Morning Lineup – Rush For the Exits

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.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.

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The Closer — Net New Lows, EM Outperforms, Credit Availability — 11/19/18

Log-in here if you’re a member with access to the Closer.

Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we review breadth in terms of net new 52 week highs and lows, rising implied correlations between the stocks in the S&P 500 index, accelerating relative performance of emerging markets, falling 10 year yields, and two large Federal Reserve quarterly data updates from last week.

See today’s post-market Closer and everything else Bespoke publishes by starting a 14-day free trial to Bespoke Institutional today!

Square (SQ) Finally Meets Its 200-DMA

The payment and point-of-sale solutions company loved by small businesses, Square (SQ), did something today that it has not done in over two years and only done once before in the stock’s history: it closed below its 200-day moving average. Three years to the date of its IPO, SQ fell 10.74% today to drop to $62.97.  Today’s decline has brought the stock 37.8% off of its high from October 1st of this year.  This drop has also brought it well below support in the mid $60’s from the final days of October.  It is safe to say that Square’s fantastic uptrend since its IPO has finally been broken.

Earnings and Holidays May Not Help Retail

In recent weeks, discount retail stores of the likes of TJX Companies (TJX), Burlington Stores (BURL), Kohl’s Corp. (KSS), and Target (TGT) have gotten crushed. Today alone, Target (TGT) fell 2.4%, BURL fell 3.2%, and TJX fell almost 5%. Earlier in the month, these retailers had reached or came close to 52-week highs only to fall in dramatic fashion; some, like TJX, into correction territory (down +10% from highs). These companies are major retail chains focused on discount clothing and home furnishings, so headed into the holiday season, you may expect better performance of these names. But historically, it is a coin flip. They only see positive returns around half the time from now through the rest of the year. Kohl’s (KSS) is the most frequently positive merely at 53.85%; conversely, TGT underperforms the most as it is positive only 41.67%. Again, it is a coin flip so it is hard to say that the holidays necessarily help the stocks. As you can see in the charts below from our Chart Scanner tool, even from a technical standpoint, the picture is not great with these names having fallen through recent support levels.

Like many things in the markets recently, finding a reason for the drop is hard to do. Looking to another major retailer, last week we saw Nordstrom (JWN) drop big on a weak earnings report, but the recent declines in these discount names cannot be blamed on poor earnings—they have yet to report.  Over the course of the next few days, these names’ Q3 reports will begin to roll in. These names typically see worse performance in reaction to their Q3 earnings compared to other periods. In total, these retailers are positive around half the time in the day following earnings, but in response to Q3 earnings, with the exception of BURL, this group is less frequently positive. BURL looks the best rising on average 6.21% for the full day after earnings. The next best is a long way down with Kohl’s (KSS) only rising an average 0.5%. TJX and ROST, on the other hand, typically experience losses.

Bespoke’s S&P 500 Sector Weightings Report — November 2018

S&P 500 sector weightings are important to monitor.  Over the years when weightings have gotten extremely lopsided for one or two sectors, it hasn’t ended well.  Below is a table showing S&P 500 sector weightings from the mid-1990s through 2016.  In the early 1990s before the Dot Com bubble, the US economy was much more evenly weighted between manufacturing sectors and service sectors.  Sector weightings were bunched together between 6% and 14% across the board.  In 1990, Tech was tied for the smallest sector of the market at 6.3%, while Industrials was the largest at 14.7%.  The spread between the largest and smallest sectors back then was just over 8 percentage points.

The Dot Com bubble completely blew up the balanced economy, and looking back you can clearly see how lopsided things had become.  Once the Tech bubble burst, it was the Financial sector that began its charge towards dominance.  The Financial sector’s sole purpose is to service the economy, so in our view you never want to see the Financial sector make up the largest portion of the economy.  That was the case from 2002 to 2007, though, and we all know how that ended.

Unfortunately we’ve begun to see sector weightings get extremely out of whack once again.

If you would like to see the most up-to-date numbers for S&P 500 sector weightings, simply start a two-week free trial to our Bespoke Premium or Bespoke Institutional services.  Click back to this post to see the numbers once you’re signed up!

Best Stock Market Returns for a US President Since…Obama

It may sound hard to believe, but for all the talk about how well the stock market has done under President Trump, the Dow Jones Industrial Average (DJIA) is actually up less (25.69%) since he took office than it was under President Obama (40.94%) at the same point in his Presidency!  The chart below shows the DJIA’s historical returns during each US President’s first 668 calendar days in office going back to 1900.  With a gain of 25.7%, the DJIA’s performance during President Trump’s first 668 calendar days in office is still well above the historical average for all US Presidents (15.59% – see table below) and even better when you compare it to just Republican Presidents (11.09%).

