Thursday
Feb192015

What Else is New? Crude Inventories Rise More Than Expected

You would think that after underestimating inventory levels practically every week, traders would adjust their expectations accordingly.  That still isn't the case this week, though, as crude oil inventories rose more than expected yet again.  While traders were expecting crude oil stockpiles to rise by 3 million barrels this week, actual inventories rose by more than two and a half times that at 7.716 million barrels. The chart below compares the current level of crude oil inventories to the historical average levels since 1983 and over the last ten years.  Beneath that we also show the gap between each weekly level this year and the historical average.

Two things stand out in these charts.  First, as crude oil inventories continue to build, once again this week we have had to adjust our y-axis higher.  As a result, the second thing that stands out on the chart is how high current levels are to their historical average.  As of the latest report, inventories are currently 100 million barrels (30%) above their historical long term average and have never been higher than they are now.

Thursday
Feb192015

Fed Minutes Push Out Market Expectations of Fed Hikes

Some dovish comments in the Fed minutes put a bid in Fed Funds futures yesterday, pushing expectations for the first Fed Funds rate hike back a month, from October to November.  In practice, this means an increase in the likelihood of a first hike taking place at the December meeting, and decreased likelihoods of June or September rate hikes.  For now, the expectation has been for a push out from where the market was positioned as of yesterday. 

Thursday
Feb192015

Golden Cross For Bezos And Co.

Amazon (AMZN) has rallied hard off of January 29th earnings, gaining 33% or $95 per share from the January 15th lows.  As a result, both its 50 and 200 day moving averages have moved up, and the 50-DMA moved across the 200-DMA today.  With both rising, this is a so-called "Golden Cross" technical set-up.  As we've mentioned before, golden crosses aren't a sure-fire buy signal by any means. But for AMZN, golden crosses have been a pretty good signal over the last ten years.  The last time we saw this happen with the name, shares rallied 19.45% over the following year.  Below, we show the forward returns for AMZN following previous golden crosses over the last ten years as well as charting previous occurences.  Please note that to make the chart more readable, we are using a log scale.

Thursday
Feb192015

Caterpillar Machinery Orders Lowest Since February 2010

Caterpillar (CAT) released its monthly machinery orders for the month of January and the results weren't especially encouraging.  As shown in the chart below, the three month moving average of year/year monthly sales fell 14%.  While orders haven't especially been strong lately (negative for 26 straight months now), the trend has been lower in recent months.  January marked the third straight month that y/y sales accelerated to the downside, and the current level of negative 14% is the most negative reading in nearly five year (February 2010.

When Caterpillar releases monthly machinery sales, it also breaks out the figures by geographical region.  During the month of January y/y sales fell in every region.  This was the first time that all four regions (Asia, EAME, Latin America, and North America) saw negative sales growth since December 2013. 

Thursday
Feb192015

Jobless Claims Remain Low

Jobless claims dropped by 21K this week, falling to 283K from last week's level of 304K and below consensus forecasts for a level of 290K.  This marks the third week in the last four that weekly jobless claims have been below 300K after three weeks to start the year where claims were above 300K.

With another weekly sub 300K reading, the four-week moving average fell below by a little over 6K to 283.25K.  Although this is still above the post-recession low of 279K back in late October, the four-week moving average has now seen declined for four straight weeks from its recent high of 307K.

On a non-seasonally adjusted basis (NSA), jobless claims fell 45.2K down to 279K.  For the current week of the year, this is the lowest level since at least 2000 and more than 85K below the average of 279K for the current week of the year going back to 2000.

Thursday
Feb192015

Bears Head Back to their Caves

After the recent strength in equities, investors sure are getting confident.  According to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment increased for the second straight week rising by 7.02 percentage points to 47.02%.  That makes this week's reading the highest level of bullish sentiment since January 1st (51.74%).

As one might expect given the increase in bullish sentiment, bearish sentiment declined this week, falling from 20.33% down to 17.88%.  What is notable about this decline is that there have only been five other weeks during this entire bull market that bearish sentiment was lower than it is now.  The lowest level of bearish sentiment for the entire bull market was 15.05% back in November 2014.

