Daily Sector Snapshot — 5/21/24
Crypto Rises and Shorts Shatter
As we first noted in today’s Morning Lineup, while equities are having a snoozer of a session, crypto prices are rallying. Although it has come off the high, the price of Bitcoin was above $70,000 this morning for the first time in over a month. Meanwhile, Ethereum prices are up double-digit percentage points (11% as of this writing) on renewed ETF optimism. As shown below, using the Grayscale Bitcoin Trust (GBTC) as a proxy, Bitcoin prices are currently trading at the high end of this year’s range.
Typically, it goes without being said that crypto prices are highly volatile given the asset is at one of the more extreme ends of the risk spectrum. In a similar boat are the most heavily shorted stocks. Those “meme stocks” were also recently in the spotlight as they saw a temporary resurgence last week. In the chart below, we show the relative strength line of GBTC versus an index of the 100 most heavily shorted Russell 3,000 members over the past year. For the most part, GBTC has outperformed the most heavily shorted stocks. However, beginning in mid-March that relationship swapped to those highly shorted names beginning to outperform Bitcoin. That hit a pinnacle one week ago as stocks like GameStop (GME) began giving up the ghost, and since then that relative strength line is back to favoring GBTC.
Although last week had reminiscences of the 2021 meme stock mania, one interesting difference was the relationship with crypto prices and those short squeeze names. Using the same groups as above, below we show the rolling 50-day correlation between GBTC and the most heavily shorted stocks.
As shown, for most of the past several years, Bitcoin has tended to have a decent positive correlation with price action in the most heavily shorted stocks. In other words, crypto prices and heavily shorted stocks generally moved in the same direction on a given day. That positive correlation has been present recently although it got a dent on the meme stock surge. Again, that hit to the correlation has been merely a dent as it stands in stark contrast to January 2021 (or even various other points of the past year) when the two had historically uncorrelated moves.
Bespoke Stock Scores — 5/21/24
Chart of the Day – 5/21/24 – Metals Rolling
Bespoke’s Morning Lineup – 5/21/24 – Crypto Flying
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“The most difficult thing is the decision to act, the rest is merely tenacity.” – Amelia Earhart
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s another quiet morning in terms of economic data this morning with no scheduled reports on the calendar, but a few earnings reports are driving the direction of futures, including reports from Lowe’s (LOW), Macy’s (M), and Palo Alto Networks (PANW). Overnight and this morning, the general tone of equities in Asia and Europe has been to the downside, and oil and gold are trading lower as well. The only real asset class that is moving notably higher is crypto where Bitcoin and Ethereum are both sharply higher. Equity futures are essentially flat, although slightly higher.
While there are no economic reports on the calendar, there’s a ton of Fed speak to contend with this morning, so keep on your toes in terms of any potential tape bombs throughout the morning.
The S&P 500 closed just two cents shy of its closing 52-week high from last week yesterday, but Communications Services and Technology managed to close at their respective highs. As shown in the chart below, the only other sectors that have traded at 52-week highs in the last week were Financials, Consumer Staples, and Utilities. Meanwhile, more than half of the S&P 500’s sectors haven’t traded at a 52-week high in at least a month, and for two sectors – Consumer Discretionary and Real Estate – their respective closing 52-week highs were more than two months ago.
Most sectors may have gone more than a month without a 52-week high, but that doesn’t mean they aren’t knocking on the door. As shown below, Real Estate is the only sector that’s more than 5% from a 52-week high, and only two other sectors (Energy and Consumer Discretionary) are more than 1.5% from a 52-week high. In other words, it won’t take much to put most sectors over the hump.
Below we show the charts for the six sector ETFs whose 52-week highs were at least a month ago. Here again, these charts illustrate just how close most sectors are to 52-week highs with the only exceptions being Energy (XLE), Real Estate (XLRE), and Consumer Discretionary (XLY).
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
The Closer – Tech New Highs, Fedspeak, Build Conference – 5/20/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with a look at the new highs in Tech (page 1) followed by a rundown of the latest Fedspeak and international central bank action (page 2). We then take a look at performance of Microsoft (MSFT) and its industry group around the company’s Build Conference (page 3). After previewing this week’s Treasury auctions (page 4), we recap the latest positioning data (page 5 – 8).
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Daily Sector Snapshot — 5/20/24
The Triple Play Report — 5/20/24
An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance. You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term. We like triple plays as an indication that a company’s business is firing on all cylinders, with better-than-expected results and an improving outlook. A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.
Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts. Bespoke’s Triple Play Report is available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 24 new stocks. To sign up, choose either the monthly or annual checkout link below:
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Primoris (PRIM) is an example of a company that reported an earnings triple play recently. PRIM provides specialty contracting services, typically working on projects involving pipelines, facilities, power plants, water and wastewater systems, highway and bridge construction, and industrial maintenance. PRIM shares are up 57% YTD as shown in the steadily uptrending chart below.
Looking at the snapshot below from our Earnings Explorer, PRIM has been strong against EPS and revenue estimates over the last two years Before that, PRIM had struggled to meet revenue expectations due largely to weakness in its Pipeline segment. In reaction to this quarter’s triple play, PRIM was up 5% on 5/9.
As PRIM has since returned to YoY revenue growth, the increase has been driven by its Energy segment which sees scaling of solar and industrial construction. More specifically, PRIM highlighted grid modernization and demand for electrification as big reasons for optimism going forward as more companies bring AI to the forefront of their operations and begin to realize just how much power that will require. Despite lots of discussion around utilities lately, PRIM saw some of its strength offset by lower Utilities segment activity as seasonal delays and unfavorable weather conditions impacted revenue results. You can read more about PRIM and the 23 other triple plays in our newest report by starting a Bespoke Institutional trial today.
Bespoke Investment Group, LLC believes all information contained in these reports to be accurate, but we do not guarantee its accuracy. None of the information in these reports or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.
Chart of the Day: Rolling Back Towards 2%?
Extreme Nasdaq Extremes
The VIX may be trading at 52-week lows lately, but the Nasdaq has been nothing short of volatile. Less than a month ago, we all recall when the Nasdaq traded down at ‘extreme’ oversold levels (2+ standard deviations below 50-DMA), trading down over 5% from its prior 52-week high. As swift as the April sell-off was, the rebound was just as rapid, and just last Wednesday, the Nasdaq was back at new highs and at ‘extreme’ overbought levels (2+ standard deviations above 50-DMA). While it took 17 trading days to move from extreme oversold to extreme overbought for the Nasdaq, late last year, the shift was even more rapid when it took just 16 trading days!
Based on recent action, you’d think that these types of rapid shifts between extreme oversold and overbought levels were common, but the last year has been more of an exception than a rule. Since the Nasdaq’s inception in 1971, the current period is just the 15th time it shifted from extreme oversold to extreme overbought levels in 20 trading days or less. In the table below we list each of those prior periods along with the Nasdaq’s performance over the following one, three, six, and twelve months.
Are these types of rapid shifts a good or bad sign for the market? The last occurrence was certainly positive as the Nasdaq rallied more than 12% over the following three months and just under 19% in six months. More broadly, though, forward returns were essentially in line with the index’s average returns for all periods since 1971, especially over the following six and twelve months. Nothing extreme about that!
