Nov 26, 2018
Welcome back from the Thanksgiving holiday weekend. Bulls didn’t have much to be thankful for given the weak performance of equities around the holiday period, but it’s a new week and a new beginning. We’re as happy as anyone that the equity market is looking to kick off the week on a positive note, but just to keep things in perspective, last Friday the S&P 500 did close at a new low for the current correction and even with today’s 1% gain at the open, the S&P 500 will only be back to levels it was trading at a half hour before the close on Wednesday.
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Nov 23, 2018
It was bound to happen sooner or later given the weakness, and we started to see it this week as individual investors grow increasingly nervous. In this week’s sentiment survey from AAII, bearish sentiment ticked up to its highest level since February 2016.
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Nov 21, 2018
In today’s Bespoke Morning Lineup, we provide our usual updated look at market internals, indicators, news events, and analysis. In addition, we’ve highlighted the tables below. The first table on the left shows the worst starts to Q4 for the S&P 500 on record. As shown, this Q4 has been the 6th worst so far with a decline of 9.34%! Just brutal. We go into more detail in the full Morning Lineup release.
The second table on the right simply shows the Dow Jones Industrial Average’s point change on each trading day over the last month. As shown, the Dow has experienced triple-digit moves on 21 of the last 22 trading days!
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Nov 20, 2018
The highways will be crowded this evening as the Thanksgiving rush will begin in earnest, but this morning investors are rushing for the exits with Technology and Retail leading the way lower. Apple (AAPL) is trading down close to 3%, Facebook (FB) is under $130, and Nvidia (NVDA) is down another 5%. While NVDA’s decline is bad enough by itself it follows two days of trading where the stock was down 18% and 12%, respectively. Since early October, the stock is now down over 50%!
In economic data, Housing Starts for October actually came in right inline or slightly ahead of forecasts, which is a bit of a surprise given the very weak homebuilder sentiment report on Monday.
We often look to the high yield market for signs of confirmation of a move or divergences, and unfortunately for bulls, recent moves haven’t been positive. As shown in the chart below, after moving up and down within a range of 310 bps to 390 bps for much of the year, spreads have surged in the last several days to their current levels of 425 bps. That’s the highest level since December 2016, erasing nearly all of the narrowing that we saw in the thirteen months spanning the November 2016 election through early 2018. From the equity market’s perspective, this negative divergence suggests equity prices could be vulnerable to further weakness.
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Nov 19, 2018
It’s been a quiet start to what has historically been a quiet week, and the way things have been lately if this trend keeps up for the remainder for the day, that would be a win for the bulls. Pre-market equity futures are pretty much unchanged versus fair value on what has historically been the weakest day of the Thanksgiving week.
The most important question for technicians this week is whether the S&P 500 is poised to make a higher high or a lower low. As shown in the chart at left, the last two highs have been lower than the prior high (the most recent high was virtually the same, but slightly below, the prior one) while recent lows have been of the lower variety. Another lower low, in addition to a huge decline in percentage terms, would start to look pretty convincingly look like part of a new downtrend rather than a pullback in the broader bull market. A higher high, on the other hand, would be a signal that this drawdown was a sideways trend rather than a downward one and would do wonders for bulls’ confidence.
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Nov 16, 2018
Well, it was good while it lasted. After yesterday’s 2%+ rally off the early morning lows, some may have been starting to think that the market was taking a step in the right direction. Then, the after-hours came. With earnings tape bombs from Applied Materials (AMAT), Nordstrom (JWN), and Nvidia (NVDA), bulls are back in full retreat mode as futures are implying a moderate decline to the downside. On second thought, maybe the bulls aren’t in retreat but instead just still stuck in the massive northeast nightmare commute home from Thursday night.
As mentioned in last night’s Closer report, over the last 20 years, Thursday’s reversal was the 35th time in the last 20 years that the S&P 500 was down 1%+ intraday but reversed higher to close up over 1% on the day. The chart below of the S&P 500 shows every occurrence in the last 20 years where we saw similar intraday reversals for the S&P 500. There’s no specific type of market environment that these declines occur in, as there were occurrences in both bull and bear market environments.
Looking ahead, average and median one-week returns were positive following these prior occurrences, but average and median returns in the one and three month periods were actually negative. Just like yesterday, positive reversals feel good at the moment, but it is pretty common for those good feelings to quickly wear off.
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