The Closer — Earnings Review, Capex Outlook, Dollar Bottoming — 9/25/17

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Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke Institutional clients, we review recent earnings trends by sector in the S&P 500, update tracking of US capex expectations, and review the outlook for the US dollar as it looks to test its 50-DMA after 99 closes below it.

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Gas Prices Retreat From Hurricane Highs

After a 15% spike from late August through early September, gas prices have started what has been a welcome retreat from their recent hurricane highs.  According to AAA, the national average price of gasoline currently stands at $2.58 per gallon, which is down close to 4% from the recent high on 9/10 but still up 10% versus where it was before Hurrican Harvey started spinning in the Atlantic.  Even after the recent spike, though, the national average price of a gallon of gas never quite made it to the highs we saw back in early 2015 before prices really began to crater and bottomed out at $1.70.

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The table below compares the YTD change in gas prices this year to where prices were at the same point in prior years dating back to 2005.  The recent surge in prices also wasn’t enough to push the YTD gain to an above average move.  While prices so far in 2017 are up 10.1%, that is well below the average move of 17.4% for all years since 2005 and ranks as the sixth smallest YTD gain over the last thirteen years.

The chart to the lower right compares this year’s YTD change in gasoline prices and compares it to a composite of how average prices trend throughout the year going back to 2005.  If the rest of this year follows the typical seasonal pattern, you can expect the recent pullback in gas prices to continue throughout the rest of the year.

Finally, the chart below shows the y/y change in gas prices over time.  Earlier this year, the y/y change in prices spike to 34.6% as the base effects from the 2016 lows reached their peak.  In the most recent leg higher, the y/y change in prices peaked at just 16.5% highlighting how in the perspective of longer-term history, the most recent hurricane-induced surge in gas prices wasn’t that large.

Cryptocurrencies, Bitcoin, and the Blockchain — Bespoke’s Explainer

Bespoke recently brought on Dan Ciotoli to be our Chief Software Engineer.  (Learn more about the Bespoke team at our About page.)  Dan has a developer/coding background, and he also knows the ins and outs of the cryptocurrency phenomenon quite well.  We asked Dan to essentially write up a “Bitcoin for Dummies” report so that we could get a better understanding of this growing area of the financial world.  (We’re not afraid to admit we don’t know much about it yet!)  With the help of Bespoke Macro Strategist George Pearkes, Dan did a great job — great enough for us to decide to publish the report for Bespoke readers as well.

Please click the thumbnail below to read our Bespoke Briefs report on Cryptocurrencies, Bitcoin, and the Blockchain.

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Most Overbought and Oversold S&P Stocks

Every day in our Bespoke Morning Lineup, we publish a list of overbought and oversold S&P 500 stocks that are likely due to experience mean reversion based on historical trading patterns.  In the table below, we show “S&P 500 overbought stocks most likely to fall” and “S&P 500 oversold stocks most likely to rise.”

After the close each day, we gather a list of the most overbought stocks in the S&P 500.  We then look at each stock that is overbought and see how it has performed over the next week when it has been at similarly overbought levels.  The names that make our daily table in the Morning Lineup (shown below) are the ones that typically trade the weakest when they get this overbought.  For example, Devon Energy (DVN) is currently trading overbought by 2.71 standard deviations above its 50-day moving average.  When it has been this overbought in the past, it has averaged a decline of 1.88% over the next week with positive returns 32.1% of the time.

The second table below shows the stocks that have historically traded the best over the next week when they have been at similarly oversold levels.  AVGO is currently trading 2.36 standard deviations below its 50-day moving average.  When it has been this oversold in the past, it has averaged a one-week gain of 9.43% with positive returns 75% of the time.

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September Rotation Out of Winners Into Losers

The S&P 500 is currently up more than 1% during the month of September, and if it can simply finish the month in the green, it will be considered a big win given that September has historically been the worst month of the year for stocks.

What’s interesting about the market’s performance this month is the underlying stocks that are driving major indices higher.  We broke the S&P 500 into deciles (10 groups of 50 stocks each) based on year-to-date performance through August to see how the year’s biggest winners and losers heading into September are doing this month.

