their hand was Steve Liesman.  One of the panelists on the show who didn't raise his hand, however, was Ken Heebner, who manages the CGM Focus Fund.  As of its most recent filing, Heebner's fund had a 1.06 mln share position in Apple Computer, representing 6% of his fund's holdings.  Yet he still wouldn't buy an iPad, or at least say he was interested in buying one?  At least he's honest.

Bernanke Poll Results

Two days ago we asked Bespoke readers if they thought Bernanke would be confirmed for a second-term by the Senate.  As shown below, 88% responded 'yes' and 12% responded 'no'.  Over at Intrade, the odds are now all the way up to 98%.

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Berkshire Joins List of Ten Largest US Companies

Who said a stock split wasn't good for your stock?  Last week's 50-1 split of shares in Berkshire Hathaways' class B stock (BRK/b) helped set the stage for last night's announcement that S&P would add the stock to the S&P 500.  As a result, the stock is trading up 5% in early trading.  Factoring in today's advance, Berkshire Hathaway now ranks among the ten largest US companies with a market cap of nearly 170 billion dollars. 

Given its size, the addition of Berkshire Hathaway to the S&P 500 is likely to cause some havoc on the index.  With a likely weighting of about 1.1% in the index when it is added in February, index managers will be required to sell about 1.1% of their holdings in each of the index's remaining 498 stocks (BNI will come out of the index with Berkshire's acquisition of the company) in order to make room for Berkshire. As if investors didn't have enough on their plate already!

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Can't Blame Earnings Season

The earnings picture continues to look impressive.  Heading into the close yesterday, the earnings beat rate (% of companies beating EPS estimates) stood at 71%, which is high in its own right.  Last night and this morning, another 64 companies reported earnings, taking the total number of US companies that have reported since earnings season began up to 223.  As shown below, the earnings beat rate now stands at 73.5%, which would mark the highest reading for any quarter since at least 1999 if the reporting period ended today.  And even though the S&P 500 finished the day down, the companies that reported earnings last night and this morning collectively had a stellar day.  The S&P 500 closed the day down 0.42%, but the stocks that reported earnings averaged a gain of 2.40%!  The average 1-day % change for all companies reporting earnings this season stood at -0.24% coming into today, but the 64 additional companies added to the total today have bumped the overall number up to 0.52%.

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Lots on Deck Tomorrow

As shown below, 42% of stocks in the S&P 500 are currently trading below their 50-day moving averages.  This is just below the 43% reading seen at the bottom back in October, so things don't currently look great from a breadth perspective.

Tomorrow is one of those days that we see maybe 4 or 5 times a year where the market just gets pounded with information overflow.  Not only does the market have to digest more than 50 earnings reports, but it has to digest the Geithner/Paulson testimony, New Home Sales, the FOMC decision, the Apple Tablet, and last but not least, President Obama's first State of the Union address.  Get ready, because it's going to be a very active day! 

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1,091 Proves Strong Once Again

On a closing basis, the S&P 500 stopped going down right at the 1,091 level, which has acted as key support four times now since last November.  Now that the index has found support in the short-term, traders will focus on the 50-day moving average as the next level of resistance, which is about 13 points above the index's current level.

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Guidance Is Also Strong

Just like the earnings beat rate this quarter, the percentage of companies raising guidance versus lowering guidance is also strong.  As shown below, 12.6% of companies that have reported earnings this season have raised guidance, while just 2% have lowered guidance.  In the prior two quarters, we saw positive guidance outnumber negative guidance, but the current spread this quarter would beat them handily.  This number is likely to come in some as earnings season progresses, but for now, guidance looks good.

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Will He or Won't He Be Confirmed

Worries over the confirmation of Ben Bernanke eased somewhat today as the administration reiterated its support for the current Fed Chairman and polling of Senators showed that he's at least on track to get the 60 votes needed.  Traders at Intrade currently have the odds of confirmation for a second term at 90%.  We are wondering if Bespoke readers, whom we think as a whole represent a good picture of 'the market', are putting the odds above, the same, or below the 90% mark.  Please take part in the poll below and tell us whether or not you think Ben Bernanke will get the 60 'yes' votes needed to win confirmation for a second term by the Senate.  Thanks for participating!

