By Robert W. Colby, Senior Analyst TraderPlanet.com
Financial sector gets big oversold pop, helped by analyst upgrade.
Still, it may take time and some bottom testing and base building to fully dissipate the fear load built up in recent weeks based on the still unfolding credit market woes.
Spotlight on event stocks: Here is a stock screen I designed to pick out potential “event” stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
% Price Change, Symbol, Name
0.71% , MKH , Market 2000 H, MKH
1.29% , RFG , Growth MidCap S&P 400, RFG
1.99% , RZG , Growth SmallCap S&P 600, RZG
1.36% , IYC , Consumer Cyclical DJ, IYC
2.25% , XBI , Biotech SPDR, XBI
2.87% , PUI , Utilities, PUI
3.29% , VPU , Utilities VIPERs, VPU
5.05% , CTB , COOPER TIRE
1.59% , VCR , Consumer D. VIPERs, VCR
3.89% , VFH , Financials VIPERs, VFH
2.48% , VIG , Dividend Appreciation Vipers, VIG
1.98% , PMR , Retail, PMR
5.81% , TIN , TEMPLE INLAND
3.50% , FDL , Dividend Leaders, FDL
2.96% , ELV , Value Large Cap DJ, ELV
1.90% , IYY , LargeCap Blend Total Market DJ, IYY
2.35% , XLG , LargeCap Rydex Rus Top 50, XLG
7.14% , JNPR , Juniper Networks Inc
2.65% , VTV , Value VIPERs, VTV
1.16% , IXP , Telecommunications Global, IXP
0.72% , DSG , Growth Small Cap DJ, DSG
1.20% , RFV , Value MidCap S&P 400, RFV
0.87% , VBK , Growth SmallCap VIPERs, VBK
1.54% , IWZ , Growth LargeCap Russell 3000, IWZ
2.29% , IYK , Consumer Non-Cyclical, IYK
1.78% , TMW , Wilshire 5000 ST TM, TMW
1.80% , VHT , Health Care VIPERs, VHT
8.55% , BIG , BIG LOTS
3.14% , JKF , Value LargeCap iS M, JKF
2.62% , VDC , Consumer Staples VIPERs, VDC
1.50% , IXJ , Healthcare Global, IXJ
5.43% , GNTX , Gentex Corporation
5.79% , WWY , WM WRIGLEY JR
0.73% , VXF , Extended Mkt VIPERs, VXF
1.82% , PWY , Value SmallCap Dynamic PS, PWY
3.47% , PDCO , Patterson Dental Company
1.53% , PWO , OTC Dynamic PS, PWO
1.49% , IJT , Growth BARRA Small Cap 600, IJT
1.69% , EWP , Spain Index, EWP
2.43% , RWR , REIT Wilshire, RWR
1.73% , EWD , Sweden Index, EWD
7.65% , AFL , AFLAC
5.15% , RKH , Bank Regional H, RKH
3.49% , VNQ , REIT VIPERs, VNQ
1.37% , PWC , LargeCap Blend Dynamic PS, PWC
2.30% , SWH , Software H, SWH
5.78% , JCP , JC PENNEY
1.61% , RPG , Growth S&P 500, RPG
4.29% , PEY , Dividend High Yield Equity PS, PEY
3.78% , LIZ , LIZ CLAIRBORNE
% Price Change, Symbol, Name
-5.56% , TIF , TIFFANY
-0.83% , IGN , Networking, IGN
-1.58% , PSQ , Short 100% QQQ, PSQ
-2.62% , GPS , GAP
-3.97% , USO , Oil, Crude, U.S. Oil Fund, USO
-3.65% , PMTC.O , PARAMETRIC
-4.57% , PWER , POWER ONE
-5.40% , TNB , THOMAS & BETTS
-5.29% , LSI , LSI LOGIC
-2.40% , NOVL , NOVELL
-1.68% , IIH , Internet Infrastructure H, IIH
-1.87% , AES , AES
-5.24% , SANM , SANMINA
-2.87% , WMB , WILLIAMS
-3.71% , DXD , Short 200% Dow 30 PS, DXD
-1.75% , NIHD , NII Holdings, Inc.