As shown below, it’s 2017’s biggest losers that have posted the biggest gains in September, while the year’s biggest winners have taken a breather.  The 50 S&P 500 stocks that were performing the worst on a YTD basis through August are up 4.6% in September, while the 50 best-performing stocks YTD through August are up just 0.14%.

These stats show that momentum traders are likely underperforming in September.  If you stuck your neck out and bought the most beaten down names, you’re likely having a banner month.

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Bespoke Morning Lineup – Pre-Market News and Analysis

Highlights

  • S&P 500 futures -6 bps
  • Huge recap of global politics (Dashboard)
  • CNH, China property, Abe election (Asia)
  • Trifecta of European political news (Europe)
  • Fed speakers sit center stage this week (Americas)
  • Russell 1000 52-Week Highs
  • Russell 1000 52-Week Lows

Bespoke’s Morning Lineup is the top pre-market report on Wall Street.  We cover everything you need to know to get your trading day started, including international market moves and events, post-market and pre-market earnings news, upgrades and downgrades, dividends and splits, economic indicators and estimates, big stock movers, market internals and much more.  It’s all presented in the original and concise format that Bespoke is known for so you can digest lots of information quickly and efficiently.

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Bespoke Brunch Reads: 9/24/17

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

See this week’s just-published Bespoke Report newsletter by starting a no-obligation two-week free trial to our premium research platform.

Politics

The insane news cycle of Trump’s presidency in 1 chart by Stef W. Kight (Axios)

Regardless of your feelings about the President, you’re going to find the chart featured in this article remarkable, detailing the swings in attention that whip through the public discourse on a daily basis. [Link]

Tensions Rise in Spain as Catalonia Referendum Nears by Raphael Minder (NYT)

A referendum on independence has been scheduled in Catalonia by a narrow majority of independence-focused local representatives over the objections of the central government and the country’s constitutional court, leading to police action. [Link; soft paywall]

Labor Markets

For Holiday Hires, It’s Already Beginning to Look a Lot Like Christmas by Jennifer Smith (WSJ)

Retailers hoping to staff up ahead of the all-important holiday season are having a hard time finding willing workers: “it’s the tightest labor market we’ve ever seen”. [Link; paywall]

Not Driving to Work Is the Hot New High-End Job Perk by Justin Fox (Bloomberg)

White collar workers are increasingly avoiding commutes by working from home. [Link]

Credit Markets

Juiciest Junk Bonds Going Extinct as Autumn Calls Approach by Cecile Gutscher (Bloomberg)

Declining spreads on high yield credit mean that many bonds that give borrowers the option to call debt in have coupons well above what the market would offer if the bonds were re-issued, leading to a wave of calls. [Link]

U.S. Leveraged Loan Repricings Get Boost from Issuers Returning for Round Two (Leveraged Loan)

A nice round up of the strength in the very strong leveraged loan market, with numerous issuers re-borrowing at lower rates or more favorable terms. [Link]

Big Reads

Demographics will reverse three multi-decade global trends by by Charles Goodhart and Manoj Pradhan (BIS Working Papers)

A huge read on the implications of a reversing global labor supply shock that has pushed inflation lower and inequality higher over the past several decades. [Link; 47 page PDF]

Time to Change Your Investment Model by Feng Gu and Baruch Lev (CFA Institutes Perspectives)

It’s less helpful to figure out what corporations will earn, with the value of “strategic assets” (the facets of the business that create a durable competitive advantage). [Link; 11 page PDF]

Surprise Pregnancy

Amazon sends accidental gift email to shoppers due to glitch by Jeffrey Dastin (Reuters)

A technical glitch sent emails to customers telling them they’d gotten a baby registry gift; this came as a big surprise to many who had no new kids on the way! [Link]

Potpourri

How this entrepreneur went from a crack addict to a self-made multimillionaire (CNBC)

The story of the MyPillow. Note: not a “read”, but definitely an amazing story worth watching. [Link; auto-playing video]

