John Thomas Financial Blog

John Thomas Financials Chief Market Analyst Wayne S. Kaufman’s Weekly Report

John Thomas Financial — Mon, 22 Apr 2013 16:53:48 +0000

After making all-time highs two weeks ago stocks took it on the chin last week as the S&P 500 erased nearly all the gains of the prior week. It dropped 2.11%, the biggest weekly loss since 11/9/2012. Major indexes were led on the week by the Dow Jones Transports, down 1.78%, and the Bank of NY Mellon ADR Index, down 2.01%. The biggest losses were seen in the Russell 2000, down 3.21%, and the Nasdaq Composite, down 2.70%. Seven of the ten S&P sectors traded lower last week, with the defensive Telecom Services, Utilities, and Consumer Staples sectors posting gains of 1.18%, 1.02%, and 0.76%, respectively

Only five of the 24 S&P industry groups were up last week. The leaders were Household & Personal Services, up 1.96%, Telecom Services, up 1.18%, and Utilities, up 1.02%. The downside was led by Technology Hardware & Equipment (thanks Apple & IBM) down 6.99%, Capital Goods, down 4.11%, Energy, down 4.09%, and Automobiles & Components, down 4.06%.

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For timely insights, news, and commentary on economics and financial markets, visit the John Thomas Financial Blog or join the John Thomas Financial community on Twitter and Facebook.

About John Thomas Financial:
John Thomas Financial, a member of FINRA and SIPC, is an independent broker-dealer and investment banking firm headquartered in New York City’s Wall Street district. Emphasizing a client-centric approach to managing all aspects of its business, John Thomas Financial and its affiliates offer a full complement of retail brokerage, private wealth management, and corporate advisory services tailored to the unique needs of its clients. The firm publishes the Fiscal Liquidity Index, a unique daily indicator that looks at government spending and its impact on the financial markets, The Kaufman Report, a weekly technical stock market analysis, and The John Thomas Financial Economic Outlook, a report analyzing consumer sentiment, market outlook, credit cycles and dozens of other market influences.

Important Disclosures:
The information provided in this publication is for informational purposes only. Investors should consider this report as only a single factor in making their investment decision. This informational report is not an offer to sell or a solicitation to buy any security. This report has been prepared as a matter of general information. It is not intended to be a complete description of any company, and is not an offer to buy or sell any security. All facts and statistics are from sources believed to be reliable, but are not guaranteed as to accuracy. Before acting on the materials herein, you should consider whether it is suitable for you particular circumstances and, if necessary seek professional advice investments involve risk and an investor may incur losses. Past performance is no guarantee of future performance. Trading and investment decisions are the sole responsibility of the reader.

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Chief Market Analyst Wayne S. Kaufman Weekly Report from the John Thomas Financial Blog

John Thomas Financial — Tue, 09 Apr 2013 18:40:32 +0000

John Thomas Financials Chief Market Analyst Wayne S. Kaufman Weekly Report

Stocks had a rough week in spite of the S&P 500 making a new high on Tuesday as investors reacted to more worse than expected economic indicators. In this case it was employment news from ADP Wednesday, followed by Jobless Claims Thursday, and Payrolls on Friday. Soft economic news began being reported in mid- March, and investors are concerned that this has become a trend. Last week’s selling was broad based with all major indexes showing losses. The downside was led by the Dow Transports, with a loss on the week of 3.48%, followed by S&P Midcaps, down 2.58%, and S&P Smallcaps, down 2.38%. The S&P 500 lost 1.01% as large caps continued their recent outperformance.

Industry groups were mostly lower with only eight of the twenty-four S&P industry up last week. The leaders were Telecom Services, up 2.40%, and Real Estate, up 2.31%. The downside was led by Automobiles & Components, down 5.19%, Semiconductors & Equipment, down 4.26%, and Technology Hardware & Equipment, down 3.52%.

Read the full, weekly report, from Chief Market Wayne Analyst at the John Thomas Financial Blog.

