Asset Class Correlations

Today's Wall Street Journal had an interesting article about asset class correlations.  With that in mind, below we highlight (click here for PDF) a correlation matrix of various asset classes including the S&P 500 sectors, oil, gold, the dollar, the yen, emerging markets, the 10-year note and the FTSE 100.  The first matrix highlights the correlation between the daily percent changes of asset classes since the S&P 500 peaked on October 9th, 2007.  Each column (vertical) is color coded from green to red based on highest to lowest correlations.

The second matrix highlights the correlations between the same asset classes, only from a much longer time horizon (1990-present).  Then, in the bottom chart, we highlight the difference between the short-term and long-term correlations to see where differences arise.  Correlations that have increased since the bear market began in 10/07 are shaded in light green, while correlations that have decreased are shaded in light red.  In each column, the biggest increase and decrease in correlation is highlighted in dark green or red.  As shown, correlations have generally increased among sectors, while stocks have become less correlated with oil, gold and Treasuries.  Correlations between stocks and the yen have increased the most in the short-term compared to their long-term correlations.  To view the matrices in PDF form, please click here.  It's definitely an interesting data set to analyze and it's better to let the info speak for itself.



S&P 500 Earnings Update

Monday afternoon's earnings flow was poor, as AXP, SNDK and TXN all missed EPS forecasts.  Additionally, while AAPL beat, their guidance was extremely weak.  That coupled with questions surrounding the health of Steve Jobs sent the stock down by over 10% in after-hours trading.  The end result is that since the start of July, nearly 20% of the stocks in the S&P 500 have reported EPS, and of those companies, 67% have beat EPS forecasts.  While this is down from the levels in the low seventies that we saw last week, it is still above the average of the last ten years.  Let's hope the news flow turns for the better in the morning and helps sentiment improve.


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Which Way is Oil Headed?

Please take a moment to participate in our poll below on oil prices.  The commodity has declined about $15 since peaking above $145 (closing basis) last Monday.  We're wondering about investor sentiment on oil after this brief pullback.  What price level will oil hit first -- $150 or $110?  We'll report back with the results soon.

With oil at $131/barrel, will it hit $150 or $110 first?
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Crazy Dividends

At the market's recent low on July 15th, there were numerous stocks with astronomical indicated dividend yields.  With the gains in Financials and the overall market since then, however, these estimated yields have dropped significantly (although many remain high).  Below we highlight the biggest percentage drops in yields for stocks in the S&P 500 since 7/15.  The first six stocks either discontinued or cut their dividends since then.  After these six names comes FNM and FRE, whose yields fell by roughly 50% as their share prices increased roughly 100%.  Bank of America was yielding a ridiculous 13.82% on 7/15, and with no cut announced with their earnings report today, it looks like a buy at those levels could have been an opportunity of a lifetime (or maybe not).  Regions Financial (RF) was yielding 22% on 7/15, but now yields 14.34%.  If they're able to pay out, what a return that would be!  Two other notables on the list are Citi and Lehman, whose yields fell roughly 30% over the last 3 trading days.


Below we list the S&P 500 stocks with the highest indicated dividend yields at the moment.  But remember, buying Financials for their yields is a risky bet these days.




Hovnanian Chairman Shows The Midas Touch

Within each sector of the market, there are certain individuals whose success has earned them a reputation that when they speak or act, people listen.  Every move or comment that Warren Buffett makes is analyzed for potential clues as to what companies he may be interested in buying.  More specifically, in the energy sector, when Boone Pickens makes comments on where he thinks the price of oil is going, his words move the market and are carried by all the major news outlets. 

While most people may not be aware of it, the homebuilding sector has its own "EF Hutton", as in when this person speaks (or acts), people should listen.  The chart below shows the price of homebuilding stock Hovnanian Eneterprises (HOV) since October 2004.  We also highlight large insider buys and sells by the company's chairman Kevork Hovnanian.  As shown, from October 2004 through July 2005, the chairman sold over 800K shares near the peak of the housing boom for total proceeds of almost $54 million.  After a decline from $70 per share to under $5 in January, Mr. Hovnanian decided to start buying back what he sold in '05.  So far this year, he has bought back nearly 75% of the stock he sold, for over 90% less than he originally sold it for!  And his purchases this year have both been at or near short-term bottoms as well.  Talk about buy low, sell high.