Wednesday
Feb182015

Rundown of Today's Fed Minutes

If you're looking for a quick yet in-depth rundown of the day's action in financial markets, Bespoke's Closer report is an extremely useful tool.  As a member of either our Bespoke Premium or Bespoke Institutional packages, you'll get the Closer in your inbox after every trading day.  It's great for invidual investors, advisors and institutional investors alike.

The main news impacting markets today was the release of the Fed Minutes at 2 PM ET.  In today's Closer, we provide a rundown of the Fed's comments and what it means for the market going forward.  If you're not yet a Bespoke subscriber, take advantage of this free look at one of our most widely followed products -- The Closer report for 2/18/15.  Click on the thumbnail image below to view today's report.

Want to learn more about Bespoke's product line?  Fill out a Contact Form today and we'll send you information on how you can use Bespoke to become a better, more informed investor.

Wednesday
Feb182015

Nasdaq Internet Group Breaking Downtrend?

After trending downwards for the last year, the Nasdaq Internet Group finally looks to be breaking higher.  You can see the break above the top of the downtrend in the chart below.

Remember when the Internet group was surging higher right inline with the Biotech group in 2013?  That surge seems like an eternity ago after the lackluster performance Internet stocks experienced in 2014.  As shown below, after moving hand-in-hand higher throughout 2013, Biotech left the Internet group in the dust last year.  Through today, the Biotech group is up twice as much as the Internet group since the end of 2012.

With the group's recent break above its downtrend channel, traders are searching for the right Internet stocks to pick up.  Below is a list of the 30 largest Internet names run through our custom trading range screen.  For each stock, the dot represents where it's currently trading while the tail end represents where it was trading one week ago.  The black vertical "N" line represents each stock's 50-day moving average, and moves into the red or green zones are considered overbought or oversold.

As shown, stocks in the Internet group are all over the place, with some in extreme overbought territory and some at extreme oversold levels.  Most of the moves in these names recently have been due to stronger or weaker than expected earnings reports.  Names like TripAdvisor (TRIP), Netflix (NFLX), Amazon (AMZN) and LinkedIn (LNKD) all surged to overbought levels after positive earnings reports this season, while others like Baidu (BIDU) and AOL are oversold due to poor earnings reports.  The most interesting names are the ones that are trending higher (tails to the left of the dot) that have just moved back above their 50-days.  

Contact us to learn how you can run your own portfolio through our custom trading range screen on a regular basis.

Wednesday
Feb182015

Housing Starts and Building Permits Miss Expectations

After Tuesday's big miss in home builder sentiment, today's release of Housing Starts and Building Permits for the month of January showed additional weakness.  In the case of Housing Starts, economists were expecting a seasonally adjusted annualized rate (SAAR) of 1.07 million, but the actual rate was slightly weaker at 1.065 million, which was down from December's reading of 1.087 million last month.  The miss in Building Permits was by a similar magnitude.  Economists were expecting a SAAR of 1.067 million, but the actual level came in at 1.053 million, which was down from December's reading of 1.06 million. 

The top part of the table below lists the breakdown of Housing Starts by both the size of unit and on a regional basis.  Overall, Housing Starts dropped 2% month/month (m/m) but were up 18.7% year/year (y/y).  The reason for the big improvement in the y/y reading was due to a big drop we saw last January when bad weather across the country suppressed housing activity.  As shown in the breakdown between single and multi-family units, all of this month's weakness was in single family units, which dropped 6.7% while multi-family units actually rose 7.5%.  Single family units are generally considered to have a greater economic benefit than multi-family units, so the weakness in January was a disappointment.  Looking at the breakdown on a regional basis gives us some insight into why Tuesday's home builder sentiment report showed such weakness among home builders in the Midwest, as Housing Starts in that region dropped 22.2%! 

At the bottom of the table, we have broken out Building Permits by type of unit and region.  Similar to trends we saw in the figures for Housing Starts, Building Permits saw weakness in single family units relative to multi-family units.  Additionally, on a regional basis the Midwest saw the most weakness (down 16% m/m), while the Northeast and West regions both saw double digit growth. 