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John Thomas Financials Chief Market Analyst Wayne S. Kaufman Weekly Report

John Thomas Financial — Mon, 01 Apr 2013 18:28:09 +0000

Stocks overcame Cypress jitters and traded broadly higher last week as the S&P 500 finally joined the Dow Industrials and made an all-time closing high Friday .Major indexes were led on the week by The Dow Transports, up 1.22%, and the S&P Midcap 400, up 1.15%. The only major index with a loss was the Bank of NY Mellon ADR Index, down 0.62%, and certainly not helped by the continued strength in the U.S. Dollar Index.

Industry groups were mostly higher with twenty of the twenty-four S&P industry up last week. The leaders were Pharmaceuticals, Biotech, & Life Sciences, up 2.58%, Utilities, up 2.36%, and Semiconductors & Equipment, up 2.12%. Laggards were Technology Hardware & Equipment, down 1.25%, Diversified Financials, down 0.85%, and Capital Goods, down 0.21%.

Last week we said stocks were no longer short-term overbought, and that they were being held hostage by the Cypress situation. We said options buyers had become pessimistic sending our proprietary options indicator to 0.95, a level where stocks can rebound, and that any more selling could send it to the 0.90 area where stocks have rallied from recently. The 0.90 level was hit Thursday, and in spite of the S&P 500 rallying to an all-time closing high Friday our options indicator remains at a low 0.92, a level showing pessimism on the part of options buyers. Stocks can continue to rally from here, and any short-term weakness should be very shallow. We are seeing increased selectivity shown by fewer stocks making new highs and a negative divergence in the number of stocks trading above key moving averages. For example, on 3/14 there were 489 13-week closing highs in the S&P 1500. Friday recorded only 349. On 3/14 the percentage of stocks over their own 10-day average was 83.8%, versus Friday’s 63.6%. Hopefully this is an end of the quarter phenomenon that is cleared up as first quarter earnings season unfolds in about a week.

Before Friday’s all-time closing high the S&P 500 trading just under its 2007 all-time high brought out a lot of bears calling for an important top. We don’t agree, and we offer some comparisons with the top in October 2007. At the 2007 top the 10-year bond yield was 4.66% versus today’s 1.852%. The forward P/E ratio, based on projected earnings, was 16.9, versus today’s 14.62. This equates to a spread between the equity yield and the bond yield of 269%, versus a spread of 27% (yes, about ten times higher) in 2007. This is why Alan Greenspan said on TV recently that stocks were “significantly undervalued.”

At market tops there is a narrowing of leadership and investors become highly selective. At the 2007 all-time high 53% of the S&P 1500 were over their own 200-day moving averages. Currently that number is 84.7%, with only two sessions since January 16th below 80% (2/25 and 2/26, at 77% and 78%). In contrast, the entire period of August and September 2007 had every day except one with the percent of stocks over their 200-day averages under 50%, with the one exception being 50% on 9/19/2007. The S&P 1500 Advance Decline line just made a new high, confirming the high in the index. Therefore, this has been a broad market advance which is not typical of major market tops.

Various economic indicators do not look the way they do before important tops. The Conference Board Consumer Confidence number for February was 69.6, slightly under the post-2009 peak set in October 2012 of 73.10. At the peak in July 2007 this number was 111.90, and at the peak in May 2000 the number was 144.70. Ahead of the bear market of 1973 – 1974 the number was 116.10. The point is that this number does not represent the kind of optimism seen at any major market top. The Architects Work-On-The –Boards Billings Index hit a post-2007 peak in February, reflecting strength in all areas of construction, and this data has a history of peaking far in advance of stock market and economic peaks.

Therefore, we have been and remain longer-term bullish for multiple reasons. Again, one of them is stock valuations, which remain very attractive based on spreads between equity and bond yields. They remain well above historical levels and are at levels where stocks should be attractive versus bonds, and are challenging the lower part of the range they have been in since August 2011. Should they stay in the lower part of the range, or even break through the bottom into the levels where they were pre-August 2011, we think that would be very bullish and show increasing confidence on the part of investors as they demand less risk premium to own stocks. If this happens we think it means investors will have reached a “point of recognition” where they finally accept that the economy is healing (more slowly than it should be, but healing nonetheless) and we are not going to see a repeat of the economic and market crash of 2008 – 2009. The strong money flows into equity funds so far this year may indicate that this point of recognition has already arrived.

