Daily Stock Market Commentary – 8/21/2008

Stock Market: indexes recovered partially, but Wednesday’s Spinning Top Candlestick suggests indecision.

Tuesday’s Bearish Rising Wedge breakdown casts a dark cloud.

Oil, Gold, and Inflation may be turning upward, and that would be Bearish for stocks.

On Wednesday, the Standard & Poor’s 500 cash index (1,274.54) rose 7.85 points or 0.62%, thereby retracing a normal fraction of Tuesday’s loss. Still, it remains below the 5-week uptrend line that formed the lower boundary line of a Bearish Rising Wedge. The S&P should waste little time before testing or breaking its low of 1,200.44 set on 7/15/2008.

Total NYSE volume rose 9%. Previously, from 7/15/2008 to 8/18/2008, volume was in a declining trend, which is typical of the now completed Bearish Rising Wedge pattern on the price chart.

The S&P had been in an irregular firming trend from the intraday low of 1,200.44 on 7/15/2008 to the intraday high at 1,313.15 on 8/11/2008. I had been assuming that upmove was nothing more than a normal oversold bounce in a Bear Market, and now that assumption appears more probably correct. The S&P has been in a long-term downtrend since the intraday high of 1,576.09 on 10/11/2007.

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
3.10% , PXJ , Oil & Gas, PXJ
1.98% , CR , CRANE
7.66% , HANS , Hansen Natural, HANS
6.78% , NOV , NATIONAL OILWELL VARC0
6.47% , DVN , DEVON ENERGY
4.05% , TBH , Telebras HOLDRS, TBH*
5.53% , FXI , China 25 iS, FXI
3.61% , SNPS , Synopsys Inc
7.54% , FCX , FREEPRT MCMORAN STK B
0.65% , PHW , Hardware & Electronics, PHW
5.65% , HPQ , HEWLETT PACKARD
7.44% , XTO , XTO ENERGY INC
10.23% , SLM , SLM CORP
0.90% , UTH , Utilities H, UTH
3.92% , APA , APACHE
1.02% , PWV , Value LargeCap Dynamic PS, PWV
3.25% , MMC , MARSH & MCLENNAN
2.53% , EP , EL PASO
5.64% , HES , AMERADA HESS
0.78% , XLG , LargeCap Rydex Rus Top 50, XLG
4.46% , OXY , OCCIDENTAL
4.34% , VLO , VALERO ENERGY
0.42% , IGV , Software, IGV
1.71% , CHKP , Check Point Software Technologies Ltd
2.09% , NOVL , NOVELL
5.80% , PHM , PULTE HOMES
5.73% , EOG , EOG RESOURCES
0.62% , IYY , LargeCap Blend Total Market DJ, IYY
4.62% , X , US STEEL CORP
3.12% , VDE , Energy VIPERs, VDE
3.43% , USB , US BANCORP
0.65% , VPU , Utilities VIPERs, VPU
1.49% , CVG , CONVERGYS
4.03% , LEN , Lennar Corp. (LEN)
3.45% , NBR , NABORS
2.36% , PMTC.O , PARAMETRIC
2.81% , MDT , MEDTRONIC
1.50% , GIS , GENERAL MILLS
3.70% , XME , Metals & Mining SPDR, XME
4.63% , MON , MONSANTO

