Morning Lineup – Nearing Extremes
Futures are still indicating a positive open, but the degree of gains has been shrinking all morning ahead of a heavy dose of economic data. Trade tensions are once again in the headlines, and today’s economic data is unlikely to move things much in either direction as there were no major surprises. The revision to GDP was slightly stronger than expected, Core PCE and the GDP Price Index were weaker than expected, Jobless Claims were pretty much right in line, and Wholesale Inventories rose more than expected.
Make sure to check out today’s Morning Lineup for our analysis of the stealth rally we have seen in EM over the last few days along with our contrarian take on how the relevance of these non-stop trade headlines may be reaching a peak.
Even with the S&P 500 closing off its intraday lows yesterday, the market is approaching some levels that can be considered extreme in the short-run. For starters, the S&P 500 finished the day yesterday 1.998 standard deviations below its 50-DMA. For the sake of reference, we consider anything more than one standard deviation below the 50-DMA oversold, while two standard deviations is considered an extreme. We did see more extreme oversold levels last year in Q4 but that was a hardly the run of the mill decline.
In terms of the S&P 500’s individual components, the number of oversold stocks is starting to pile up. As of yesterday’s close, 10.4% of the stocks in the index were overbought (more than one standard deviation above their 50-DMA) while just under half (49.2%) were oversold. At a net reading of -38.8%, there haven’t been this many oversold stocks in the S&P 500 since January 3rd when over 70% of the stocks in the S&P 500 were oversold.
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S&P 500 Trading Range Chart and Sector Internals
Below is an updated look at the S&P 500’s trading range chart over the last year. After just barely making a new 52-week high in April, it has been all downhill since, with the index currently trading in extreme oversold territory at two standard deviations below its 50-day moving average. Yesterday’s declines caused more technical damage when the index broke below its lows from a few weeks ago. Right now the bears have control and the onus is on the bulls to break the short-term downtrend that’s in place.
The defensive areas of the market like Consumer Staples and Utilities had been holding up well up until this week, but even these non-cyclicals have started to experience significant selling. The declines for defensives have left every single S&P 500 sector with less than 50% of its stocks above their 50-day moving averages. As shown below, just 28% of S&P 500 stocks and 3% of those in the Energy sector are above their 50-DMAs. The largest sector of the market — Technology — currently has a very weak reading of just 25% as well. Start a two-week free trial to one of Bespoke’s three premium membership levels.
The Closer – Bearish Backdrop Building – 5/29/19
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, beginning on a bearish note, we show the loose head and shoulders forming on the S&P 500 as the SPY also went below the 200-DMA intraday. We then show another technical pattern with similarities to the ends of the last two bull markets. One final bearish note, we make is corporate credit spreads signaling lower equity prices. Next, we turn to the Goldman Sachs financial conditions index which is beginning to mirror Fed policy. We finish with a complete look at the Five Fed manufacturing composite and ICI Fund Flows.
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Dow Stocks Breaking Uptrends
May has not been the kindest of months for equities as the Dow now sits -4.68% lower MTD. Several of the big blue chips had been in strong uptrends all year headed into May, but have since rolled over. For some, the breakdowns are more individual stories such as Boeing’s (BA) 737 Max headaches or DowDuPont’s (DWDP) recent weak quarter following multiple spinoffs, but they are also a factor of broader trends of concerns around global trade and growth. For example, Caterpillar (CAT) which has acted as a bellwether for global trade given its high exposure to China has been hit particularly hard as tensions have ramped back up. May declines have broken CAT’s uptrend in addition to having sent it below its moving averages. Its peers are seeing the same patterns with broken uptrends from the likes of Apple (AAPL), Cisco (CSCO), Intel (INTC), 3M (MMM), and Exxon Mobil (XOM). In the case of DWDP and MMM, this month’s sharp declines have brought them around 52-week lows. Other Dow stocks like McDonalds (MCD) and Procter and Gamble (PG) have held up far better and are still pretty much in their uptrends, but in the past few sessions they’ve begun to test their uptrend lines and 50-DMAs as well. Start a two-week free trial to Bespoke Institutional to access our Chart Scanner tool and much more.
Triple Plays Not Holding Gains
With earnings season now in the rear view, the pace of quarterly reports has slowed considerably. Tomorrow will actually be the busiest day of the next month with just 28 reports. Given that not many companies are reporting, we have also only seen four triple plays in the past couple of weeks since earnings season ended on May 16th. An earnings triple play is when a company beats EPS estimates, beats revenue estimates while also raising guidance; we keep track of the 100 most recent triple plays on our website for subscribers, and we publish a number of premium reports throughout the quarter focusing on these earnings winners. Start a two-week free trial to Bespoke Institutional to access our Earnings Explorer, Triple Plays, Chart Scanner and much more.
Since the end of earnings season, Medtronic (MDT), Splunk (SPLK), Hibbett Sports (HIBB), and Anaplan (PLAN) have all reported earnings triple plays. Despite some nice gaps higher on their earnings day, most gains have not been able to hold. MDT and SPLK reported last Thursday and saw two very different responses. In what was MDT’s second straight triple play, the stock rose 3.24%. SPLK on the other hand—also no stranger to triple plays with this most recent report being its 19th in its last 29 reports—fell 7.33% in response. That is somewhat unusual but not totally unheard of as the stock has risen on average 4.43% and has fallen 36.8% of the time when it reports a triple play. Since these reports though, MDT has stopped short at resistance near $93.50 at February/March highs. Meanwhile, SPLK has continued to fall, and despite a bit of a bounce yesterday, is right around support at the $120 level.