In summary, stocks are no longer overbought short-term and options buyers have turned pessimistic, which we like to see. We remain bullish longer-term due to improving economic data, positive market action, valuations, and the globally synchronized program of asset purchases by central banks. We think any weakness will not be extreme. We are in a period of very strong seasonality from March 27th to April 4th. About a week later we enter first quarter earnings season. If it as positive as fourth quarter was, with almost 69% of stocks beating analyst estimates, that could be another catalyst for stocks to push higher. Based on the S&P 500 the short-term, intermediate-term, and long-term trends are up.

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IMPORTANT DISCLOSURES

I, Wayne S. Kaufman, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
THE INFORMATION PROVIDED IN THIS PUBLICATION IS FOR INFORMATIONAL PURPOSES ONLY. INVESTORS SHOULD CONSIDER THIS REPORT AS ONLY A SINGLE FACTOR IN MAKING THEIR INVESTMENT DECISION. THIS INFORMATIONAL REPORT IS NOT AN OFFER TO SELL OR A SOLICITATION TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE ILLEGAL. THIS REPORT HAS BEEN PREPARED AS A MATTER OF GENERAL INFORMATION. IT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ANY SECURITY OR COMPANY MENTIONED, AND IS NOT AN OFFER TO BUY OR SELL ANY SECURITY. ALL FACTS AND STATISTICS ARE FROM SOURCES BELIEVED TO BE RELIABLE, BUT ARE NOT GUARANTEED AS TO ACCURACY. ADDITIONAL INFORMATION ON THESE SECURITIES AND COMPANIES IS AVAILABLE UPON REQUEST. SECURITIES, FINANCIAL INSTRUMENTS OR STRATEGIES MENTIONED HEREIN MAY NOT BE SUITABLE FOR ALL INVESTORS. THIS MATERIAL DOES NOT TAKE INTO ACCOUNT YOUR PARTICULAR INVESTMENT OBJECTIVES, FINANCIAL SITUATIONS OR STRATEGIES. BEFORE ACTING ON THE MATERIALS HEREIN, YOU SHOULD CONSIDER WHETHER IT IS SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES AND, IF NECESSARY SEEK PROFESSIONAL ADVICE. INVESTMENTS INVOLVE RISK AND AN INVESTOR MAY INCUR EITHER PROFITS OR LOSSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. TRADING AND INVESTMENT DECISIONS ARE THE SOLE RESPONSIBILITY OF THE READER.

John Thomas Financials Chief Market Analyst Wayne S. Kaufman Weekly Report

John Thomas Financial — Mon, 25 Mar 2013 12:10:10 +0000

Stocks struggled last week but finished with small losses in spite of three of the five trading sessions being negative. The S&P 500 finished down 0.25%, and the Dow Industrials lost 0.01%. The laggards were the Dow Transports, down 1.49%, and the Bank of NY Mellon ADR index, down 1.03%. The only major index with again was the Nasdaq 100, up 0.5%, and helped again by a resurgent Apple Computer.

Industry groups were mixed with eleven of the twenty-four S&P industry higher last week, with a decidedly defensive tone. The leaders were Food & Staples Retailing, up 3.42%, Food, Beverage, & Tobacco, up 1.78%, Consumer Durables & Apparel, up 1.68%, and Household & Personal Products, up 1.52%. Profit taking was evident in the week’s laggards as Transportation gave back 2.27% and Diversified Financials lost 2.03%.