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-0.33% , DSV , Value Small Cap DJ, DSV
-26.79% , FNM , FANNIE MAE
-13.12% , OMX , OFFICEMAX INC., OMX
-22.06% , FRE , FREDDIE MAC
-8.87% , ADI , ANALOG DEVICES
-7.38% , SOV , SOVEREIGN BANC
-3.21% , BHH , Internet B2B H, BHH
-0.34% , RZV , Value SmallCap S&P 600, RZV
-6.70% , GCI , GANNETT
-4.08% , MU , MICRON TECH
-0.55% , VCR , Consumer D. VIPERs, VCR
-3.89% , CMA , COMERICA
-0.94% , IIH , Internet Infrastructure H, IIH
-1.75% , RHT , Red Hat Inc.
-3.96% , SNV , SYNOVUS
-2.93% , MHS , MEDCO HEALTH
-3.60% , TXT , TEXTRON
-6.17% , MBI , MBIA
-3.90% , DISH , EchoStar Communications Corporation
-4.78% , CTB , COOPER TIRE
-2.34% , MYL , MYLAN LABS
-0.79% , RFV , Value MidCap S&P 400, RFV
-3.30% , MI , MARSHAL & ILSLEY
-1.51% , TMO , THERMO ELECTRON
-2.92% , NYT , NY TIMES STK A
-0.47% , DOG , Short 100% DOW30, DOG
-0.73% , EWI , Italy Index, EWI
-1.65% , TXN , TEXAS INSTRUMENT
-2.71% , FHN , FIRST TENNESSEE
-2.39% , JCI , JOHNSON CONTROLS
-0.40% , IACI , IAC/INTERACTIVCORP
-0.54% , SYK , STRYKER
-1.54% , HSP , HOSPIRA
-3.40% , HOT , STARWOOD HOTELS
-0.67% , PPH , Pharmaceutical H, PPH
-2.88% , CCL , CARNIVAL STK A
-1.77% , KMB , KIMBERLY CLARK
-0.87% , PWO , OTC Dynamic PS, PWO
-2.38% , OMC , OMNICOM
-1.79% , MS , MORGAN STANLEY

Sectors: among the 9 major U.S. sectors, 6 rose and 3 fell.
Major Sectors Ranked for the Day
% Price Change, Sector ETF, Symbol
2.89% Energy SPDR, XLE
2.06% Financial SPDR, XLF
1.75% Materials SPDR, XLB
0.38% Utilities SPDR, XLU
0.22% Technology SPDR, XLK
0.04% Consumer Staples SPDR, XLP
-0.63% Health Care SPDR, XLV
-0.80% Industrial SPDR, XLI
-1.23% Consumer Discretionary SPDR, XLY

Primary Tide Trends for the 9 major sectors last for years. Here are my up-to-date Relative Strength Rankings, as measured with emphasis on these long-term Primary Tide Trends (listed in order of long-term relative strength):

Consumer Staples (XLP) Neutral, Market Weight. On 8/12/08, XLP /SPY Relative Strength Ratio rose to another new 5-year high, again confirming that the long-term trend is up.

Health Care (XLV) Neutral, Market Weight. On 8/19/08, the XLV/SPY Relative Strength Ratio moved up to a new 7-month high, confirming an intermediate-term upside correction.

Energy (XLE) Bearish, Underweight. On 8/11/08, both the XLE absolute price and the XLE/SPY Relative Strength Ratio fell to new 5-month lows, thereby suggesting an intermediate-term downside correction.

Materials (XLB) Bearish, Underweight. On 8/5/08, both the XLB absolute price and the XLB/SPY Relative Strength Ratio fell to new 3-month lows, thereby suggesting an intermediate-term downside correction.

Technology (XLK) Bearish, Underweight. XLK/SPY Relative Strength Ratio turned down from a recent peak on 8/14/08. Relative Strength has underperformed since 11/5/07.

Utilities (XLU) Bearish, Underweight. On 8/15/08, XLU/SPY Relative Strength Ratio broke down to a new 4-month low, confirming an intermediate-term downside correction.

Industrial (XLI) Bearish, Underweight. On 8/20/08, XLI/SPY Relative Strength Ratio broke down to a new 3-week low. On 7/2/08, XLI/SPY Relative Strength broke down to a new 5-month low.

Consumer Discretionary (XLY) Bearish, Underweight. On 7/15/08, XLY absolute price fell to its lowest level in 5 years. Since 1/5/05, the XLY/SPY Relative Strength Ratio has underperformed substantially.

