Ticker Sense

Frustrated? You're Not Alone: Stock Correlation With the Market Is At a High

Over the course of the last two months stocks have become toxic in the sense that nobody wants to buy them.  Below we posted a chart showing the correlation of the average S&P 500 member with the index over the last 50 days.  As shown, correlation is currently as high as it was in October and November 2008.  This means that when the market is down most stocks are also down and even the best stock picker will have to accept the market's daily fate.  

On the bright side, we saw in 2008 that correlation levels this high were not sustainable and since this is a trailing indicator the worst might be over.  Correlation peaked at the end of the decline in late 2008; not at the beginning.

 

Was It Really a Lower Low?

All eyes are were on the indices today looking for the Dow to hold 10,000, the S&P to hold 1050, S&P 1040 and the infamous lower low.  At the end of the day the Dow didn't hold 10,000 and the S&P hardly batted an eye at 1050, finished at a lower low and just above 1040.  In an interesting turn of events, that is nothing more than interesting, the Dow did not make a new correction low.  As shown by the chart below, the Dow bottomed at its 6/7 low of 9,810 and managed to hold that level into the close.

The bulls can take solace knowing that not everything fell apart today and the bears can point to the S&P as another sign of impending doom.

 

S&P 500 PE Ratio: Stocks Are On Sale!

On a trailing basis, stocks are trading at below average valuations.  Over the last twenty years the average PE for the S&P 500 is 20.3; the current level of 15.6 is well below average and at the lower end of the range established by the last two bull markets.

The Wall Street Journal also noted the market's PE this morning (Will Earnings Surprise the Bears), citing valuation as a reason to turn more bullish.  Analysts are forecasting earnings grow of 33.6% and 17.9% in 2010 and 2011 respectively.  Barring a sudden shock to the market, do not expect this PE ratio to get much lower.

 

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June 28th Blogger Sentiment Poll

Bulls and bears are split going into the last few days of the quarter.

 

Blogger Sentiment Poll Participants:

24/7 Wall St (-) Carl Futia (+) Dash of Insight (-) Elliot Wave Lives On (+) Fallond Stock Picks (+) In the Money  Learning Curve (-) Maoxian  Millionaire Now (N) Peridot Capitalist (+) Quant Investor (N) StockAdvisors.com  Smart Money Tracker  Traders-Talk  Wall Street Folly  Wishing Wealth (-)

This Market Is Stronger Than You Think

In a decidedly undecided day stocks showed an impressive resolve to tread water.  There is no question that this morning's New Home Sales data was bad, in fact as shown below it was the worst monthly report ever.  By all rights the market should have sold off from 10:00 through the end of the day, obviously the Fed was a distraction, but a 18 months ago we all know how today would have ended.  Instead the market bottomed shortly after the data was released and rallied back to peak after the Fed's comments.

This morning's market activity should be noted, it will most likely be clouded by the Fed and spun in a negative view by the press, but the turnaround was nonetheless impressive.  For those of us watching closely, oil underwent a similar recovery.  At 10:30 the August contracts were trading at $75.75 when inventory numbers were released.  Crude inventories gained 2,017k barrels when analysts were expecting an 800k barrel decline; on a significantly higher increase in supplies oil bottomed and rallied back for most of the day.

There are two ways to interpret today's trading.  First, that the market's collective wisdom is wrong and this is a selling opportunity.  Second, that the market's collective wisdom is telling us that this is not a bear market.  We are inclined to pursue the latter view.

   

Laszlo Birinyi Q&A in Barron's

 

Invest Like It's 1982

Sentiment Recap: 6/21/10

Meredith Whitney sees a double-dip in housing and is still as bearish as ever.  Goldman's O'Neill says the dollar may be at more risk than Euro.  PEG added to Goldman's "Conviction Buy List."  Chinese stocks raised to "overweight," Indian cut to "underweight" and Taiwan lowered to "neutral" at BNP Paribas.  Taiwan's Taiex Index target lowered to 8,500 at Credit Suisse.  Morgan Stanley's weighting of Russia increased while China decreased, both remain "overweight."  Malaysia upgraded to "overweight," Thailand and Colombia both downgraded to "underweight" at Morgan Stanley.

 
 
 

Index & Sector 10% Filter

Out of the sectors that entered a 10% correction, energy is leading the climb off the bottom.  Energy has gained 9.9% from its bottom on 6/1/10. Industrials, materials, and utilities are all up at least 8% from their bottoms.  Consumer staples never entered a 10% decline.  The sector is in a 45.3% rally which began 3/9/09 and peaked on 3/23/10.  Since its peak the staples have declined 5.2%.

June 21st Blogger Sentiment Poll

 

Blogger Sentiment Poll Participants:

24/7 Wall St (-) Carl Futia (+) Dash of Insight (N) Elliot Wave Lives On (+) Fallond Stock Picks (+) Learning Curve (-) Maoxian  Millionaire Now (N) Peridot Capitalist (N) Quant Investor (N) StockAdvisors.com  Smart Money Tracker Traders-Talk (N) Wall Street Folly  Wishing Wealth (+)

Make Money With Birinyi's Reminiscences Newsletter

Reminiscences is a newsletter published by Birinyi Associates on the last Wednesday of every month.  The newsletter includes Laszlo Birinyi's market commentary and strategy; a sample of Birinyi's unique equity analysis and market research; as well as three recommended investment portfolios.  

All three portfolios are outperforming the S&P 500 for both the month of June and the year.  The trading portfolio is shining, with a 15.51% gain in 2010 and a 7% gain in June (all of the trading recommendations have hit their respective targets).