Hibbett Sports (HIBB), which reported on Friday, saw a huge positive response to earnings rallying over 20%. This was the company’s second straight triple play. Given this massive run-up, the stock has come back down to Earth right around 2019 highs from before earnings. As of this writing, the stock has fallen over 4.5% further in today’s trading; filling some of its gap up. Finally, Anaplan (PLAN) reported before the opening bell yesterday and also saw a large gap higher with more buying throughout the day leading the stock to finish the day up 18.22%. Like HIBB, PLAN is down today over 6% and is filling some of this gap higher.
Fixed Income Weekly – 5/29/19
Searching for ways to better understand the fixed income space or looking for actionable ideals in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit every Wednesday. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1 year return profiles for a cross section of the fixed income world.
In this week’s report we review the degree to which changes in yields predict recession and how much yield curves are currently pricing in recession.
Our Fixed Income Weekly helps investors stay on top of fixed income markets and gain new perspective on the developments in interest rates. You can sign up for a Bespoke research trial below to see this week’s report and everything else Bespoke publishes free for the next two weeks!
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Chart of the Day – Rebalancing?
If there was ever a time to “sell in May,” it was this year. Heading into today, the S&P 500 was already down over 4% on the month with three trading days left to go, and with today’s early weakness, we’re now on pace for a 5% decline for the month. Treasuries, meanwhile, have been surging. According to the BofA/Merrill Lynch index of long-term notes (10+ year maturities), US Treasuries were up over 4% MTD heading into the last three trading days of the month. While a 4% monthly decline for equities isn’t that rare (40 prior occurrences since 1990), when it’s accompanied by a rally in US Treasuries of the magnitude we have seen this month, it’s a lot less common. Since 1990, there have only been ten other months where the S&P 500 was down more than 4% heading into the final three trading days of the month while at the same time long-term US Treasuries were up over 4%.
In the table below, we have highlighted each of those ten prior periods along with how the S&P 500 has performed over the final three trading days of the month. The results are quite dramatic, suggesting we could be in store for a big move to close out the month of May.
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Global Equity Markets Oversold
As shown in our Trend Analyzer snapshot below of regional equity ETFs, all but two are trading in oversold territory, and all are solidly below their 50-day moving averages. But while US index ETFs have gotten more oversold over the last week (as indicated by the long tails to the right of each dot), we’ve actually seen some of the most oversold regional ETFs move higher within their trading ranges over the last week. The three emerging markets ETFs — IEMG, EEM, VWO — along with the MSCI All Country Asia ex Japan (AAXJ) were much more oversold last week at this time than they are now. At least it’s a start! Start a 2-week free trial to Bespoke Institutional for full access to our research and interactive tools.
US Equity Indices Now Solidly Oversold
As shown in our Trend Analyzer snapshot below, all six of the most closely watched US equity index ETFs are now trading in oversold territory. The dot in the “trading range” section of the snapshot shows where each ETF is currently trading within its range relative to its 50-day moving average. A move into the green shading of the chart represents oversold territory, which is more than one standard deviation below the ETF’s 50-day moving average. The dark green shading represents extreme oversold territory, which is between two and three standard deviations below the 50-DMA. The Russell 2,000 (IWM) small-cap ETF is the most oversold, while the remaining five are all in roughly the same position just above extreme territory.
Our Chart Scanner tool allows you to dive deeper into each ETF after getting an overhead view with our Trend Analyzer. The blue line in each chart represents each ETF’s 50-day moving average, while the purple line represents its 200-day moving average. You can also customize your settings to change the display of the moving averages and their colors. The Russell 2,000 (IWM) is at this point the only one that has traded below its 200-DMA, but the Dow (DIA) is the next closest to testing this key long-term support level. All of the six have rolled over from recent highs and have damaged whatever uptrends were in place. The negative technical set-up will continue until the 50-DMAs are re-taken once again. Start a 2-week free trial to Bespoke Institutional for full access to our research and interactive tools.
Morning Lineup – China on the Offensive
US futures have been weakening all morning continuing a trend that has for the most part been in place all night. Besides the usual back and forth rhetoric between the US and China over trade (this time China threatening to limit exports of rare earth metals to the US), weak data out of Europe, falling Treasury yields, and cratering oil prices aren’t helping sentiment as we head into the opening bell.
Make sure to check out today’s Morning Lineup for a recap of overnight earnings news, weak confidence data out of South Korea, the surge in German jobless claims, and other market-moving economic data out of Europe.
Yesterday marked the first time this year that the S&P 500 was up over 0.5% at some point intraday and then sold off to finish the day down by over 0.75%. This is notable for two reasons. First, it just goes to show how strong the equity market has been so far this year. For nearly the first five full months of the year intraday sell-offs of any discernible magnitude had been nearly non-existent during normal trading hours. Just as important, it suggests that the corrective phase the market has been in since early 2018 remains alive and well.
The chart below shows the S&P 500’s performance over the last five years and in it we have included red dots to show every day during this period that the S&P 500 was up 0.5% at some point intraday only to give it all back and more, finishing the day down at least 0.75%. All of the days fitting these criteria have been clustered into two periods. Of the now 19 occurrences since the start of 2014, the first ten were all clustered around a 15 month period spanning December 2014 through February 2016. Then from March 2016 right up through the last day of February 2018 there wasn’t a single occurrence. Since that drought ended, though, we’ve now seen nine occurrences over a similar 15-month span.
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