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The Bear Thread

Discussion in 'Stock Market Today' started by bigbear0083, Apr 1, 2016.

  1. bigbear0083

    bigbear0083 Content Manager
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    Volatility permeates recent history around October options expiration
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    Since 1994, October’s expiration day tends to be mixed with average losses across the board even though S&P 500 and NASDAQ have advanced more often than not. Expiration week and the week after are mildly bullish. DJIA and S&P 500 have the best long-term records. October’s reputation for volatility can be seen with wild daily and weekly swings in the tables below. Weekly moves in excess of 4% appear throughout the tables below. However, not all of these big weeks were losers.
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  2. bigbear0083

    bigbear0083 Content Manager
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    Down 15%+ in 15 Days
    Oct 22, 2018

    October is still only a little more than 15 trading days old, but there are already 31 stocks in the S&P 500 that are down over 15% on the month. The table below lists each of those 31 names, and while it’s not uncommon to see volatile stocks from the Technology or Consumer Discretionary sectors topping the list of worst performers during a market decline, not a single one of the ten worst performers so far this month comes from either sector. As shown in the table, the sectors represented in the list of ten worst performers are Industrials, Health Care, and Materials, and the stocks are all down well over 20% already this month!

    The worst performing Technology stock on the list is Advanced Micro (AMD), which is down just under 20%, while Newell (NWL) is the worst performing stock from the Consumer Discretionary sector with a decline of 16.4%. Looking at this overall list of names, it’s cyclical stocks which dominate with eight stocks from the Industrials sector alone. Meanwhile, no stocks from the Consumer Staples, Financials, Real Estate, or Utilities sectors made the list. So much weakness in a number of large-cap cyclical stocks has been a big reason why the ratio of cyclicals to defensives has pulled back so farover the last month.

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  3. bigbear0083

    bigbear0083 Content Manager
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    Normal October Volatility Continues
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    The recent spell of 2-3% daily market moves has many concerned that this could turn into something more sinister or bearish. That is always a concern and still possible, but it does not appear to be highly likely at this time. Current market action is less tame than it has been over the past several months and years, but the quantity and magnitude of these larger daily moves is minor and not indicative of a deeper downdraft.

    Hat Tip to the folks at TradeNavigtor.com and Genesis Financial Technologies, especially Heath in tech support for help with these charts and having the software to do it easily.

    For the past several months we have often heard investors and commentators saying, “Sell in May did not work this year and it hasn’t worked for the past several years” or “Sell in May is dead.” Not true. Everyone forgot about October. We always are leery of October.

    In response to our post last week on “What Happened Last Time We Had 2% Moves?”, we looked back further to 1997 and found that mild clusters of 2-3% daily market moves like the current one, have occurred around mild corrections, as we had from late January to early April 2018, and “mini-bears” like we had from August 2015 to February 2016.

    Just compare the image up top of the past two years of the S&P 500 with daily moves of +/- 2% highlighted in blue with the images below of 2015-2016 and 2007-2008 and you can clearly see that what is going on right now does not compare with the more alarming rate of big daily moves at more negative market junctures.

    This is October, this is normal. VIX is still relatively calm. Sentiment has come off its high horse and fundamentals remain supportive. Yes we are having some rather typical midterm election politicking and there are some geopolitical, diplomatic and trade concerns, but from our historical vantage point and current analysis our outlook remains positive for the next several months for the “Sweet Spot” of the 4-Year cycle, and in fact this sell off makes it more attractive and sets us up for an excellent MACD buy trigger for our Best Six Months Seasonal Buy Signal.

