The Closer — Bentonville Boom — 2/19/19

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, with Walmart’s strong Q4 report helping to alleviate some concerns over the US consumer, we take a look at what this means for the stock going forward as well as the economic implications.  Turing to economic data, we evaluate the strength in Homebuilder Sentiment as seen through the National Association of Homebuilders’ index released this morning.  After reviewing more soft data from the NY Fed’s Business Leader’s survey, we look at how various breadth levels have continued to support strong price action.  We end tonight with a note on the compression of the US dollar’s trading range and the potential for a big breakout in the buck.

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

30 Stocks Furthest Above and Below 50-DMAs

As the S&P 500 continues to rally off of its Christmas Eve low, many stocks have extended well past their 50-day moving averages.  Below is a list of the 30 S&P 500 stocks that are trading the furthest above their 50-DMAs.  At the top of the list is Coty (COTY) which currently sits 44.18% above its 50-DMA.  Before reporting earnings on February 8th, the stock actually sat just below its moving average, but a strong report rocketed the stock well above its 50 and 200-day.  While no other stocks are quite as overextended as COTY, there are currently nine that sit more than 20% above their 50-DMAs.  Many of these saw a strong Q4 earnings report, like Xilinx (XLNX) which reported a triple play and gapped up 9.55% in reaction to the news.  Other notables on the list of most extended stocks include Chipotle (CMG), Electronic Arts (EA), Advanced Micro (AMD), Boeing (BA), Netflix (NFLX), and General Electric (GE).

While these stocks have performed unbelievably lately, they are now reaching extremely overbought levels as shown through our popular Trend Analyzer tool.  A couple like COTY and ANET have extended so far above their 50-DMAs that they are basically off the chart.  As a result of these readings, many of these stocks have poor timing ratings as they are increasingly overdue for some downside mean reversion.

At the other end of the spectrum, below we show the 30 S&P 500 stocks that are furthest below their 50-DMAs.  Newell Brands (NWL) is the leader of the group at 16.31% below.   NWL plummeted over 9% on Friday after lowering guidance, whereas before reporting it comfortably sat above its 50-DMA.  It has continued to decline today.  The next stock that is far below its 50-DMA is Take-Two Interactive (TTWO) which also saw a sour response to earnings a couple weeks ago.  This stock is another that actually sat above its 50-DMA before its earnings report was released.  A similar name, Activision Blizzard (ATVI), joins TTWO on this list despite their peer EA being one of the most elevated stocks.

Note that there is just one stock in the S&P 500 that is more than 10% below its 50-day, while there are 30+ that are more than 15% above their 50-days!

B.I.G. Tips – Top Earnings Triple Plays

Here at Bespoke, our job is to identify winners and losers, and one of the ways we try to find earnings-season winners is through our list of “triple plays.”

Long-term Bespoke subscribers know how much we like triple plays, but for those that haven’t heard of the term, we came up with it back in the mid-2000s for companies that beat analyst EPS estimatesbeat analyst revenue estimates and also raise guidance.  Investopedia.com is one of the best online resources for financial markets education, and they’ve given us credit for coining the “triple play” term on their website.  We consider triple play stocks to be the cream of the crop of earnings season, and we are constantly finding new long-term buy opportunities from this basket of names each quarter.

This earnings season (Q4 2018) there were just 54 triple plays.  In the Q4 2017 reporting period a year ago, there were more than 130.  Throughout earnings season, Bespoke Premium and Institutional members have access to our Earnings Triple Plays page, which keeps a running tally of the 100 most recent triple plays.  We also publish our Top Triple Plays Report, which filters the list of most recent triple plays down to the ones with the most attractive chart patterns.  We’ve just published our newest Top Triple Plays Report featuring 10 stocks with chart patterns that we like.  Learn how to see the stocks below!

See our Top Earnings Season Triple Plays by signing up for a Bespoke Interactive membership now.  Click this link for a 60-day free trial!

Some Good News on Housing For a Change

We’ve all grown pretty accustomed to weaker than expected housing data over the last several months, but this morning we got some positive news as homebuilder sentiment not only improved in February but also came in higher than expected. According to the NAHB, homebuilder sentiment improved from 58 up to 62 and was three points ahead of consensus expectations.  For some perspective, the last time homebuilder sentiment saw a m/m increase of four points was in December 2017.

The table below breaks down this month’s report by present and future sales (both increased), traffic (increased), as well as regional sentiment (mixed).  Future Sales sentiment saw the largest increase this month, followed by Traffic and Present Sales. On a regional basis, both the Midwest and South saw strong gains, while the West and Northeast saw declines.

While this month’s improvement is welcome, looking at the steep drops we saw over the course of 2018, the general downtrend in sentiment remains intact.  In order to indicate a meaningful change in sentiment on the part of homebuilders, it’s going to take a couple of more months of similar reports.