Looking at just the market’s performance since each President took office, however, may be considered a bit misleading given the fact that the market also tends to react swiftly once a President is elected.  Based on this measure, even after the recent pullback in stock prices, the DJIA’s returns since President Trump was elected until now (741 days) are still the best since Eisenhower and more than twice the returns of Obama at the same point following his election in 2008.

In the table below, we have listed the DJIA’s returns for each US President since 1900 in both their first 668 days in office as well as the first 741 days after they were elected or assumed office.  In the case of Presidents who weren’t elected, we used the date they first assumed office as the starting point for each period.  Obviously, no method of measuring stock market returns is perfect and a lot of the rankings often are impacted by the political bias of the person reporting them.  In terms of the charts above, Republicans will likely dismiss the first and focus on the second, while Democrats will do the opposite.  As an investor, you should pay little attention.  The basic takeaway here is that big moves over a short period of time can have a big impact on how the stock market supposedly views a President.

Trend Analyzer – 11/19/18 – Flat

This morning, our Trend Analyzer is more or less unchanged from this time last week.  With the exception of the Nasdaq (QQQ), every major US Index ETF is in the same section of its trading range as five days ago.  Along with QQQ, the Micro-cap ETF (IWC) is currently oversold while all others are unchanged at neutral.  The Dow (DIA) has seen the largest downward movement within its trading range recently.  It had been the only name above its 50-DMA, but with losses for a solid portion of last week, it has fallen closer to oversold.  Despite this, unlike its peers, the ETF has still held onto its uptrend.

Morning Lineup – Quiet Start to a Quiet Week

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.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.

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Bespoke Brunch Reads: 11/18/18

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.

While you’re here, try a two-week free trial to Bespoke’s premium stock market research!  You’ll be able to read our important “Equity Market Pros and Cons” report that was just published.

Here are our week 11 NFL picks vs. the spread.  We’re 77-55 (58.33%) so far this season through 10 weeks.

Social Media

Facebook Morale Takes a Tumble Along With Stock Price by Deepa Seetharaman (WSJ)

As Facebook continues to digest swirling drama around content moderation, lobbying, and other scandals, the stock price continues to lose ground and that’s having a brutal impact on employee morale. [Link; paywall]

Burned to death because of a rumour on WhatsApp by Marcos Martínez (BBC)

The horrifying story of small town rumor mills turbo-charged by instant messages which resulted in the assault and murder of two entirely innocent men in Mexico. [Link]

Sports

NBA Stars Make It Easier for You to Watch Them Play Esports by Christopher Palmeri (Bloomberg)

Fans are starting to watch NBA players play their favorite video games, and a variety of different services are lining up to help facilitate more fan-player interaction. [Link; soft paywall]

No One Has Ever Crossed Antarctica Unsupported. Two Men Are Trying Right Now. by Adam Skolnick (NYT)

Two years ago, a man lost his life trying to cross the entire continent of Antarctica on foot, but that isn’t deterring two men from attempting the near-impossible. [Link; soft paywall]

Health

The Effects of Cognitive Behavioral Therapy as an Anti-Depressive Treatment is Falling: A Meta-Analysis by Tom J. Johnsen and Oddgeir Friborg (Psychological Bulletin)

Using data from 70 different studies between 1977 and 2014, the authors reach the conclusion that cognitive behavioral therapy (talk therapy) is becoming much less effective (or perhaps wasn’t that effective to begin with). [Link; 23 page PDF]

The Flu Shot Needs Fewer Stats And More Stories by Maryn McKenna (Wired)

Last flu season, almost 80,000 people died at the hands of the flu after only 37% of adults got the flu vaccine, despite efficacy and safety that could prevent thousands of deaths. [Link; soft paywall]

Food

I Found the Best Burger Place in America. And Then I Killed It. by Kevin Alexander (Thrillist)

The darker side of those lists you read – and decide where to eat based on – which had the horrible side effect of ruining the restaurant. A cautionary tale about which kinds of customers a business should focus on. [Link]

Welcome to the Golden Age of Grocery Shopping by Clint Rainey (Grub Street)

While the grocery business has been challenged in terms of margins, the benefits have been huge for consumers in terms of choices and prices. [Link]

