Gavekal Capital: 2014-11-23

Friday, November 28, 2014

Black Friday Special: How Do The Retailers Look?

In honor of Black Friday, we thought we would look at how the North American retailers look from a technical perspective using our relative point and figure charts. Once again, our box size is  2.5% relative performance and all charts have four years worth of history.

Coach may be in the VERY initial phase of forming a base. However, this may simply be a pause before the next phase of underperformance begins. We probably wouldn't risk cutting ourselves trying to catch this falling knife.

image

Fossil has been in a trading range for almost all of the past four years. There is no significant trend change in sight.

image

Gildan Activewear turned a breakdown in 2012 into 2+ years of outperformance. Gildan's positive technical formation is an outlier within this group which would temper our bullishness.

image

Lululemon has had a rough go of it the last couple of years. However, it looks as if it may have formed a base. The stock is moving up towards the resistance line. Whether the stock can over come this downtrend line will determine if Lululemon has actually turned the corner.

image

Michael Kors looks to be breaking down. However, given the relative steady move higher in the stock the decline may be less volatile as well.

image

PVH looks like it may be in the initial stages of a multi-year period of underperformance.

image

Ralph Lauren looks similar to PVH but just a little further along in the downtrend. It would not be surprising to see  Ralph Lauren begin a period of underperformance as it has rebounded towards the resistance line.

image

VF continues its impressive bull run. This stock is extremely over extended both in terms of time and and distance from support

image

Gap is sitting on the knife's edge and a few poor performance days may push it down into a serious underperformance spiral.

image

L Brands has broken out to new highs after looking as if it was in a topping formation for the past few years. This is generally a bullish sign.

image

Ross Stores looks similar to the Gap except that it has bounced off of support. However, it will have to power through previous highs in order for us to believe that the uptrend has resumed. We would think that this would be hard to accomplish.

image

TJX is another stock that looks similar to the Gap and Ross Stores. It is currently at overhead resistance with the definite possibility of a significant decline towards the 45 degree support line.

image

Urban Outfitters is fighting to get back above the multi-year support level at approximate;y F in the chart below. However, if  it can't remain above that line than that is a very bearish signal and that level may become a strong resistance level for years to come.

image


Wednesday, November 26, 2014

Spike In New Home Prices

US new home sales underwhelmed again in October. The latest data point came in at 458K SAAR versus consensus of 470K. What really caught are eye was the volatile increase in average and median prices. The average sales price spiked by nearly 28% month-over-month, easily to an all-time high for this series. The year-over-year price change went from -2.2% in September to +19.5% in October.

image

We see a similar phenomenon when we look at median sales price. Median sales price spiked by 16.5% month-over-month in October and is now 14.4% higher year-over-year. It is the first time that the median sales price was over $300,000 and the first time the average sales price was over $400,000.

image

Tuesday, November 25, 2014

Margin Debt Declines For The 4th Time This Year

NYSE margin debt declined by a little more than $10 billion in October. In 2012 and 2013, there were only three months that saw margin debt decline. So far in 2014, there have been four months. In 2011, there were six months with declining margin debt.

image

image

The one-quarter moving average of margin debt as a percent of total market cap of the NYSE has been relatively flat since the beginning of 2013 fluctuating between 2.37% and 2.55%. It currently stands at 2.41%.

image

image

Copper Thumbing Its Nose at Chinese and European Stimulus

Last week we noted that copper was at a critical level and further weakness could open the door to much lower prices in the months ahead. Well, that further weakness seems to be materializing today as copper drop is down almost $.05/lbs, or 1.6%. While the lows of the year ($2.92/lbs) have yet to be taken out, we presume that day is not far off given the bearish technical price pattern evident in copper. And this just days after China cut rates and the European Commission announced an infrastructure spending plan. If copper can't rally on simultaneous Chinese and European stimulus announcements, we are not sure what will make the metal with a PhD in economics get into gear.

image

Where's Waldo: Global Treasury Bond Style

In case some of our readers aren't familiar with the popular picture book/game series entitled Where's Waldo, here's a quick run down of how it works. Basically, the object is to find an inconspicuously dressed Waldo among a throng of people in endless settings ranging from a sports stadium to the Egyptian pyramids and everything in between. Finding Waldo isn't as easy as it sounds as he tends to blend in quite well with his surroundings.

We were reminded of our days trying to find Waldo when looking across all the most important global treasury bond yields around the world. Fortunately for us and our readers, finding the Waldo of the global treasury bond market is a pretty snappy exercise. Hint: it's the only bond market that is not either making a new all-time low in yields or within spitting distance of a new all-time low. We suspect that as our T-bond Waldo tries to blend into the fold he will start looking a lot more like his neighbors.

image

image

image

image

image

image

image

image

Monday, November 24, 2014

Yen Devaluation Not Having Desired Effect on Japanese Stocks

While we are well aware of the relationship between the level of the JPY/USD and the Nikkei in yen terms (1st chart below), there is another less publicized relationship between Japanese stocks and the yen that suggests yen weakness isn't all it's cut out to be. The second chart below shows the percent of Japanese stocks outperforming the MSCI World Index in USD terms over the previous 65-days and the 65-day change in the JPY/USD exchange rate (right axis, red line, inverted). Because after all, for foreign investors in Japanese stocks it's the relative performance in USD terms that matters most. If Japanese stocks underperform the global benchmark while the yen weakens, there is no point in loading up on all things Japan, unless one is currency hedged.

What we observe is that changes in the yen have a noticeably unstable affect on the relative performance of Japanese stocks. Sometimes, like in 2013, the massive yen weakness led to more Japanese stocks outperforming. Alternatively, like in 2014, yen weakness has led to fewer Japanese stocks outperforming. Indeed, as the yen has weakened by 13.5 points over the last 65 days the percent of Japanese stocks outperforming the World stock market has fallen from 80% to 35%. Those are not good odds for a stock picker. Similarly, in 2011 and 2012, yen strength led to more Japanese stocks outperforming and vice versa.

Given the above it is by no means a sure bet that Japanese stocks will outperform in USD terms while the yen weakens. There is actually plenty of evidence to suggest the opposite is more likely. For unhedged stock pickers in venturing into Japan, this poses a significant challenge.

image

image

Cyclicals or Counter-Cyclicals - Which Will Outperform In The Next Five Weeks?

As we have noted before, this market has been somewhat unique in that counter-cyclicals have outperformed cyclicals since the market top in October 2007. As you can see in the first chart below, counter-cyclicals have outperformed by nearly 18% over the past seven years.

image

However, since the March 2009 low, the last six weeks of the year have been a period where we have seen on average about a 3% outperformance each year by either cyclicals or counter-cyclicals. In the past five years, cyclicals have outperformed from November 15th to January 1st three times by an average of just over 3%. During the other two years, counter-cyclicals have outperformed by an average of just about 3% as well. The next five charts show performance for this six week period by year.

11/15/2009 - 1/1/2010
image

11/15/2010 - 1/1/2011
image

11/15/2011 - 1/1/2012
image

11/15/2012 - 1/1/2013
image

11/15/2013 - 1/1/2014
image

So far in 2014, cyclicals have managed to outperform counter-cyclicals by just a smidge since November 15th. It will be interesting to see what transpires over the next five weeks. So far this year, counter-cyclicals hold three of the top four performing sectors year-to-date. Will money managers keep riding high with health care and utilities or will there by a contrarian move to bid up the laggards of the year, energy and materials? Only time will tell.

11/15/2014 - 11/21/2014
image

MSCI World Performance - Equal-Weighted Sectors
image