Initial jobless claims were forecast to drop slightly this week from 217K to 215K. Instead, this morning’s release was much better than expected falling to 202K.  That is the biggest one-week decline since mid-December’s 17K decline as the indicator now sits at its lowest level since April’s cycle and half-century low of 193K.

With the seasonally adjusted number falling in seven of the last eight weeks, the four-week moving average has continued to grind lower.  This week, it has fallen 3K down to 211.75K, which is only 10.25K above the cycle low that was put in place the week of April 12th of last year.  Now, the moving average is at its lowest level since the week after that cycle low when the moving average totaled 206K. Additionally, the moving average has fallen for five consecutive weeks which is the longest such streak since September of 2018.

As mentioned above, seasonally adjusted jobless claims are now just off of their cycle lows in terms of both the level of the data and the moving average.  That is a welcome sign considering it has been quite some time, 42 weeks to be exact, since the data has last put in a cycle low.  That is the joint longest streak—alongside another 42 week long streak in 2015—since the 44 week long streak that came to a close on July 11th of 2014. As for the 4-week moving average, the current 42-week run is tied with a streak that ended in December of 2012 for the longest streak of the current cycle without a new cycle low.

The non-seasonal adjusted data has been similarly strong as it works through its seasonal downdraft.  Non-adjusted claims fell to 224.4K this week, which is well below the average for the current week of the year since 2000 of 380.32K in addition to the comparable weeks of the past few years.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Of the stocks that have skyrocketed in the last few weeks, there is one that might come as a surprise: International Business Machines (IBM).  This left-for-dead technology giant reported earnings on January 21st with strong results. Big blue reported an earnings triple play with EPS 2 cents above estimates, sales $155.1 mm above estimates, and raised guidance.  The stock rose 3.39% in response, but in the following days, those gains did not hold.  Fortunately for IBM, its recent earnings report is not the only reason it has been in the news lately.  Less than a week ago, the company announced that the president and CEO of the past eight years, Ginni Rometty, will be stepping down in April. This resulted in the stock jumping over 5% last Friday with considerable follow-through since then. As of today, IBM has risen 11.75% from the close prior to its earnings report and 13.72% since the CEO announcement, taking out previous highs from the fall.

Not only has this move taken out late September/early October highs, but it has also brought the stock to fresh 52-week highs as shown in the chart below.  Today’s further gain of another ~5% leaves IBM around 3% above the July high of $151.36.

While IBM has broken out on a shorter-term chart, the technical picture over the long run is at more of a crossroads.  For much of the past decade, IBM has been stuck in a prolonged downtrend. The run-up over the past couple of weeks has brought IBM right to the top of resistance at this downtrend line. A breakout above this line would be a promising sign.

At the same time, the fundamental picture still is attractive relative to its peers.  IBM currently has one of the lowest valuations and highest yields of the S&P 500’s Technology sector stocks.  Currently trading at 11.96x earnings, IBM is deeply discounted when compared to the average P/E for the sector of 41.8.  Additionally, even with the recent move, IBM yields 4.14%, which is second only to Seagate Technology’s (STX) 4.74% yield, which is the highest in the sector.

Again, in spite of its low valuation, IBM is very overbought. Thanks to the over 10% rally in the past five days, IBM has now moved over 4 standard deviations above its 50-DMA, meaning it could be due for some mean reversion.  Looking back through the stock’s history, there have only been 14 other times that it has risen over 10% in a five-day span without having done so in the prior year.  After prior 10%+ rallies in the span of 5 days, the stock has averaged a decline of 0.86% over the next week.  Over the next year, however, IBM has averaged a gain of 12.6%.  Start a two-week free trial to Bespoke Institutional to access all of our premium research and interactive tools.

Just like we saw with the Manufacturing sector earlier in the week, the services sector of the US economy also continued to bounce back in January.  According to the ISM Non-Manufacturing report for January, activity bounced more than expected rising from 54.9 up to 55.5 and compared to expectations for a level of 55.0. After falling to its lowest level in over three years last September, activity in the services sector has now rebounded to its highest level since August. On a combined basis and accounting for each sector’s weight in the overall economy. the combined ISM for January bounced from 54.1 up to 55.0.