Financial (XLF) Bearish, Underweight. On 7/15/08, the XLF absolute price and the XLF/SPY Relative Strength Ratio both fell to their lowest level in 8 years, again confirming a Bearish Primary Tide Trend. Since 3/23/04, the XLF/SPY Relative Strength Ratio has underperformed substantially.

Foreign stock index EFA Relative Strength Ratio fell to a new 26-month low on 8/19/08 and has been in a falling trend since 5/23/08. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.

NASDAQ Composite Relative Strength Ratio has been in a rising trend since 3/3/08.

Growth Stock/Value Stock Relative Strength Ratio stabilized since making a new 7-week low on 7/23/08. The short-term trend is neutral. Longer term, this ratio (IWF/IWD) has been in an uptrend since 8/8/06, and it rose to a new 4-year high on 7/15/08.

The Small Cap/Large Cap Relative Strength Ratio turned down after making a new 27-month high on 8/14/08. The long-term trend has been Bullish most of the time since 4/8/99.

Crude Oil futures contract ended higher again in a volatile session, moving above the highs of the previous 3 trading days. The short-term trend appears to be turning up. The intermediate-term trend remains down. The long-term trend remains Bullish. U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil, although it generally moves in the same direction.

The Energy stock sector has underperformed Crude Oil since 12/10/07.

Gold futures contract consolidated. The short-term trend could be turning upward following oversold conditions. Gold has been in an intermediate-term downtrend since the peak of 1033.90 on 3/17/08. Gold has been in a long-term uptrend since 8/25/1999.

Gold Mining stocks continue to underperform Gold futures.

U.S. Treasury Bond futures contract recovered most of Tuesday’s loss. The short-term trend remains up. Bonds touched a new 4-month high on 8/20/08 and have been in an intermediate-term uptrend since 6/13/08. Long term, Bonds have been in a neutral sideways trend since June 2003.

The U.S. dollar trend recovered a normal fraction of Tuesday’s loss. The short-term trend direction could be turning to the downside following overbought conditions. The intermediate-term trend direction remains up. The long-term trend remains Bearish.

The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood. The business and financial news has flipped from fear to hope and back again this year, creating higher levels of volatility. Investors might be wise to focus on risk control.

Sentiment/Contrary Opinion: There were 40.7% Bulls versus 38.4% Bears as of 8/20/08, according to the weekly Investors Intelligence survey of newsletter advisors. The Bull/Bear ratio rose to 1.06, up from 0.70 the previous week. The low of 0.57 on 7/16/08 was the lowest level of the ratio since 1994. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47.

VIX Fear Index, now at 20.42, indicates falling Fear since the peak at 28.48 on 7/14/08. Previously, VIX fell from a peak of 32.64 on 3/17/08 to a low of 16.30 on 5/15/08, indicating decreasing Fear. The all-time high was 45.74 on 10/8/98. The all-time low was 9.89 on 1/24/07. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

VXN Fear Index, now at 23.53, indicates falling Fear since the peak at 33.20 on 7/14/08. Previously, VXN fell from a peak of 35.63 on 1/22/08 to a low of 20.00 on 5/16/08, indicating decreasing Fear. The all-time high was 114.23 on 10/8/98. The all-time low was 12.61 on 7/29/05. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.

CBOE Put/Call Ratio is 0.71, which indicates neutral sentiment. Its 4-year mean and median are 0.62, and its 4-year range is 0.35 to 1.28.

ISEE Call/Put Ratio is 1.09, which indicates Bearish sentiment. The ratio’s 4-year mean is 1.50, 4-year median is 1.47, and 4-year range is 0.51 to 3.16.

Fundamentals: The 2003-2007 Bull Market was fed by abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises. The unfolding fallout from the subprime credit market crisis has derailed that engine. Economic statistics and corporate earnings have weakened.

The Dow Theory confirmed a Primary Tide Bear Market on 11/21/07 when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their respective closing price lows of August, 2007.