    Expect some more churning and selling and rallying over the next several days and weeks as the market finds support and wait patiently for technical confirmation and our buy signal before allocating fresh capital to the long side or coming off the sidelines and getting less defensive as we have been for several months.
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  4. bigbear0083

    bigbear0083 Content Manager
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    Down Friday/Down Monday: Be on the Lookout for Pullback’s End
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    Yesterday afternoon’s selloff was the eleventh DJIA Down Friday/Down Monday of 2018. The combination of a DJIA Down Friday* followed by a Down Monday** has been a fairly consistent ominous warning, but they have also occurred at significant market inflection points (interim tops and bottoms). The previous occurrence was on September 10, 2018, just three weeks before DJIA closed at its last new all-time high.

    Since January 1, 2000 through todays close there have 201 DJIA Down Friday/Down Mondays (DF/DM) including todays. From DJIA’s closing high within the next 7 calendar days to its closing low in the following 90 calendar days, DJIA has declined 182 times with an average loss of 6.9%. Declines following the DF/DM were greater in bear market years and milder in bull market years (see page 74 of Stock Trader’s Almanac 2018). The eight times when DJIA did not decline within 90 calendar days after were following DF/DMs on October 7, 2002; May 19, 2003; November 17, 2003; February 3, 2014; October 13, 2014; October 31, 2016; September 25, 2017 and October 9, 2017.

    When DJIA’s close on Monday of the DF/DM is used as the starting point of the subsequent decline (a lower price), DJIA has declined an average of 44% over the next 90 calendar days, but there were 33 times when no further decline occurred. In the following chart, the 30 trading days before and 60 trading days after a DJIA DF/DM have been plotted alongside the 8 times there was no low after the subsequent high and the 33 times there was no lower low after Monday.
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    Based upon this graph, if DJIA recovers the losses from yesterday’s DF/DM within about 4-7 trading days, then the DF/DM quite likely was an interim bottom. However, if DJIA is at about the same level or lower than now, additional losses are more likely.

    *Friday or the last trading day of the week. **Monday or the first trading day of the next week.
     
  5. bigbear0083

    bigbear0083 Content Manager
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    What Worries Us?

    Today might be Halloween, but the market this month sure has added a new layer to fear—hasn’t it? Unless the S&P 500 Index ends the month with two consecutive green days, this will be the first time in history the S&P 500 has gone the entire month of October without back-to-back gains. That right there sums up how strong the selling has been.

    In honor of Halloween, the big question is: What scares us? As we discussed in our latest Weekly Market Commentary, here are three concerns that are keeping us up at night:

    Recent U.S.-China trade headlines. We continue to expect a trade agreement of some sort by early 2019, given how much both sides have to lose. But markets are susceptible to headline risk between now and then, and there is always a chance the relationship deteriorates to such an extent that more tariffs will be put in place and potentially become permanent—causing further supply chain disruptions that would likely put added pressure on companies’ profitability.

    The Fed could make a mistake. The Federal Reserve (Fed) seems fully committed to further rate hikes. Should long-term interest rates fall due to growth concerns while (short-term) rate hikes continue, the central bank could potentially invert the yield curve, which historically has been a reliable recession signal. With wage pressures building, an uptick in inflation that spooks the Fed in 2019 could be possible.

    Stocks have lost technical momentum. The S&P 500 broke below its 200-day moving average on October 11, and that gap is starting to widen, indicating that technical momentum is deteriorating. In addition, we have not seen the type of panic selling that has marked recent major lows, like those in August 2015, February 2016, and February 2018, based on the percentages of stocks that are oversold and put-call ratios, which are measures of bearish sentiment.

    It isn’t all bad news though.

    “Even though the list of worries has grown in October, it is quite reassuring to know that consensus estimates for 2019 S&P 500 earnings per share (EPS) actually increased this month! Call us old school, but we still think earnings drive long-term stock gains, and this is a great sign amid all the market volatility,” explained Senior Market Strategist Ryan Detrick.