-0.90% , PZI , Micro Cap Zachs, PZI
-1.72% , DLX , DELUXE
-1.75% , Q , QWEST COMMUNICAT
-4.84% , GTW , GATEWAY
-3.35% , MNST , MONSTER WORLDWID
-1.90% , RFMD , RF Micro Devices Inc
-1.39% , DBC , Commodity Tracking, DBC
-1.66% , SH , Short 100% S&P 500, SH
-3.61% , CZN , CITIZENS COMMS STK B
-0.47% , EWC , Canada Index, EWC
-1.97% , GT , GOODYEAR TIRE
-0.67% , MYY , Short 100% MidCap 400, MYY
-2.63% , CTX , CENTEX
-0.47% , PXQ , Networking, PXQ
-1.43% , DISH , EchoStar Communications Corporation
-3.77% , TLAB , TELLABS
-2.19% , IACI , IAC/INTERACTIVCORP
-1.65% , CVG , CONVERGYS
-1.46% , TRB , TRIBUNE
-1.06% , FLR , FLUOR
-1.85% , SEE , SEALED AIR
-1.38% , BSX , BOSTON SCIENT
-1.70% , HES , AMERADA HESS
-0.76% , GLW , CORNING
-2.50% , LVLT , LEVEL 3 COMMUNICATIONS
-1.68% , MTG , MGIC INVESTMENT
-1.76% , OXY , OCCIDENTAL
-0.78% , FCX , FREEPRT MCMORAN STK B
-1.50% , RIG , TRANSOCEAN
-1.41% , AA , ALCOA
-0.65% , UIS , UNISYS
-1.37% , EWO , Austria Index, EWO
-0.12% , SHY , Bond, 1-3 Year Treasury, SHY
-1.98% , BEAS , BEA Systems Inc
Sectors: among the 9 major U.S. sectors, all 9 fell.
% Price Change, Sector
5.18% Financial
3.14% Utilities
2.59% Consumer Staples
1.96% Health Care
1.59% Consumer Discretionary
1.58% Technology
1.51% Industrial
1.17% Materials
0.57% Energy
Industrial (XLI) Bullish. Price held up above July lows. Relative strength made a new high on 8/3/07. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Energy (XLE) Bullish. Price broke down to a new 3-month low on 8/6/07. Relative strength made a new 5-week low. Longer term, XLE has been relatively strong compared to the S&P since 3/12/03. Overweight.
Technology (XLK) Bullish. Price held up above the August 1st low. Relative strength is rising. XLK has been relatively strong compared to the S&P since its low on 7/24/06. Overweight.
Materials (XLB) Bullish. Price fell to a new 4-month low on 8/6/07. Relative strength made a new 8-week low. Longer term, XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.
Consumer Staples (XLP) Improving. Price held up above July lows. Relative strength made a new 3-month high. XLP has been relatively weak compared to the S&P since 10/9/02. Market weight.
Utilities (XLU) Bearish. XLU has been relatively weak compared to the S&P since 4/2/07 but has improved since 7/30/07. Underweight.
Health Care (XLV) Bearish. Relative strength moved up to a new 1-month high. Longer term, relative strength just made a new 5-year low on 7/19/07. Call it short-term “maybe improving” but long term Bearish. Underweight.
Consumer Discretionary (XLY) Bearish. Price made a new 9-month low on 8/6/07. Relative strength made a new 10-month low. The sector and has been relatively weak compared to the S&P since 1/5/05. Underweight.
Financial (XLF) Bearish. Price fell to a new 12-month low on 8/6/07. Relative strength made a new 6-year low on 8/3/07. Underweight.
Foreign stocks lagged on Monday but outperformed since 7/26/07. The long-term trend is still Bullish: EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has outperformed the S&P 500 since 3/19/03.
NASDAQ sharply underperformed. NASDAQ has underperformed the S&P since 7/27/07 but outperformed since 5/17/07. Appears uncertain at best.
Growth sharply outperformed Value since 5/16/07. Longer term, the major trend of Growth/Value, mostly Bearish for seven years, appears to have turned Bullish.
Large Caps beat Small Caps since 4/19/06, and that trend in is motion. Relative Strength of Large/Small Caps just made a new 2-year high.
Crude Oil prices plunged steeply to a new 4-week low–a warning for the short-term. Crude made a new 10-month price high on 7/31/07, so the longer-term trend is Bullish. The U.S. OIL FUND ETF (AMEX: USO) remains in its uptrend since its shakeout low at 42.56 on 1/18/07.
Energy stocks outperformed USO but underperformed SPY. Long term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.
Gold consolidated short-term gains. Last week, Gold benefited from the flight to safety, but that trend could be temporary. Longer term, StreetTRACKS Gold Trust ETF (NYSE: GLD) has underperformed the S&P since the GLD top on 5/12/06.