This Week’s Economic Indicators – 2/19/19

Last week was a fairly busy one for economic data with 30 releases scattered throughout the week.  The majority of the reports were either weaker than expected, or in the case of indicators with no estimates, showed a decline versus their last print.  There were no indicators on Monday, so the release of January Small Business Optimism from the NFIB kicked off economic data on Tuesday with a greater than expected decline.  The most negative aspect of the data last week, though, was Thursday’s Retail Sales report for December, but as we mentioned last week, there are numerous reasons to be skeptical of the data.  CPI came out on Wednesday and was slightly stronger on a y/y basis.  PPI on Thursday missed estimates, though, and Import and Export Prices were both weaker than expected on Friday, posting y/y declines.

Turning to this week, with the holiday yesterday, the economic calendar takes a bit of a breather.  At 10:00 AM today we will get February data on homebuilder sentiment, followed by Mortgage Applications tomorrow.  Thursday we will get a flood of data including the Philly Fed, Jobless Claims, Durable Goods, preliminary Markit Manufacturing and Services, Leading Indicators, and Existing Home Sales.  There are no scheduled releases for Friday.

Trend Analyzer – 2/19/19 – Not Extreme Yet

Equities rounded out last week with another push higher continuing its impressive run of several consecutive weeks of gains.  With markets closed yesterday in observance of President’s Day, today equities are kicking off this week entirely overbought.  Of the 14 index ETFs in our Trend Analyzer, all of them are extended well into overbought territory.  While not quite at extreme levels (the darker red area of the tool) yet, the indices have inched increasingly closer to there.  They have also pushed higher essentially in tandem; none of the indices are drastically more or less overbought than the others.  Though as they have been the better performing indices so far this year, small and mid caps are in fact all the furthest above their 50-DMAs.  Small caps specifically have seen solid upward movement in the past week (gaining over 4% each) leading them to be the group that is the furthest above the 50-day.  Conversely, large caps are still underperforming, but by a smaller margin than they had been.

Morning Lineup – Walmart Ends Earnings Season on a Positive Note

We’ve always considered Walmart’s (WMT) earnings report to mark to unofficial end to earnings season.  While there are still plenty of other reports left to get through, the vast majority of companies have already reported their performance metrics for the prior quarter.  This morning WMT reported and ended earnings season on a positive note.  The company handily exceeded EPS forecasts, revenues were inline with forecasts, and the company reaffirmed guidance.  In reaction to the news, shares rallied over 3.5%, and after closing at $99.99 on Friday jumped back above the triple-digit mark this morning.  Read all about overnight events around the world and this morning’s news in today’s Morning Lineup.

Bespoke Morning Lineup – 2/19/19

Today’s rally in WMT will mark the fourth straight quarter that the company has had a positive reaction to earnings, but one thing to keep in mind is that following each of those three prior reports it didn’t pay to chase the strength.  As our Earnings Explorer tool illustrates, following each of those three prior positive opens, the stock gave up at least some of those initial gains during the trading day.

 

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: 2/17/19

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, join Bespoke Premium for 3 months for just $95 with our 2019 Annual Outlook special offer.

Recessions

The Financial Crisis at 10: Will We Ever Recover? by Regis Barnichon, Christian Matthes, and Alexander Ziegenbein (FRB SF)

A blog post fleshing out the argument that the drop in the trend of GDP growth following the global financial crisis was a permanent effect of the recession. [Link]

Beware of a Recessionary Bias Among Analysts by Tim Duy (Fed Watch)

Following some notably extreme data points this week, economist Tim Duy cautions against cherry-picking data, and instead advocates a more comprehensive analysis which yields very different conclusions. [Link]

Distress Dynamics

Distressed Mergers And Acquisitions (Wachtell, Lipton, Rosen & Katz)

A very useful background on the area of distressed M&A, which investors may find useful as a piece of reference material or as an initial foray into the special situations space. [Link; 241 page PDF]

Why Banks Can’t Be a Bridge Over Troubled Markets by Paul J. Davies (WSJ)

Linking capital requirements to VaR calculations which raise the capital cost of inventorying securities during periods of high volatility could have negative side-effects down the line. [Link; paywall]

Criminal “Justice”

The NYPD’s new DNA dragnet: The department is collecting and storing genetic information, with virtually no rules to curb their use by Allison Lewis (NY Daily News)

DNA sampling by police is broadening, and the wide nets being cast by police is generally falling in areas least able to defend themselves from attacks on civil liberties. [Link]

Domineque Ray Died So the Death Penalty Could Live by Matt Ford (The New Republic)

In a shocking move this week condemned from across the political spectrum, the Supreme Court denied an Alabama death row inmate the right to have his imam present during his execution, disregarding basic questions about the state’s motivations and constitutional protections against state sanctioned religion. [Link]

California

California Governor Proposes Digital Dividend Aimed at Big Tech by Kartikay Mehrotra (Bloomberg)