Tuesday
Feb172015

2014 vs. 2015

The S&P 500 got off to a rough start to the year with a 3% decline in January.  The index has been straight up in February, though, and it's now up roughly 2% on the year.  

Where have we seen this action before?  Well, last year got off to a very similar start.  The index fell 2.93% in January, declined a couple of more days to start the month of February, and then it was straight up for the rest of the month.

Below is a chart showing the S&P 500's action through President's Day of both 2014 and 2015.

For those interested, below we have continued the 2014 performance chart out to the end of June.  Eventually the February rally ran out of steam last year, and the S&P went on to trade sideways from March through early May before making another big leg higher in June.

Tuesday
Feb172015

Countdown To Liftoff Unchanged After Long Weekend

Our estimate of the most likely date of the first Fed hike based on Fed Funds Futures prices has been mostly flat over the last couple of days, ticking lower in terms of time to hike but stable in terms of the date a hike is expected.  Please see the charts below for our current readings.

Tuesday
Feb172015

Manufacturing in the New York Area Modestly Weaker

Manufacturing activity for the New York Area is showing some modest weakness for the month of February.  The latest release of the Empire Manufacturing report declined from 9.95 in January down to 7.78, which was ever so slightly weaker than consensus forecasts for a reading of 8.00.  The real standout in this month's report, however, was expectations index for general business conditions six months from now.  That index declined from 48.35 down to 25.58.  Since 2001, the only other months where this index saw a larger monthly decline were in September 2001 and January 2009.

The table below breaks down this month's Empire Manufacturing report by each of its components.  As shown in the table, Prices Received saw the largest decline this month, falling from 12.6 down to 3.4.  While it is probably just a one month anomaly, even as Prices Received fell, Prices Paid actually rose.  That's never a good mix for a company's margins.  On the upside, Average Workweek saw the largest increase of any component, even as Number of Employees declined.

As mentioned above, this month's Empire Manufacturing report contained several different seemingly contradictory data points.  Another case in point is the expectations index for Capital Expenditures over the next six months.  Even as sentiment over the next six months saw its largest decline since early 2009, plans for Cap Ex rose from 14.74 up to 32.58.  That was the largest one month increase since April 2009.

Tuesday
Feb172015

Home Builder Sentiment Drops

Optimism on the part of home builders took a big of a hit this month as the headline sentiment index from the National Association of Home Builders (NAHB) came in weaker than expected.  While economists were expecting a one point decline from January's reading of 58, the actual reading came in at 55.  This was the lowest reading for the index since October, which also happened to be the last time that we saw this large of a miss relative to expectations.  While this month's report saw a meaningful downtick, the weather is likely to have at least had some impact.

The table to the right breaks down this month's home builder sentiment report by categories and region.  As shown, this month it was Traffic that really dragged the overall index lower.  With a decline of 5 points, the index fell to its lowest level since July and saw its largest one month decline since October.

In terms of the regional breakdown, sentiment for home builders in the Northeast actually increased by five points rising to 48.  The big area of weakness, however, was in the Midwest where sentiment dropped ten points to 49.  The only other month since 2004 where sentiment among home builders in the Midwest saw this large a drop was in February of last year, when sentiment saw the same ten point drop, falling from 59 down to 49.  There must be something about February in the Midwest lately.

Tuesday
Feb172015

Bulls Rush In

Bullish sentiment surged up to 67% in our weekly Bespoke Market Poll.  As shown below, this is at the top end of the range we've seen since we began running our sentiment poll at the start of 2012.  Earlier this month, bullish sentiment dropped below 50% for the first time since the end of September.  But the sub-50% bullish level only lasted one week, and since then we've seen the bulls rush back in as the market trades to new highs once again.  

 

     

Tuesday
Feb172015

New Highs With the VIX at 15

The S&P 500 closed at new all-time highs last Friday, but as shown below, the VIX Volatility index remains in the mid-teens instead of the low-teen levels it was at when the S&P was making new highs last year.  There's definitely some room on the downside for the VIX to get to before "complacency" worries start to show up again.