Weird News

Face off: Realistic masks made in Japan find demand from tech, car companies by Kwiyeon Ha (Reuters)

One small Japanese company is cashing in on the market for highly realistic face masks, which have a surprising number of uses! [Link]

Raccoons drunk on crab apples cause false rabies scare in West Virginia by Cleve R. Woodson Jr. (BHMG News/WaPo)

The denizens of Milton, West Virginia were concerned that they were being terrorized by raccoons “behaving weirdly”; thankfully, rotting crab apples were the true source of the odd behavior. [Link]

History

The Economics of the Great War: A Centennial Perspective by Stephen Broadberry and Mark Harrison (VOXEU)

A sweeping overview of the historical causes, conduct, and consequences of the First World War; this week marked the 100th anniversary of Armistice Day. [Link]

Work Life

Cornering Your Boss, Snapping Pictures at Your Desk: It’s Take Your Parents to Work Day by Te-Ping Chen (WSJ)

In an aging society it shouldn’t really surprise us that office visits from parents rather than children are becoming a thing, but that doesn’t make it any less weird. [Link; paywall]

Mitch McConnell Guarantees Industrial Hemp Legalization by Kyle Jaeger (Marijuana Moment)

While federal decriminalization of marijuana probably isn’t happening soon, industrial hemp legalization is another story as the Senate Majority Leader has cleared the way for approval in the next farm bill. [Link]

Convenience, Consternation

The War Inside 7-Eleven by Lauren Etter and Michael Smith (Bloomberg)

Combining corporate power, federal law enforcement, and immigration law, this story is an incredible insight into the stand-off between 7-Eleven and its franchisees with significant collateral damage. [Link; soft paywall]

Hollywood

At Netflix, Who Wins When It’s Hollywood vs. the Algorithm? by Shalini Ramachandran and Joe Flint

In the race for viewer engagement, Netflix is often torn between what data tells it and the expertise it has hired to manage talent and produce content the old fashioned way. [Link; paywall]

Read Bespoke’s most actionable market research by starting a two-week free trial today!  Get started here.

Have a great Sunday!

2018 Week 11

Week 10 Results: 9-3, Overall: 77-55 (58.33%)

Outside of financial markets, we’re also sports fans here at Bespoke.  With new legal sports betting avenues now available across the US, we figured we’d have some fun and pick each NFL game versus the spread this season (as of Saturday evening).  Let’s see how we do…on to Week 11.  (Lines as of 10:05 PM ET on 11/17/18.)

We were 9-3 in week 10, bringing our overall record through 10 weeks to 77-55 (58.33%).

2018 NFL Week 11 Bespoke Picks:

Carolina (-4.5) at Detroit: Detroit +4.5

Dallas at Atlanta (-3): Dallas +3

Cincinnati at Baltimore (-5.5): Cincinnati +5.5

Minnesota at Chicago (-2.5): Minnesota +2.5

Philadelphia at New Orleans (-7.5): Philadelphia +7.5

Tennessee at Indianapolis (-1.5): Indianapolis -1.5

Houston (-3) at Washington: Washington +3

Tampa Bay at NY Giants (-2.5): NY Giants -2.5

Denver at LA Chargers (-7): LA Chargers -7

Oakland at Arizona (-5.5): Oakland +5.5

Pittsburgh (-5.5) at Jacksonville: Pittsburgh -5.5

Kansas City at LA Rams (-3.5): Kansas City +3.5

2018 NFL Week 10 Bespoke Results:

Buffalo at NY Jets (-7): Buffalo +7 (Win)

Atlanta (-6) at Cleveland: Cleveland +6 (Win)

New Orleans (-5.5) at Cincinnati: Cincinnati +5.5 (Loss)

Washington at Tampa Bay (-3): Washington +3 (Win)

New England (-6.5) at Tennessee: New England -6.5 (Loss)

Miami at Green Bay (-10): Green Bay -10 (Win)

Jacksonville at Indianapolis (-3): Jacksonville +3 (Push)

Detroit at Chicago (-7): Detroit +7 (Loss)

Arizona at Kansas City (-16): Arizona +16 (Win)

LA Chargers (-10) at Oakland: LA Chargers -10 (Win)

Seattle at LA Rams (-9.5): Seattle +9.5 (Win)

Dallas at Philadelphia (-7): Dallas +7 (Win)

NY Giants at San Francisco (-3): NY Giants +3 (Win)

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