Will Bernanke Be Confirmed By The Senate?
	Yes
	No
Free polls from Pollhost.com

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Apple Back Above 50-DMA After Hours

Apple (AAPL) had a nice day today, closing up $5.32 to $203.08.  The stock had a strong earnings report after the close, and it closed the after-hours session up another $1.52 to $204.60.  While this is a small gain for Apple compared to what it does sometimes after earnings reports, it is a significant gain because it has put the stock back above its 50-day moving average.  With the speculated release of its tablet coming on Wednesday along with lots of other non-stock related events going on in the market right now, Apple can use as many positive technical forces as it can get.

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When a War on the Banks Turns into Bigger Bonuses

Right or wrong, there's no denying the fact that many Americans think that people who work on Wall Street are paid too much.  While this view was certainly present before the bailouts, it has bubbled up to the forefront of popular opinion since then.  Those of the view that bonuses should be capped or restricted argue that even banks who have paid back the government benefited from the government's actions.  This is certainly true, but a lot of companies outside of the financial sector also took government assistance or regularly benefit from government programs.  In these cases, there is little outrage towards pay.  Professional athletes make salaries on par or greater than the top bankers, and they play in stadiums that are largely financed by higher sales taxes or through the issuance of tax-free municipal bonds.  And just last week, NBC paid Conan O'Brien over $30 million to walk away and take the Summer off, even though NBC's parent company took advantage of the government's TLGP (Temporary Liquidity Guarantee Program) and issued over $60 billion in government guaranteed commercial paper.

As we all learned during the Financial crisis, however, it is important to remember the law of unintended consequences.  Actions or words that look good at face value could end up with results that run counter to your original intent.  While Wall Street bonuses have been labeled "obscene," all the rhetoric against the banks actually has the potential to benefit some bankers, making their potential paydays even more "obscene."  For example, a Bloomberg story this morning reported that the stock-based portion of bonuses for employees at Goldman Sachs (GS) was priced on Friday when the stock closed at a six-month low and had its worst two-day decline since the March lows.  As a result of the decline in Goldman's stock, though, an employee getting a bonus of $1 million in stock received 6,488 shares, which was 436 more shares than they would have received one week earlier.

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Earnings Beat Rate At 70%

Only 150 companies have reported earnings since Alcoa kicked off earnings season earlier this month, and 70% of them have beaten analyst estimates for earnings per share.  The earnings beat rate was 68% in the prior two quarters, so beating that number was going to be tough.  But so far, companies have delivered.  With the market struggling, it appears as if investors have already factored in a healthy earnings season and are focused on other things.  If the numbers keep up at this rate, however, the strength will be hard to ignore. 

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Monday Bull Market Still Intact...For Now

For several weeks now, we have been highlighting the "Monday Bull Market" in the S&P 500.  If today's gain holds, the S&P 500 will have started off the week with a positive return in 16 out of the last 18 weeks (89%).  While weeks have had a tendency to get off to a good start, they haven't necessarily finished that way.  Since the end of September, the S&P 500 has averaged a gain of 0.83% on the first day of the week and a decline of 0.54% for the remainder of the week.  Last week the index was down 5.08% from Tuesday's close through the end of the week (Monday was a holiday).

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Sector and Stock Performance Since 1/19

The S&P 500 is down 5.08% since last Tuesday, and below we highlight the performance of the ten S&P 500 sectors since then as well.  As shown, the Materials sector is down the most at -7.90%, followed by Financials and Technology both at -6.24%.  Energy is the only other sector that is underperforming the entire index with a decline of 5.80%.  Consumer Staples is down the least at -2.79%, followed by Telecom (-3.38%) and Health Care (-3.86%).

The average stock in the S&P 500 is down 4.91% since last Tuesday, and there are 30 stocks that are down more than 10%.  As shown below, Cliffs Natural Resources (CLF) is down the most of any S&P 500 stock since 1/19 with a decline of 17.82%.  MEE, X, AKS, and AA (all Materials stocks) round out the top five worse performers.  Other notables on the -10% list include Morgan Stanley (MS), Ford (F), Caterpillar (CAT), Wynn Resorts (WYNN), and American Express (AXP).

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This Week's B.I.G. Tips Reports at Bespoke Premium

Below we provide the titles and thumbnails of the in-depth B.I.G. Tips reports we released this week.  If any spark your interest, they are all available to our Premium subscribers.  These are anticipatory, ahead-of-the-curve research reports that cover markets, economies, stocks, commodities, housing and anything else related to making people money. 