Looking for Action? Most Volatile Stocks

For traders with a more short-term time horizon, we have compiled a list of the S&P 1500 stocks that have the largest intraday high-low ranges (based on the average percent spread between the intraday high and low over the last fifty days). We then grouped the stocks based on whether they have a rising or falling 50-day moving average.

Given the large number of stocks in the S&P 1500 currently trading below $10 per share, we also filtered the list to show only the five most volatile stocks (50-days rising and falling) trading in double digits.  As shown, most of the volatile stocks that are in uptrends come from the energy and materials sectors, while the most volatile stocks with declining moving averages come from the financial sector, which even after last week's gains are still in downtrends.


For those who are not concerned about low-priced stocks, below we highlight the most volatile stocks in the entire S&P 1500 universe.  Stocks highlighted in gray are new to the list this month.  With average daily intraday percent swings in the high teens, these are names that certainly aren't for the faint of heart. 



A Buy the Loser Rally

lf you didn't own the dregs of the S&P 500 going into the rally that started last Wednesday, chances are you have underperformed over the last few days.  We broke the S&P 500 into deciles (50 stocks in each decile) based on stock performance from the 5/19 high to the 7/15 low and calculated the average performance of stocks in each decile since the 7/15 low.  The average stock in the S&P 500 has risen 6.44% since then.  The 50 stocks that were down the most from 5/19-7/15 are up 26.4%.  Conversely, the 50 stocks that held up the best during the recent market decliens are only up an average of 0.99%.  Clearly, this has been a buy the losers rally. 


Below we highlight the 20 worst performing stocks from the 5/19 top to the 7/15 low.  As shown, they are up a whopping 37% since 7/15.  Unfortunately, not many people still owned shares in them last week.



S&P 500 Sector EPS Growth for Q2

Q2eps_2With 19% of the S&P 500 having reported through Friday, at right we highlight the current year over year earnings growth for sectors in the second quarter.  We also highlight what the growth estimates were for Q2 at the start of earnings season to show how each sector is doing thus far.

As shown, the 21% of Tech stocks that have reported have seen year over year growth of 24.7% in Q2, which is almost double the 13.1% estimate at the start of July.  Tech is followed by Materials at 17.5%, Health Care at 13%, Energy at 12.7%, and Consumer Staples at 12.6%.  While it has seen negative growth so far, the Consumer Discretionary sector is coming in much better than expected at -2.7% (versus estimates of -23.5%).  Financials are once again the big loser, with year over year growth at -94% versus estimates of -60%.  These losses in the Financial sector have caused the S&P 500 as a whole to see an earnings decline of 32.6% so far. 

Below we highlight a chart of the same growth data versus estimates (excluding Financials so the chart range is not so wide).



Prediction Poll Results

Just a quick post on the results from this week's Dow Prediction Poll.  The average poll respondent predicted that the Dow will close this Friday at 11,473.49, which is 23 points below the Dow's current level of 11,496.57.  After we finally saw some gains last week, the collective response to our poll is slightly negative for this week.


Where Will The Dow Close Next Friday?

The winner of last week's Bespoke Prediction Poll guessed that the Dow would close the week at 11,498.00 -- just 0.01% percent from today's actual close of 11,496.57.  Congratulations to Jason Meshnick for the winning prediction and receiving one free month of the Bespoke Premium service!  Please enter your prediction for where the Dow Jones Industrial Average will close next Friday.  The index is currently trading at 11,496.57.  Predictions must be in by this Sunday at midnight.  The person with the closest answer will receive one free month of the $40/month Bespoke Premium service.  Thanks for participating!

Where will the DJIA close on Friday, July 25th?
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Below we provide the titles 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: Week in Review (our widely followed weekly newsletter on the markets), Earnings Estimate Revisions (stocks with the biggest increases and decreases in analyst estimates), Stock Ratings (a look at the most and least loved stocks from the major financial websites), Earnings Season Update (key earnings season stats and the best and worst reports), Shorts Running Scared (most heavily shorted stocks go through the roof), Bank and Broker Matrix (updated charts of how financial companies are faring during the current credit crisis), Stocks Up, Oil Down (market performance following similar scenarios in the past), Earnings Beat Rates (comparing this quarter's earnings to past quarters), Oil Breaks Uptrend (more declines to come), S&P 500 In Flux (many stocks shouldn't even be in the index anymore), Retail Sales by Category (breaking down this month's retail sales report), Long-Term Sector Relative Strength (ominous signs for energy?), Sector Bear Markets (a look at average declines for sectors during bear markets).