Last week we said stocks were overbought and we were seeing optimism on the part of options buyers, sending our proprietary options indicator to 1.09, the

highest level since 12/24, and therefore a short-term pullback could occur at any time. In the short-term markets are being held hostage by the Cypress situation. Stocks are no longer short-term overbought (longer-term is another story) and options buyers have become pessimistic sending our proprietary options indicator to 0.95. This is a level where stocks can rebound, and any more selling could send it to the 0.90 area where stocks have rallied from recently. A positive resolution in Cypress could create a nice relief rally. In addition, we are about to enter a period of very positive seasonality which runs from March 27th to April 4th.

The S&P 500 trading just under its 2007 all-time highs has brought out a lot of bears calling for an important top here. We don’t agree, and we offer some comparisons with the top in October 2007. At the 2007 top the 10-year bond yield was 4.66% versus today’s 1.915%. The forward P/E ratio, based on projected earnings, was 16.9, versus today’s 14.50. This equates to a spread between the equity yield and the bond yield of 260%, versus a spread of 27% in 2007. This is why Alan Greenspan said on TV recently that stocks were “significantly undervalued.”

At market tops there is a narrowing of leadership and investors become highly selective. At the all-time closing high of 10/9/2007 the S&P 1500 printed 242 13-week closing price highs. On 3/14/2013, the post-2007 closing high, it printed 489, twice as many. In 2007 the 10-day average of 13-week closing highs was 151.6. At the close on 3/14/2013 it was 315.7. At the 2007 all-time high 53% of the S&P 1500 were over their own 200-day moving averages. Currently that number is 84.3%, with only two sessions since January 16th below 80% (2/25 and 2/26, at 77% and 78%). In contrast, the entire period of August and September 2007 had every day except one with the percent of stocks over their 200-day averages under 50%, with the one exception being 50% on 9/19/2007. Therefore, this has been a broad market advance which is not typical of major market tops.

John Thomas Financials Chief Market Analyst Wayne S. Kaufman Weekly Report

John Thomas Financial — Mon, 18 Mar 2013 13:33:21 +0000

Stocks rallied again last week as the S&P 500 ran its weekly winning streak to three and it has recorded gains in ten of the last eleven weeks. Major indexes were led higher on the week by the Dow Jones Transports, up 2.10%, and the S&P Smallcap 600, up 1.13%. The only major index down on the week was the Nasdaq 100, which was down 0.17%. The S&P 500 was up 0.60% for the week and is up 9.43% so far in 2013.

Industry groups were mostly positive as nineteen of the twenty-four S&P industry groups traded higher last week. Automobiles & Components led the way with a gain of 2.76%, followed by Banks, up 2.54%, and Transportation, up 1.87%. Transportation remains the leading industry group on the year with a gain of 14.99%, closely followed by Diversified Financials, up 14.92%.

In our last report dated March 4th we said stocks were not overbought, investors were positioned defensively, and our proprietary options indicator was showing pessimism at 0.91, a level we said is usually seen at bottoms, not tops. In the two weeks since then the Dow Industrials rallied to new all-time highs, and the S&P 500 rallied 3.2% and is not far from its all-time closing high of 1565.15 set on 10/9/2007, and its all-time intraday high of 1576.09 set on 10/11/2007. The short-term picture has changed as stocks are now overbought and we are seeing optimism on the part of options buyers, sending our proprietary options indicator to 1.09, the highest level since 12/24. Then it was coming down from 1.22, an extreme number r hit on 12/18/2012, which was a short-term market peak. Therefore, a short-term pullback can occur at any time and investors need to be careful with entry points.

The S&P 500 trading just under its 2007 highs has brought out a lot of bears calling for an important top here. We don’t agree, and we offer some comparisons with the top in October 2007. At the 2007 top the 10-year bond yield was 4.66% versus today’s 1.996%. The forward P/E ratio, based on projected earnings, was 16.9, versus today’s 14.51. This equates to a spread between the equity yield and the bond yield of 245%, versus a spread of 27% in 2007. This is why Alan Greenspan said on TV last week that stocks were “significantly undervalued.”