This week's B.I.G. Tips reports: Bespoke's Week in Review Newsletter (covers the fall this past week and what to expect going forward), Three 1% Down Days (what happens going forward), Financial Default Risk Breaks Downtrend (CDS prices picking back up), Back to Back Declines of 1% (what happens going forward), Euro Breaks Below 200-DMA (what this means for the dollar and stocks), Initial Thoughts on Earnings Season (so far so good), Presidential First Years (Obama has 2nd best 1st year market performance), Key Earnings Reports This Week (individual names to focus on).

 

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Bernanke Falls Victim to The Magazine Cover Curse

We've all heard about the Sports Illustrated cover curse, where athletes pictured on the cover suddenly hit a slump or develop an injury, but what about the Time Magazine cover curse?  Just one month after being named Time Magazine's Person of the Year, Fed Chairman Ben Bernanke now finds himself wondering exactly what his job is going to be come February.  How's that for a reversal?

Developed Countries and BRICs Take A Hit

Below we highlight the performance of the major equity indices for 82 countries since the close on Tuesday.  As shown, both the G-7 and BRIC countries sit at the top of the list of worst performers.  The countries that have held up better are located mainly in the Middle East, Africa, and Eastern Europe.

Combining the BRICs and the G-7, Russia has done the worst since Tuesday with a decline of 6.33%.  But Brazil and the US are not far behind with declines of more than 5%.  Italy, France, and Germany are all down around 4.75%, followed by Britain at -3.81%.  There has been lots of talk about China partly at fault for the global sell-off, but the country itself is down just 3.64% since 1/19.  Japan has by far done the best of the G-7 and BRIC countries over the last three days with a decline of just 1.62%.

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It's Not the Size

Typically during market pullbacks, the smaller cap stocks get hit harder than the large, blue-chip names.  This hasn't happened during the 3-day pullback we've seen since the close Tuesday.  When breaking up the S&P 500 into deciles (10 groups of 50 stocks) and calculating the average performance of stocks in each decile, the deciles of the biggest stocks have performed about the same as the deciles of the smallest stocks.  At least in this go-around, the sell-off has been of relatively equal magnitude across the board, suggesting that outside motives other than typical market characteristics are contributing to the decline.

What Caused the Drop?

There seem to be opposing views on what has caused the big drop in stocks this week after closing at new bull market highs on Tuesday.  So we've created a poll to see what investors think contributed the most to the declines.  Please take part in the poll below, and we'll report back with the results shortly.  Thanks!

What factor most contributed to the 5%+ decline from bull market highs this week?
	China/Strong Dollar
	Washington/Political Environment
	Valuation
	Overbought Market
	Earnings Season
	Economic Indicators
Free polls from Pollhost.com

S&P 500 Now At Oversold Levels

It took all of three days for the S&P 500 to move from 2 standard deviations above its 50-day moving average to 1 standard deviation below its 50-day moving average.  Will the Massachusetts election day not only mark a major turning point in Washington, but also a major turning point for the market? 

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Bernanke Confirmation Odds

The Intrade odds for Ben Bernanke to be confirmed by the Senate for a second term have dropped from about 95% down to 80% today.  This is a pretty big drop, but the money is still betting that he'll be confirmed.

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% of Stocks Above 50-Day Moving Averages

While the S&P 500 broke below its 50-day moving average today, the percentage of stocks in the index above their 50-days still sits at 56%.  Utilities, Telecom, and Materials are the only three sectors with less than 50% of stocks above their 50-DMAs.  Health Care has the most amount of stocks above their 50-days at 75%, followed closely by Energy at 72%.  To track this breadth indicator on a regular basis, subscribe to Bespoke Premium today.

 

 

Bespoke's Commodity Snapshot

Below we highlight our trading range charts for ten major commodities.  The green zone represents between 2 standard deviations above and below the commodity's 50-day moving average, and moves above or below the green zone are considered overbought or oversold. 

As the dollar has risen in recent days, most commodities have pulled back quite a bit.  As shown, oil has pulled back sharply from the top of its trading range to the middle of its trading range.  Gold and silver have moved down to the bottom of their trading ranges, while corn and wheat are now below the green zone.  Platinum has also pulled back, but it's still closer to the top of its range than the bottom.  Natural gas hasn't gotten hit as hard as other commodities, and it is actually up a bit today.

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Is the Rally Dead or Alive?

Last night, we asked readers whether they thought the S&P 500 would hold support at its 50-day moving average (DMA).  After nearly 500 votes, the majority of readers (55.3%) think the rally is over and aren't looking for the index to find support at its 50-day.

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