    As our LPL Chart of the day shows, earnings have been quite resilient during this tough month:

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    Onepoint272 likes this.
  6. bigbear0083

    bigbear0083 Content Manager
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    Small Business Sentiment Drops For Second Straight Month
    Nov 13, 2018

    Small Business optimism in the US was weaker than expected in October (107.4 vs 108). After hitting a record high two months ago, the headline index has now declined for two straight months. We would note, however, that outside of 2018, there have only been four monthly prints going all the way back to 1975 where the headline index was higher. According to NFIB, current levels continue to support economic growth in excess of 3%, which is great for businesses and consumers, but not the best news for stock market bulls hoping for a more dovish FOMC. Two of the key stats of the report: 30% of business owners believe now is a good time to expand substantially and 38% of small business owners reported job openings that they couldn’t fill. The job market is definitely tight.

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    The tight labor market is also reflected in the fact that nearly a quarter of all small business owners report that Labor Quality is their number one problem and another 9% cite labor costs as their biggest problem. On a combined basis, labor issues were cited by just under a third of all small business owners, which is slightly more than the combined impact of Taxes and Red Tape.

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  7. bigbear0083

    bigbear0083 Content Manager
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    S&P 500 Not the Best Economic Indicator
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    On a closing basis, the S&P 500 nearly reached correction territory in late October when it declined 9.88% from its high close on September 20 to its recent low close on October 29. After bouncing higher ahead of and after Election Day, S&P 500 has fallen for four straight days and is on track for a fifth day of losses today. But, just how good of an indicator is the S&P 500? Is it really on track to forecast a U.S. or global recession in the near future? A look back at S&P 500 past track suggests about a 1 in 3 chance of recession at this point.
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    First a quick review of definitions. A bear market is defined as a 20% or greater decline in the S&P 500. A correction would be a decline greater than 10% and less than 20%. Based upon these definitions every bear market begins as a correction, but not every correction becomes a bear market. As of today, the S&P 500 is not yet even in a correction. To be in a correction it would need to close below 2637.67.

    Since June 15, 1948 there have been 11 S&P 500 bear markets and 24 corrections. Excluding the current pullback from the tally there have been 35 declines in excess of 10%. However, the National Bureau of Economic Research has only identified 11 recessions over the same time period. This works out to less than 1 recession for every 3 S&P 500 declines in excess of 10%.

    Current market weakness could manifest into a full blown bear market, but economic data, corporate earnings and consumer sentiment would need to deteriorate significantly. Currently forecasts are looking for a slowing in growth as the initial effects of tax cuts and deficit spending wane, but corporate profits are not expected to decline, only slow their pace of growth. A slower pace of gains from the market would likely result.
     
  8. bigbear0083

    bigbear0083 Content Manager
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    A Historically Bad Q4 So Far
    Nov 20, 2018

    With the S&P 500 falling 9.08% QTD, it has been the sixth-worst start to the fourth quarter in the history of the S&P 500. The only worse Q4s (through 37 trading days) came during some of the worst years for the stock market (1929, the 1930s, 1973, 1987, and 2008).

    Below is a table showing the worst starts to Q4 for the S&P 500 through 37 trading days. Any drop of more than 2% at this point in the quarter made the list. As shown in the table, the average change for the S&P for the remainder of these years has been a gain of 2.77% with positive returns 78.26% of the time. For all other Q4s in the S&P’s history, the average change for the remainder of the year has been +1.61%.

    Of course, it’s not all good news. If you look at the window of Q4s that were down between 8% and 12% like we are this year, the S&P actually declined for the remainder of those four years.

    And in case you don’t remember, at this point in Q4 2008, the S&P was down 35.5%! In that year, the S&P ended up rallying 20% for the remainder of the year before plummeting to new lows again in the first quarter of 2009.