At market tops there is a narrowing of leadership and investors become highly selective. At the all-time closing high of 10/9/2007 the S&P 1500 printed 242 13-week closing price highs. On 3/14/2013 it printed 489, twice as many. In 2007 the 10-day average of 13-week closing highs was 151.6. At the close on 3/15/2013 it was 325.5. At the 2007 all-time high 53% of the S&P 1500 were over their own 200-day moving averages. Currently that number is 86%, with only two sessions since January 16th below 80% (2/25 and 2/26, at 77% and 78%). In contrast, the entire period of August and September 2007 had every day except one with the percent of stocks over their 200-day averages under 50%, with the one exception being 50% on 9/19/2007. Therefore, this remains a broad market advance which is not typical of major market tops.

Various economic indicators do not look the way they do before important tops. The Conference Board Consumer Confidence number for February was 69.6, slightly under the post-2009 peak set in October 2012 of 73.10. At the peak in July 2007 this number was 111.90, and at the peak in May 2000 the number was 144.70. Ahead of the bear market of 1973 – 1974 the number was 116.10. The point is that this number does not represent the kind of optimism seen at any major market top. The Architects Work-On-The –Boards Billings Index hit a post-2009 peak in January, and this data has a history of peaking far in advance of stock market and economic peaks.

Therefore, we have been and remain longer-term bullish for multiple reasons. One of them is stock valuations, which remain very attractive based on spreads between equity and bond yields. They remain well above historical levels and are at levels where stocks should be attractive versus bonds, and are challenging the lower part of the range they have been in since August 2011. Should they stay in the lower part of the range, or even break through the bottom into the levels where they were pre-August 2011, we think that would be very bullish and show increasing confidence on the part of investors as they demand less risk premium to own stocks. If this happens we think it means investors will have reached a “point of recognition” where they finally accept that the economy is healing (more slowly than it should be, but healing nonetheless) and we are not going to see a repeat of the economic and market crash of 2008 – 2009. The strong money flows into equity funds so far this year may indicate that this point of recognition has already arrived.

In summary, stocks are overbought short-term and options buyers are turning bullish. We prefer to see pessimism. Therefore, a pullback can occur at any time. We remain bullish longer-term due to improving economic data, positive market action,valuations, and the globally synchronized program of asset purchases by central banks. We think any weakness will not be extreme. We will be entering a period of very strong seasonality from March 27th to April 4th. About a week later we enter first quarter earnings season. If it as positive as fourth quarter was, with almost 69% of stocks beating analyst estimates, That could be another catalyst for stocks to push higher.

Based on the S&P 500 the short-term, intermediate-term, and long-term trends are up.

To download the PDF

For timely insights, news, and commentary on economics and financial markets, visit the John Thomas Financial Blog or join the John Thomas Financial community on Twitter and Facebook.

About John Thomas Financial :
John Thomas Financial, a member of FINRA and SIPC, is an independent broker-dealer and investment banking firm headquartered in New York City’s Wall Street district. Emphasizing a client-centric approach to managing all aspects of its business, John Thomas Financial and its affiliates offer a full complement of retail brokerage, private wealth management , and corporate advisory services tailored to the unique needs of its clients. The firm publishes the Fiscal Liquidity Index, a unique daily indicator that looks at government spending and its impact on the financial markets, The Kaufman Report, a weekly technical stock market analysis, and The John Thomas Financial Economic Outlook, a report analyzing consumer sentiment, market outlook, credit cycles and dozens of other market influences.

Important Disclosures:
The information provided in this publication is for informational purposes only. Investors should consider this report as only a single factor in making their investment decision. This informational report is not an offer to sell or a solicitation to buy any security. This report has been prepared as a matter of general information. It is not intended to be a complete description of any company, and is not an offer to buy or sell any security. All facts and statistics are from sources believed to be reliable, but are not guaranteed as to accuracy. Before acting on the materials herein you should consider whether it is suitable for you particular circumstances and, if necessary seek professional advice investments involve risk and an investor may incur losses. Past performance is no guarantee of future performance. Trading and investment decisions are the sole responsibility of the reader.