In a major recent policy rollout, California Governor Gavin Newsom announced a new tax on large tech companies based in Silicon Valley. [Link; soft paywall, auto-playing video]

America’s Signature Mode of Transportation Is High-Cost Rail by Jacob Bacharach (Hmm Daily)

Newsom was in the news this week, radically scaling back plans for high speed rail in California. That raises a variety of questions related to the utterly ridiculous cost of any large infrastructure project in the United States. [Link]

APNewsBreak: Teach for America slammed over Oakland strike by Sally Ho (AP)

Successful NGO Teach for America suggested that corps members who do not cross picket lines during an Oakland teachers strike would be punished financially. [Link]

International Matters

China’s Demographic Danger Grows as Births Fall Far Below Forecast by Liyan Qi and Fanfan Wang (WSJ)

Recent demographic data has shown that China is aging – and failing to reproduce – a t a drastically worse rate than had been previously estimated. [Link; paywall]

Taiwan insurers skirt restrictions to load up on dollar bonds by Edward White and Robin Wigglesworth (FT)

An explanation of the absolutely ludicrous Taiwanese insurance market, which depends on massive overseas bond holdings which are vulnerable to an appreciation of the Taiwan dollar. [Link; paywall]

The Case for a Significant German Stimulus Is Now Overwhelming by Brad W. Setser (Council on Foreign Relations)

With fiscal surpluses dating back to 2014, slowing growth, a surging household savings rate, and low debt levels, Germany is the poster-child for the sort of economy that ought to be engaging in fiscal stimulus. [Link]

Investing

For Boeing, juggling cash flow often means ‘another “Houdini moment”‘ by Dominic Gates (Chicago Tribune)

With contracts that give it enormous leeway to pull forward or push back cashflow, Boeing (BA) is able to play a delicate financial game and make its operations look healthier – or at the very least, more consistent – than they actually are. [Link]

How a Nasdaq Loophole Fueled One Stock’s Rise of 3,750% by Dave Michaels and Alexander Osipovich (WSJ)

A Nasdaq-listed firm with a massive stock of restricted shares is listed on the large market despite its dubious ability to meet listing requirements. [Link]

Malfeasance

Exclusive: FBI investigating top Vitol executives in Americas – sources by Brad Brooks and Gary McWilliams (Reuters)

One of the largest players in the physical oil trading market has executives under investigation in connection to the massive bribery scandal still unfolding in Brazil. [Link]

The former Apple lawyer who was supposed to keep employees from insider trading has been charged with insider trading by Sara Salinas (CNBC)

Three different times during 2015 and 2016, the Apple employee responsible for keeping Apple compliant with securities law traded ahead of earnings. [Link]

Wealth

Wealth concentration near ‘levels last seen during the Roaring Twenties,’ study finds by Christopher Ingraham (Seattle Times)

New research from UC Berkeley economist Gabriel Zucman suggests that the 400 richest Americans control more wealth than the bottom 60 percent of the distribution (150mm people), with that massive swathe of the population holding only 2.1% of total wealth. [Link]

Americans’ Confidence in Their Finances Keeps Growing by Jim Norman (Gallup)

The highest percentage of American population expects to be better off over the next year since 1998, with 69% of those Gallup surveyed optimistic. [Link]

Social Media

Writer Sues Twitter Over Ban for Criticizing Transgender People by Georgia Wells (WSJ)

In a novel legal strategy, a Canadian writer is suing Twitter on competition grounds after being banned under the Twitter hateful conduct policy. [Link; paywall]

Money Ball

Machado and Harper haven’t signed because baseball teams are now run like Wall Street ‘quant funds’ by Michael Santoli (CNBC)

A very slow free agent signing season has led analysts to compare the behavior of MLB teams to quants that underweight high-flying and glamorous stocks that garner all the headlines. [Link]

Migration

Americans continue their march to low-tax states by Jonathan Williams (The Hill)

Williams argues that tax rates and low budget deficits are driving the movement of Americans from large population states to booming Sunbelt locales. [Link]

EVs

Electric truck start-up Rivian announces $700 million investment round led by Amazon by Robert Ferris and Paul A. Eisenstein (CNBC)

A small company aiming to fill a high-performance niche in the EV markets with a pickup truck and SUV got a big funding boost from Amazon this week. [Link]

Trade

Measuring Trump’s 2018 Trade Protection: Five Takeaways by Chad P. Bown and Eva (Yiwen) Zhang (PIIE)

In addition to the sheer size and scale of tariffs introduced by the Trump Administration, some products are being hit multiple times. [Link]

 

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Have a great weekend!

The Closer: End of Week Charts — 2/15/19

Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model.  Below is a chart of the US Global Citi Economic Surprise Index which saw the largest one-day decline in the Citi Economic Surprise Index in over 13 years yesterday.

Sample

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