S&P 500 10-Day A/D Line Hits Level Seen Just Six Times Since 1990 -- Are We Due for a Bounce?

Following today’s 0.44% decline in the S&P 500, the 10-day A/D line for the S&P 500 has now dropped down to –1,930.  This is an extreme oversold reading based on historical standards.  For those unfamiliar with the indicator, the 10-Day A/D line is simply a rolling 10-day total of the daily net number of advancing stocks in the S&P 500.

If the last few years have taught us anything, it is that oversold markets can continue to get more oversold before they rally.  With that in mind, we just sent out a report to clients summarizing the performance of the S&P 500 following similarly oversold readings in the past.  Clients that wish to view the report can click on the link below.  If you are not yet a Bespoke Premium client, and you wish to view the report, sign up now for access.

Oversold Readings in the S&P 500 10-Day A/D Line

Country ETFs Get Crushed

Every day over at Bespoke Premium, we publish our ETF Trends report, which looks at the current overbought/oversold trends of more than 200 key ETFs across all asset classes.  Below is a snapshot of the various country ETFs that we track in the report, which shows the 5-day change, % from 50-day moving average, and % overbought/oversold reading for each one.  (We also provide additional trend and timing scores for each ETF in the Premium report that aren't shown below.)

As you can see in the table, it has gotten ugly for international markets recently.  Every single country ETF highlighted is as least 5% below its 50-day moving average, and all but Belgium (EWK) are oversold by at least 4%.  Italy (EWI), Brazil (EWZ) and Russia (RSX) are the most oversold at -8% or more.  Ouch.  

100 Russell 1,000 Stocks Down 5+ Days in a Row

With the major indices now down more than 5% in the month of May, there are a large number of stocks that haven't had an up day in quite a long time.  In fact, there are currently 100 stocks in the Russell 1,000 that are down at least five days in a row.  Below is a list of these 100 perpetual losers.

Not only are there 100 Russell 1,000 stocks down at least five days in a row, but there are also 25 stocks that are down at least ten days in a row.  That's a pretty remarkable stat, and it's not one that we see often.  As shown, XLNX currently has the longest losing streak of any stock in the index at 14 days, while MOLX, AMAT and MCHP are all down 13 days in a row.  None of these stocks have yet to post a green day in the month of May.  Other notables on the list of losers include MMM (11 days), AA (11 days), BA (7 days), UPS (7 days), BAC (7 days) and PCLN (5 days).  

The pain has to end at some point, right?  What we'll likely see is a major move to the upside one day soon which will wipe out nearly all of these losing streaks.

Commodities Oversold

With commodities continuing to take it on the chin on a daily basis, below is an updated snapshot of our trading range charts for ten of the most widely followed commodities.  For each chart, the green shading represents between two standard deviations above and below the 50-day moving average.  Moves above or below the green shading are considered overbought or oversold.  As you'll see in the charts, every commodity with the exception of natural gas is currently at or below the bottom of its trading range.  

Oil, gold, silver, platinum, and orange juice are the most oversold, while wheat, corn, coffee and copper aren't far behind.  If you look at the charts, over the last year, most commodities have bounced when they have gotten this oversold, so we should be due for at least a small rally soon.

Cyclical Sectors Crushed While Defensives Outperform

While the S&P 500 is down 6.23% from its 52-week high (reached in early April), there are five sectors that are down quite a bit more than that.  These five are Energy, Materials, Financials, Technology and Industrials.  All five of these are cyclical in nature, so anyone that is overweight the so-called "risk on" trade has likely underperformed "the market" during this downturn.  Energy and Materials are down the most from their 52-week highs at -16.88% and -15.71% respectively.  It has been a bloodbath for anyone heavily invested in these two commodity-related sectors.

The five sectors that are down less than the S&P 500 as a whole from their 52-week highs are Consumer Discretionary, Health Care, Utilities, Telecom and Consumer Staples.  Four of these five sectors are non-cyclical in nature, so investors that have been overweight the defensive trade have outperformed. 

Crude Inventories Rise More Than Expected Again

Crude oil inventories rose more than expected (2.128 million vs. 1.75 million) again last week.  This marks the eighth straight week where crude oil inventories have seen a larger than expected increase.  For the current time of year, 1990 is the only year where crude oil inventories were higher than they are now.  

On a seasonal basis, the current week is when crude oil inventories typically hit their highs for the year, so it will be interesting to see if inventories start to decline in the weeks ahead.

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Technology Sector Down 9-Days in a Row

The S&P 500 Technology sector is now down 9 days in a row.  Since our daily sector data begins in 1989, the Technology sector has only had one other 9-day losing streak.  That streak came in October 1998, which was another period when markets here were being roiled by bad news overseas.  September/October 1998 was the Russian debt/Long-Term Capital Management crisis.  The 9-day losing streak for the Technology sector occurred from 9/25/98 through 10/8/98.  On October 9th, the Technology sector ended its 9-day losing streak by rallying 6.13%.  Over the next 9 days, the Tech sector gained a total of 18.59%.  October 8th, 1998 ended up being the bottom of the Russian debt/LTCM crisis.  If we could only be so lucky this time around as well.