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  9. bigbear0083

    bigbear0083 Content Manager
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    Another Miss in New Home Sales
    Nov 28, 2018

    This is becoming a trend. New Home Sales for the month of October were released earlier today and once again missed expectations. While economists were expecting the headline reading to come in at 575K, the actual reading came in 31K below that consensus forecast at 544K. The last time we’ve seen a monthly print in New Home Sales this low was back in March 2016. Not only is this month’s report notable for the fact that sales printed at a 2.5 year low, but it also marked the fifth straight month where sales missed expectations. Usually after a couple of months of weaker than expected reports, economists adjust their forecasts to account for the weakness, but in this case, they haven’t been able to catch up. Using our Economic Indicator Database, we looked to see how the current streak of weaker than expected New Home Sales reports stacks up over time, and what we found was pretty amazing. Going all the way back to 1999, there has never been a streak where New Home Sales missed expectations for five straight months. During the housing crisis and in the early stages of the recovery, there were three streaks where New Home Sales missed expectations four months in a row but never for five straight months.

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    Not only have economists consistently overestimated New Home Sales, but they have also been way off the mark. The chart below shows the rolling five-month spread between the actual initially reported print for New Home Sales versus consensus expectations. With misses of -31K, -72K, -1K, -18K, and -37K in the last five months, the total deviation between actual and estimated New Home Sales has been -159K. Looking back over time, there haven’t been a whole lot of periods where the spread was this wide indicating just how weak recent housing activity has been relative to expectations.

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  10. bigbear0083

    bigbear0083 Content Manager
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    Yield Curves Near Inversion
    Dec 6, 2018

    On Tuesday, the front end of the yield curve inverted as 3-year yields rose above 5-year yields. Other front end curves, by that measure, while not there yet, have also begun to dip to cycle lows. The 10-year minus 3-month spread is at its lowest level since 2007. Despite being at a low for the current cycle, the curve remains around 40 bps from inversion.

    In the charts below we look at various yield curves over the past 15 years; this time frame allows us to see the curve’s movement leading up to the last recession.

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    Perhaps the most widely followed curve, the 10 year versus the 2-year spread, is also at levels it has not seen since 2007. Although it is picking up slightly today as yields across the board fall, 2s10s is looking much more ominous at only 13 bps away from becoming inverted. This will be the main curve that investors will keep their eyes on; expect to see it ad nauseam in headlines if it moves those 13 bps lower.

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    Shifting our focus to the longer end of the curve, spreads are off of lows from earlier in the year, but may not have quite bottomed just yet. The 10-year versus the 5-year spread has recently fallen back down towards these lows.

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    Even longer maturities like the 30-year versus the 10-year have a higher spread still and has much more clearly made a bottom. It is important to note, leading up to the previous recession this curve was not inverted for long. Most of the bottoming occurred with a normal—albeit very flat—curve.

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  11. bigbear0083

    bigbear0083 Content Manager
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    Small Business Optimism Pulls Back
    Dec 11, 2018

    Small business optimism November showed a meaningful pullback in November on both an absolute basis and relative to expectations. While economists were forecasting the headline index to come in at a level of 107.0, the actual reading was 2.2 points lower, making it the weakest report relative to expectations since April and the largest m/m decline since March.

    After hitting record high levels back in August, the NFIB Small Business Optimism Index has now seen three straight monthly declines, and like some other indicators around, is showing signs of starting to roll over. With that, we’ve heard and read a number of comments suggesting that this decline is another signal that the business cycle may be turning.

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    In our section on “Economic Cycles” for this year’s Bespoke Report, which was published last Friday, we highlighted a number of economic indicators that have had pretty good records historically at anticipating a turn in the business cycle. One indicator that was not included in that section is the NFIB’s Small Business Optimism Index.

    The chart below is the same one as above, but we have also overlaid periods of recession with gray shading. From this perspective, it is pretty obvious that there has been very little correlation to peaks in the Small Business Optimism Index and the onset of recessions. In fact, the two times the index peaked at or around similar levels was actually closer to the beginning of an expansion than the end. This is not to say that this indicator is suggesting strength or weakness in the economy going forward, but instead to simply point out that it hasn’t been the best indicator in terms of predicting the business cycle.

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