What Hurricanes Can Dredge Up: Coffins, Canoes and Creatures by Jacey Fortin (NYT)

A catalogue of the strange, horrifying, and remarkable objects and animals that wash up following huge storms. [Link; soft paywall]

Sports

Sliding NFL ratings could throw networks for a loss by Jonathan Berr (CBS)

With NFL viewership down 14% YoY to the lowest level since 2009, major cable properties are in a tough spot having paid up huge for broadcast rights. [Link]

How Gennady Golovkin managed to eat this shot continues to astound us by Darragh Murphy (Joe)

There are very, very few people on the planet that can take a Canelo overhand right on the chin and keep at it, but that’s just one example of Golovkin’s ability to take a pounding and keep coming. [Link]

Have a great Sunday!

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The Closer: End of Week Charts — 9/22/17

Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model. This week, we’ve added a section that helps break down momentum in developed market foreign exchange crosses.

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Technicals Don’t Always Work Out the Way You Would Expect

Take a look at the chart below.  Without knowing the name, would you buy it?  The chart looks pretty good.  At the most recent trading day shown, the stock broke out above resistance to a new medium-term high.  Not only that, but volume on the day of the breakout was also strong, coming in at twice its 50-day average.  From a technical perspective, you really couldn’t ask for much more; just buy it and let it ride.

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Like just about every other investing discipline, though, technicals aren’t infallible.  In fact, sometimes they not only get it wrong, but very wrong.  The chart above was the price chart of Intercept Pharmaceuticals (ICPT) from December 2016 through July 28th.  If you had bought the stock based on that breakout and held through today, it would have been a very bad trade.  Below we have updated the chart through early trading today.  From its close on 7/28 through today, shares of ICPT have been more than cut in half with a decline of 53%.  The moral of the story is two-fold.  First, no investing discipline works all of the time, and second, whenever you enter a trade, you should always go in with an exit plan just in case things go wrong.

iPhone Search Trends

Today is a big day for Apple enthusiasts, as the iPhone 8 and iPhone 8 Plus models go on sale today.  For Apple (AAPL) stock, though, it hasn’t been a particularly happy time, as initial reports and short lines outside stores suggest overall demand for the 8 models will be lighter than prior releases.  One way to track interest in the iPhone 8 is to look at Google search trends for the iPhone 8 compared to the iPhone 7 when it was first released.  We would have looked back further at comparisons to other models, but Google changed its data collection methods in early 2016, so any search results prior to then do not provide an apples to apples comparison (no pun intended).

The chart below compares search results between the iPhone 7, which was released last September, and the iPhone 8.  Looking at the chart, search trends for the iPhone 7 really dwarfed the current search trends for the iPhone 8.  Back in 2016, search trends for the 7 peaked right around the time the phone was first unveiled in early September.  For the iPhone 8, the spike in search activity hasn’t been nearly as strong as the iPhone 7.

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At first glance, the above chart looks like horrible news for Apple and supports the idea that sales trends for the new model, which goes on sale today, will be weaker than other models.  What this line of reasoning misses, though, is that this time around Apple is releasing two different iPhone models.  The chart below compares Google search trends for the iPhone 7 and the iPhone X.  Here again, peak search trends for the iPhone 7 dwarf the iPhone X, but what is notable is that search trends for the X have been nearly as strong as the 8.  Obviously, search trends don’t translate to actual sales, but it is noteworthy that consumers are searching for the iPhone X nearly as often as they are searching for the iPhone 8 even though sales for the iPhone X are expected to be much lower than sales of the iPhone 8.

Combining the search results for both the iPhone 8 and iPhone X and comparing it to the search trends for the iPhone 7 provides some encouraging results for Apple.  Here, results for these two models actually exceeded the peak search results for the iPhone 7 by a margin of 10%.

Finally, another way to gauge the overall strength/momentum of the iPhone is to simply look at search results for the iPhone over time.  Here again, search trends for iPhone remain positive and are currently higher now than they were last September with the release of the iPhone 7.

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