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)

Stamps.com (STMP) Gets Stamped Out

Since reaching an all-time high back on June 18th of this year, Stamps.com (STMP) has broken its uptrend and moved straight down.  As it currently stands, the stock is down 41.5% from its high.  STMP is another name that has seen fantastic growth the past few years, but after hitting highs earlier this year, it has given up all of its momentum.  The company has consistently reported strong quarters over the years with the last revenue or EPS miss happening back in Q2 of 2014.

So why has it gotten crushed despite seemingly solid earnings?  Traders seem to be focused more on a slowdown in margins and political risks that come with the company.  Over the past several quarters, despite strong headline numbers, gross margins have steadily slowed from higher cost of revenues.  So the headline earnings reports essentially are being taken with a grain of salt.

Being so closely connected with the United States Postal Service, the company announced contract re-negotiations back in August that stoked investor concerns.  Essentially, large parts of the business rely on USPS approval, and the results of negotiations determine some of the fixed costs and pricing of the company.  For 2019, the USPS has proposed price increases around 10%.  According to the company, these may not necessarily harm the company, but investors seem to disagree.  In addition, on the political front, the United States’s potential withdrawal from the Universal Postal Union, which is an agreement that coordinates postal policies internationally, would further complicate the business, although again, in its most recent earnings report the company does not see withdrawal as a headwind seeing as most of the company’s customers interact within the United States.  At the end of the day, STMP has seen tremendous growth over the past few years, but the innards of their earnings reports and political concerns have become a major headwind, not so much within the company, but in the market, and the market determines the price.

Economic Indicators This Week and Next — 11/16/18

This week was mixed for economic data with about half of indicators coming in positive and the other half negative. The major release early in the week was CPI data. The headline number came in line with expectations while Core CPI came in slightly lower YoY.  Hourly earnings continued to accelerate; more confirmation of a tight labor market.  Thursday was the busiest day of the week.  Retail sales came in with a healthy beat.  Also on Thursday, the first two of our five Fed manufacturing indices came in with Empire beating and Philly missing, but the internals were stronger.  Today, we got one more of the five with Kansas City Fed’s manufacturing index beating estimates.  Along with higher manufacturing production, we should expect a slight uptick in the ISM PMI for October, as we mentioned in Thursday’s Closer.

Next week will be a quiet one for economic data due to the Thanksgiving holiday.  The first half of the week is all housing with the only release on Monday being the NAHB’s Housing Market Index, but more housing data follows Tuesday and Wednesday with housing starts, permits, and mortgage applications.  Manufacturing data also releases Wednesday with transportation expected to drag down durable goods.  Nothing will release on Thursday on account of Thanksgiving, but we cap off Friday with preliminary manufacturing and services PMIs.

As always you can check in on our Economic Monitor to get updated on the day’s economic releases.

Nvidia Falls Off A Cliff

To say that Nvidia (NVDA) has had a rough fall would be an understatement. The severity of this recent downturn is striking on a longer-term chart (see below).  The stock has more than erased its YTD gains at this point, falling to its lowest levels since the summer/early fall of 2017.  Since peaking on October 1st, the stock has been closing in on eliminating half of its value.  After last night’s earnings report, which missed analyst expectations for revenues and lowered guidance, the stock has fallen another 17%+ as of the time of this writing.  This was the second quarter in a row in which the company lowered guidance; a rare occurrence considering guidance had been raised the prior 11 quarters.

The weak earnings report partially comes from an excess in inventories that the company reports could take some time to wind down.  Another factor playing into the decline in revenues as well as the build-up in inventories is the winding down of the boost from the cryptocurrency craze.  It has to be noted that everyone’s desire to be a Bitcoin billionaire was not what necessarily led to Nvidia’s growth; it was more supplementary in the past year.  That exponential growth had been in place for a few years prior.  In the case of NVDA, on the backs of a few years of explosive growth—and as a result, explosive growth in expectations—this decline may simply be that investors are re-evaluating if this candle will continue to burn twice as bright.