Europe's Toll on US Stocks

The average stock in the S&P 500 is down more than 6.5% since the April 2nd market peak.  We ran our decile analysis on the index focusing on international revenues to see how much Europe and other parts of the world are impacting US stocks.  To run the analysis, we broke the index into deciles (10 groups of 50 stocks each) based on the percentage of revenues that each index member generates outside of the US, and then we calculated the average change since 4/2 of the stocks in each decile.

As shown below, the decile of S&P 500 stocks that generate the largest portion of their revenues from outside the US are down an average of 11.1% since the April 2nd top, while the stocks that generate all of their revenues domestically are down an average of just 3.7%.  If Europe's problems continue, this trend should continue, although we're probably due for some sort of reversion to the mean since the divergence is so wide.  

To track international and domestic revenues for S&P 500 and Russell 1,000 stocks, become a Bespoke Premium member today and access our International Revenues Database.

NAHB Sentiment Index Rises to Highest Levels Since 2007

Today's release of the NAHB Housing Sentiment index came in better than expected and (29 vs 26) currently sits at its highest level since May 2007.  In this month's report, all three subcomponents also showed increases, and they're all at or just near their highest levels since 2007.  On a regional basis, the West was the only area where homebuilder sentiment declined.  In the Northeast, Midwest, and South, however, sentiment increased.  

It is important to remember that even as the NAHB Index and its various subcomponents are hitting multi-year highs, they all remain below 50, which is the dividing line between positive and negative sentiment.  Therefore, while sentiment is clearly getting less worse, there is a ways to go before we can say homebuilders are positive. Click for charts.

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Empire Manufacturing Rebounds

Today's NY Fed Manufacturing report for May came in stronger than expected (17.1 vs 9.5) and helped to reverse part of the decline we saw in April when the index came in at 6.6.  Even after this month's improvement, however, the index still remains below the highs we saw earlier this year.

Although the overall index for current conditions rose this month, the outlook over the next six months declined for the fourth straight month.  Likewise, plans for Capital Expenditures and Technology Spending also decreased during the month.  Continue reading.

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Gaps vs. Open to Close

If it feels like the market opens lower every morning lately, it's because it has been.  Below is a chart highlighting the 20-day moving average opening gap for the S&P 500 SPY ETF.  We also highlight the 20-day moving average open to close change for SPY.  As shown, over the last 20 days, SPY has opened lower by an average of 0.13% each day.  From the open to the close, however, the ETF has actually averaged a small gain of 0.03%.  

Interestingly, the market has been getting weaker and weaker in after-hours trading since the year began.  At the end of 2011, SPY was routinely gapping up at the open by a wide margin as evidenced by the 20-day average gap of more than 0.50%.  Since peaking at the end of 2011, the 20-day average gap has drifted lower and lower.  Clearly overseas markets, which open for trading well before we open here, are driving share prices here in the US these days.

Down Down Down

The second quarter of 2012 has so far been a complete reversal of the first quarter.  As of earlier this morning, just one stock-related ETF in our matrix below was up for the quarter -- Utilities (XLU).  Major US index ETFs are all down 4-5% for the quarter, while sectors like Energy (XLE) and Financials (XLF) are down 7%+.  

International markets have done much worse than the US.  Brazil (EWZ), France (EWQ), Germany (EWG), India (INP), Italy (EWI), Spain (EWP) and Russia (RSX) are all down double digit percentages since the start of April, and they're down 5%+ over the last week alone.  The only asset class that is solidly in the green for the quarter is fixed income, which many investors shunned like the plague as recently as March.  Oh how quickly things change.

Average Hourly Performance So Far This Quarter

The S&P 500 is now down more than 5% from its high at the start of the second quarter.  So how did it get there on an intraday basis?   Below is a chart showing the average hourly percentage change of the S&P 500 since the second quarter began. (Since the market opens at a half hour mark, we used the prior day’s close through 10 AM the next day as the first “hour” of the day.)

As shown, all of the index’s declines this quarter have come...

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JP Morgan Drops Down the List

Shares of JP Morgan Chase (JPM) are down another 2% today following Friday's 9% drop after the company disclosed trading losses of at least $2 billion.  Even after the two day drop of more than 10%, however, shares of JPM are still up 9% on the year and are outperforming the S&P 500. 

The table below shows the performance of the individual members of the KBW Bank Index so far this year.  While JPM has certainly lost its luster in the wake of Thursday night's disclosure, it is still outperforming Citigroup (C) on the year, which doesn't say much for how investors view that stock in terms of its reputation.

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Commodities Fall to Lowest Levels Since 2010

The CRB Commodity index is down another 1% today, bringing the year to date decline for the index to -5.5%.  The index is now trading at its lowest level since August 2010 and is also trading below its current ten-year average price of 289.3. There was a time a few years back when the rush of funds into the commodity sector was so great that some experts questioned whether or not the sector was big enough to handle all the new inflows.  These days that doesn't seem to be a problem.

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