Silver fell again and has substantially underperformed Gold since 6/5/07. Longer term, iShares Silver Trust (AMEX: SLV) broke down to a new 6-month low on 6/26/07 and underperformed GLD since 12/7/06. So, the main trend is relatively Bearish.
The Gold Miners Index (XAU) underperformed Gold since 7/19/07. XAU also underperformed Gold since 1/31/06. In fact, Gold mining stocks have substantially underperformed both Gold and the S&P 500 for more than 20 years.
Deflating: inflation expectations plunged steeply to new 2-month low. They have been falling since 6/22/07. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes indicates declining inflation expectations.
U.S. Treasury Bond prices eased lower following a new 11-week price high on 8/3/07. The shift from risk to safety was renewed last week as the fundamental news took a turn for the worse. This may shift again and again day to day with the news. The short-term bond price trend has been Bullish since the price low on 6/12/07. But since the peak at 97.66 on 6/16/03, the long-term trend appears Bearish for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT).
U.S. dollar successfully tested its low of 7/24/07. This could be somewhat encouraging for the short term, but the chart “needs work” before a meaningful trend change. Traders be nimble. Longer term, the dollar fell to a new 15-year price low on 7/24/07, confirming the major trend as Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
5.36% Banks
5.18% Financial
3.77% Broker Dealers
3.74% South Korea
3.48% Dow Utilities
3.14% Utilities
2.99% Hong Kong
2.76% Germany
2.67% REITs
2.59% Consumer Staples
2.54% Australia
2.49% Taiwan
2.43% S&P 100
2.42% S&P 500
2.39% Biotechs
2.37% Malaysia
2.35% Dow Composite
2.33% Health Care
2.33% Drugs
2.22% Retailers
2.19% Russell 1000
2.18% Dow Industrial
2.13% Russell 3000
2.01% Wilshire 5000
1.96% Health Care
1.95% NYSE Composite
1.95% Health Care Products
1.87% Dow Transports
1.87% Nasdaq 100
1.78% Belgium
1.73% Sweden
1.69% Spain
1.59% Consumer Discretionary
1.59% Italy
1.58% Technology
1.55% Semiconductors
1.52% Netherlands
1.51% Industrial
1.49% Japan
1.45% Russell 2000
1.44% Nasdaq Composite
1.44% Computer Tech
1.36% S&P Small Caps
1.34% S&P Mid Caps
1.26% Value Line
1.19% Chemicals
1.17% Materials
1.10% Switzerland
1.03% Hardware
0.98% Oil
0.97% Insurance
0.97% France
0.93% DOT
0.93% United Kingdom
0.75% Internet
0.57% Energy
0.54% Singapore
0.40% AMEX Composite
0.38% Disk Drives
0.36% Natural Gas
0.34% Commodity Related
0.33% Brazil
0.32% Swiss Franc
0.23% Japanese Yen
0.17% US Dollar Index
0.16% Network
0.09% Australian Dollar
0.08% Canadian Dollar
0.05% Mexico
0.02% Euro Index
-0.04% Hospitals
-0.14% Oil Services
-0.40% 30Y T-Bond
-0.47% Canada
-0.67% British Pound
-1.37% Austria
-1.45% Gold Mining
-1.60% Paper
-1.65% Airlines
To sum up the current position of the U.S. stock market:
Liquidity driven merger and acquisitions news has been helping to keep the old Bull alive. Both U.S. and foreign corporations hold excess cash after several years of rising profits, and so M&A speculation as well as leveraged buyouts and corporate stock buybacks have provided substantial Bullish stimulus to stock prices. In 2007, mergers and acquisitions are running about 60% ahead of 2006’s record pace, driven by rising stock prices and private-equity funds that raised more than $250 billion for takeovers since the start of 2006. Takeovers are on track to surpass 2006’s all-time high of $3.49 trillion, according to data compiled by Bloomberg.
Conservative earnings estimates also have been useful in keeping the old Bull alive. First quarter 2007 corporate earnings reflected a significant growth slowdown. Nevertheless, earnings were ahead of expectations, which had been lowered to very conservative levels in advance of actual reporting. Managements and Wall Street have learned that investors hate disappointments, so they simply don’t give them any–unless absolutely necessary.
Investors might perceive anything that threatens to end abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises as threats to the popular Bullish scenario.
Stocks generally are fully valued to over priced by long-term historical standards. Although that alone does not mean that stocks cannot continue to trend higher (as they have the great majority of the time since 2003) nevertheless, it is good to remember that “no tree grows to the sky.” The cyclical nature of stock prices never really changes, although the turning points are not always easy to predict.