From the chart below, the stock’s multi-year uptrend is clearly broken.

Thanksgiving Market Returns

Thanksgiving week has historically been a positive time for the equity market.  Since WWII, the S&P 500 has averaged a gain of 0.64% during Thanksgiving week with gains three-quarters of the time.  Market trends heading into this Thanksgiving aren’t as positive for the bulls, though.  As shown in the table below, during years where the S&P 500 was positive but up less than 5% YTD heading into Thanksgiving week, the index’s average change during the week has been 0.00% with gains less than half of the time.

On a day to day basis, for both all years since WWII and in years where the S&P 500 was up less than 5% heading into Thanksgiving week, Monday has been the worst trading day as it is the only day of the week with negative average returns and positive returns less than half of the time.  Tuesdays and Friday, however, have been positive days, though, with average gains of 0.10% and 0.29%, respectively.  Additionally, for those years where the S&P 500 was up YTD but up less than 5%, Tuesdays and Fridays have been even stronger with average gains of 0.26% and 0.35%, respectively.

As we move past Thanksgiving, though, seasonal trends for the market based on this year’s performance so far improve.  In those years where the S&P 500 was up less than 5% YTD heading into Thanksgiving week, the average gains the week after Thanksgiving was 0.41% with positive returns 55% of the time.  For the remainder of the year, average returns were even stronger at +2.83%.  Not bad for a period of just over five weeks!

Morning Lineup – What Positive Reversal?

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.

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 — Positive Reversals, Earnings Season Ends, Five Fed Steady, EIA — 11/15/18

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 recap the end of earnings season and take a first look at our Five Fed Manufacturing Composite for November.  In the wake of what has been a crazy week in oil and gas, we finish tonight with weekly data from the EIA.

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

Individual Investors Showing Uncertainty

The weekly AAII survey released this morning showed the first downtick in bullish sentiment (41.28% down to 35.09%) in three weeks.  Given the weakness in the broader equity market, the move lower in bullish sentiment is completely understandable.

As equity prices have fallen over the past week, bearish sentiment rose to 35.96%.  This week’s bearish reading is right around what we saw for most of October, so much like bullish sentiment, it is right within it recent range.

Neutral sentiment moved only slightly higher this week, as shown in the chart below.

Jobless Claims Steady

This week’s report on jobless claims was slightly higher than expected coming in at a level of 216K versus estimates for 214K, but what has been pretty remarkable is how consistent claims have been over the last four weeks.  On 10/19, claims came in at 216K, the next week they were 215K, the week after they fell another 1K to 214K, and now this week they are back at 216K.  It’s also important to keep in mind that even though claims were higher than expected, they remain low on a historical basis with a record 193 straight weeks at or below 300K, 58 straight weeks at or below 250K, and 19 straight weeks at or below 225K.

With claims barely budging over the last month, the four-week moving average came in right at 215.25K, which is 9.25K above the cycle low of 206K we saw back in mid-September.

On a non-seasonally adjusted (NSA) basis, jobless claims came in at 230.6K.  While this is more than 120K below the average of 353.4K for the current week of the year dating back to 2000, in this same week two years ago, claims were actually lower.

Trend Analyzer -11/15/18 – Trends Take a Turn

Following further declines yesterday, every major US Index ETF in our Trend Analyzer tool is once again oversold.  The Micro-Cap ETF (IWC) and the Nasdaq (QQQ) have led the way down over the past week, falling 5.67% and 5.91%, respectively.  Ironically, looking at YTD returns, the similarities vanish.  IWC is now down the most YTD at 3.51% versus QQQ which is the leader YTD up 6.66%.  Regardless, this is still way off of the Nasdaq’s double-digit YTD returns earlier this fall.

In other words, it is harder to keep an optimistic outlook for longer-term trends anymore and this is reflected in the Bespoke Trend scores section of the tool.  Currently, only the Dow (DIA) has managed to keep an uptrend through all of the market turmoil.  Every other name has left uptrends and is now trending sideways; with IWC and the Russell 2000 (IWM) actually in downtrends.

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