Thanks for taking part in the Bespoke Prediction Poll!  If you'd like to try out our Premium service, please sign up at


Next Week's Key Earnings Reports

Next week is another busy earnings week.  Below we highlight key companies expected to report from July 21st through the 25th.  For each company, we provide the current earnings per share estimate and change in that estimate over the last month.  We also provide each stock's historical beat rate based on earnings reports going back to 2001 as well as the average one-day change in reaction to earnings.  Probably the biggest names reporting next week are Apple (AAPL), Caterpillar (CAT), Boeing (BA), Wachovia (WB) and AT&T (T).  Apple kicks things off on Monday after the close.  Historically, Apple has averaged a change of 1.61% on report days and beaten earnings estimates 85% of the time.  Expectations are always high, so anything less than a beat for Apple will not be taken well.

For more in-depth trade ideas based on earnings reports, subscribe to Bespoke Premium or check out our Interactive Earnings Database.



Preferreds and Munis

On Monday we posted on the struggling preferred stock market.  Since its lows earlier in the week, the S&P Preferred Stock index has rallied sharply off the lows.  The decline and snapback rally in preferreds reminds us of the collapse in municipal bonds and their subsequent rally back in February.  Below we highlight a chart of PFF (preferred stock ETF) and MUB (muni-bond ETF) since last September.  Both are supposed to be relatively stable asset classes, but they have been anything but this year.  But hopefully PFF can rally back like MUB did in the month or two following its February bottom.



Bespoke's Sector Snapshot

Every Thursday at Bespoke Premium, we release our Sector Snapshot report that provides detailed charts of important indicators that we follow for the ten major sectors of the S&P 500. These indicators factor into our view on the sector as well as the overall market and include A/D lines, trading areas, percentage of stocks above their 50-day moving averages, price to earnings ratios and relative strength.  We also provide commentary in this report that highlights our current view on the state of the market.

In last week's report, we called for a short-term rally of 5%-10% within a longer-term downtrend.  Many comments from the report got picked up by Kopin Tan in his widely-read weekly The Trader column in Barron's.  So far, that call has worked out pretty well, as we finally got the bounce that most investors have been waiting for.  But we still have a little further to go to get to the 5%-10% gain that we're expecting. 

Please click the thumbnail below to view last week's Sector Snapshot as a sample of the weekly piece that members receive.  If you would like to receive this along with our many other Premium products, sign up for just $1 per day by clicking here.


Leveraged ETFs Have Wild Week

Last week we featured a list of the short and leveraged ETFs offered by ProShares.  Below we highlight the same list with their performance so far this week.  The major loser this week has been the Ultrashort Financials ETF (SKF).  When financials go down, this one goes up by twice as much.  When financials go up, this one goes down twice as much.  Owners of SKF have definitely had a painful week after some major reversals in many banks and brokers.  However, if they've owned it for awhile, they still have plenty of profits.  The Ultrashort Real Estate (SRS), Consumer Services (SCC) and Russell 2,000 Value (SJH) ETFs have seen the 2nd, 3rd, and 4th biggest declines this week.

And just as the Ultrashort have gone down, the Ultra long ETFs have had a tremendous week (with the exception of materials and energy).  The Ultra long Financials ETF (UYG) is up 12.75%, followed by the Ultra Semiconductor and Ultra Consumer Services.




Best and Worst Performing ETFs This Week

This week has been opposite week, at least when compared to most of the last 9-12 months.  Below we highlight this week's best and worst performing ETFs from our daily ETF Trends report at Bespoke Premium.  As shown, the Homebuilder ETF (XHB) is up the most at 16.3%, followed by the Regional Banks (RKH), Financial Services (IYG), Banking (KBE), and Investment Services (IAI).  Other notables on the list include two dividend ETFs (PEY and DVY), the Semiconductors (SMH), Clean Energy (PBW), and Retail (RTH).


The list of losers is dominated by Energy and Energy stock ETFs.  The Oil Exploration & Production stock ETF (PXE) is at the top with a decline of 11%.  PXE is trailed by two more stock ETFs (IEO and XOP), and then OIL, UNG, USO and DBO.  It will definitely be interesting to see how this brief reversal plays out.