Elmwood Data's blog

Apple is scheduled to report earnings on Tuesday April 24th.   Our analysis is simply to try and match the enthusiasm of the recent price movement and fundamental story of Apple in relation to what has happened in the options markets. 

Price action for Apple stock over the past few weeks has been noticeably poor.  Not only has it traded down 10% from its April 9th closing high of $636 to $572 today, but it has led the market several times with somewhat dramatic intraday reversals.  Even so, the options market has not yet expressed this same recent bearish opinion on the stock. 

Last week the Economic Cycle Research Institute (ECRI) affirmed their call made last fall that the U.S. economy would soon be in recession.   The ECRI’s main business focus is to try and predict the ups and downs of the business cycle, and they have had an outstanding record over the years. Right now the absolute level of the index may suggest economic weakness, but the second differential has suggested an improving stock market is also in the cards. 

Today FX markets seem to be
driven by technical analysis and news flow.   Our approach has been to analyze what investors have
been doing, rather than what they say they are doing.   To accomplish this, we compare the Euro currency
against data taken from the Commitments of Traders (COT) reports.  The first chart shows the Euro (EC) as
the black line compared against the net speculative long open interest
(EC_NCPLA-EC_NCPSA) in the blue line.  

Here is a good chart showing data from the weekly mutual fund flow of funds report.   This series is using the domestic equity only data.   In the first chart, we have plotted the flow of funds in it’s raw form.    Though there has been a small recent uptick in funds coming in, note the strong consistent negative flow over the last couple of years.  

In this chart and analysis, we compare the S&P 500 (black line) to the American Association of Individual Investors (AAII) weekly survey. The AAII reports their respondents in three categories: bullish, bearish, and neutral. To analyze these AAII statistics, we create the “Farrell Sentiment Index,” defined as the number of bulls, divided by the number of bears, plus .5x the number of neutrals = Bulls/(Bears+.5Neutrals). This data can be quite volatile week to week, so we opted to convert this formulaic data series into two different types of charts.

Since the summer of 2010, the way gold was viewed and used by the overall market has changed.   For much of the period from Jan 1, 2008 until June 30, 2010 for example, gold (GC) has had an inconsistent relationship, in correlation terms, relative to the S&P 500 (SPY).  There were times during this period when it moved in the opposite direction, but much of this time it moved in the same direction as the market.  This can be seen in the first chart shown.

The macro environment for home improvement stocks continues to be favorable.   Credit standards have eased somewhat over the past few months and with the Federal Reserves new “operation twist” program, it has driven down interest rates even further.  This has created a much more favorable backdrop for home owners wishing to refinance.   It appears for owners who are refinancing, some of the dollars that are being saved in a such a deal are being reinvested in their homes.  Home improvement retailers in recent quarters have all told the same story, that people are shying away from big projects and instead are spending money on smaller ticket items to improve their home.