Respondents also appeared to be a lot more optimistic about business in January.  As shown in the commentary snapshot below, there were a number of positive statements.  In fact, Energy was the only sector where there wasn’t anything positive to say. No surprise there.

The table below breaks down the ISM Manufacturing report by each of its sub-categories and shows their changes over the last month and year.  Despite the positive reading this month, the majority of sectors were actually down on both a m/m and y/y basis. On the positive side, Business Activity (chart below) topped 60 for the first time since last May, and along with Import Orders is the only category that was higher on both a m/m and y/y basis.  To the downside, Backlog Orders and Inventories (lower two charts) have both steadily declined in recent months and are now at their lowest levels since 2012. Start a two-week free trial to Bespoke Institutional to access our full library of reports and interactive tools.

As Tesla’s (TSLA) meteoric rise has been in the spotlight this week, another US automaker is moving in the opposite direction.  Although it highlighted plans to attempt to breach into the electric vehicle market as the company’s future, Ford (F) reported a disappointing quarter after the close yesterday. Revenues came in at $39.7 bln which was handily above estimates of $36.5 bln, but also down 5% compared to the prior year.  Wholesale units sold for 2019 totaled just 5.386 million compared to 5.982 million in 2018 as market share fell from 6.3% to 6.0%.  Additionally, EPS missed estimates by 5 cents as the company continues to try to cut costs and reiterated plans to close six European plants. Perhaps the biggest disappointment in last night’s report was the guidance.  The company is now forecasting full-year 2020 adjusted EBIT of $5.6 bln to $6.6 bln compared to analyst estimates of $7.37 bln. Given these results, the stock gapped down over 8% this morning. This would bring the stock to its lowest level since the end of October and would be the largest gap down the stock has experienced in reaction to earnings since at least 2001 as shown in the snapshot of our Earnings Explorer below.

If it is any consolation, the fourth quarter has historically experienced the weakest stock price performance for Ford (F) in reaction to earnings. It is the only quarter’s report where the stock has averaged a gap down at the open, and in terms of full-day reactions, F has been higher only 28% of the time following its Q4 report.  As a result of today’s losses, Ford’s (F) already high dividend only lifted higher.  Ford shares now yield well above 7% compared to ~6.5% as of yesterday’s close. So, in addition to having the lowest share price in the index, F now also has one of the highest dividend yields in the S&P 500.  Start a two-week free trial to Bespoke Institutional to access our interactive Earnings Explorer, Chart Scanner, and much more.

In Monday’s Closer, we detailed the short squeeze in Tesla (TSLA) that has been playing out.  Back in May, when short interest as a percentage of float for TSLA topped out at 33.16%, it was the third most highly shorted stock in the Russell 1,000.  Today, you will not find Tesla in the top 10, 20, or even 30 of the most heavily shorted Russell 1,000 stocks.  In fact, after rallying well over 100% so far in 2020, it is the 37th most highly shorted stock with 17.55% of the float short.  Of the most heavily shorted stocks, TSLA by far is the largest with a market cap of $127.32 bn.

The table below lists the 40 stocks in the Russell 1000 with the highest short interest as a percentage of float.  Behind TSLA, the second-largest stock in terms of market cap of the stocks listed is Match Group (MTCH) which is less than a fifth the size of TSLA.  Currently, MTCH is also the only stock in the Russell 1000 with more than half of its shares shorted (60.14%).  That is after it was one of the top performers of the group last year, rising 95.79%.  Some other big winners in 2019 which are now being bet against the most are Beyond Meat (BYND) that rose over 200% since its IPO, Carvana (CVNA) which rose 187%, Ubiquiti (UI) which rose over 93%, and Caesars Entertainment (CZR) which is also up over 100%. On the other hand, big losers like Range Resources (RRC), Antero Midstream (AM) and 2U (TWOU) continue to be bet against amidst major declines in the past year, and they have not found any respite so far in 2020.

In terms of performance for most heavily shorted stocks so far this year, of the stocks listed below, the average YTD change is a gain of 1.3%.  However, if you take Tesla (TSLA) out fo the mix, the average performance shifts to a decline of 1.75% as 23 of the 40 stocks listed are down YTD.  Start a two-week free trial to Bespoke Institutional to access our full library of reports and interactive tools.