The breadth of the market has been in a relatively Bearish trend long term since June 2007. The number of New Lows has exceeded the number of New Highs most days for more than a year, since July 2007, and that is one sign of a Bear Market. On 7/15/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 20-month lows, so major breadth trends remain Bearish.

To discover the next Resistance, traders probably will be watching how the market acts at the following levels for the Standard & Poor’s 500 cash index (1,274.54):

Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15 high of 8/11/2008

To discover the next Support, traders probably will be watching how the market acts at the following levels for the S&P 500 cash index (1,274.54):

Potential Support
1,200.44, low of 7/15/2008
1,168.20, low of 10/13/2005
1,163.23, high of 3/5/2004
1,159.86, low of 5/17/2005
1,153.64, low of 5/16/2005
1,146.18, low of 5/13/2005
1,139.14, low of 4/29/2005
1,136.37, low of 4/20/2005

Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

5.53% China 25 iS, FXI
4.06% China LargeCap Growth G D H USX PS, PGJ
3.98% Brazil Index, EWZ
3.70% Metals & Mining SPDR, XME
3.61% Hong Kong Index, EWH
3.25% Energy Exploration & Prod, PXE
3.23% Natural Resource iS GS, IGE
3.17% Oil Services H, OIH
3.12% Energy VIPERs, VDE
3.11% Latin Am 40, ILF
3.10% Oil & Gas, PXJ
3.01% Bank Regional H, RKH
2.99% Emerging VIPERs, VWO
2.97% Energy Global, IXC
2.90% Emerging 50 BLDRS, ADRE
2.89% Energy SPDR, XLE
2.80% Energy DJ, IYE
2.57% Taiwan Index, EWT
2.55% Emerging Markets, EEM
2.31% WilderHill Clean Energy PS, PBW
2.30% Pacific ex-Japan, EPP
2.29% Australia Index, EWA
2.28% Basic Materials DJ US, IYM
2.24% Canada Index, EWC
2.06% Financial SPDR, XLF
1.99% Malaysia Index, EWM
1.96% Singapore Index, EWS
1.92%Financial ServicesDJ, IYG
1.75% Materials SPDR, XLB
1.71% Asia 50 BLDRS, ADRA
1.68% South Korea Index, EWY
1.43% Value Line Timeliness MidCap Gr, PIV
1.43% Materials VIPERs, VAW
1.34% Oil, Crude, U.S. Oil Fund, USO
1.27% Internet Architecture H, IAH
1.23% Homebuilders SPDR, XHB
1.12% Pacific VIPERs, VPL
1.11% Financial DJ US, IYF
1.07% Japan Index, EWJ
1.05% Austria Index, EWO
1.02% Value LargeCap Dynamic PS, PWV
0.92% MidCap Growth iS M, JKH
0.90% Utilities H, UTH
0.89% Financials Global LargeCap Value, IXG
0.88% Value LargeCap iS M, JKF
0.86% Capital Markets KWB ST, KCE
0.85% Financials VIPERs, VFH
0.84% Europe 100 BLDRS, ADRU
0.83% Networking, PXQ
0.83% Ultra S&P500 Double, SSO
0.83% Lg Cap Growth PSD, PWB
0.81% LargeCap Blend NYSE Composite iS, NYC
0.79% Commodity Tracking, DBC
0.79% Ultra Dow30 Double, DDM
0.79% Utilities DJ, IDU
0.78% Dividend Leaders, FDL
0.78% LargeCap Rydex Rus Top 50, XLG
0.78% SmallCap Core iS M, JKJ
0.77% Growth Large Cap, ELG
0.77% Value 1000 Russell, IWD
0.72% Growth LargeCap iS M, JKE
0.71% MidCap VIPERs, VO
0.70% LargeCap Blend Dynamic PS, PWC
0.70% Growth S&P 500/BARRA, IVW
0.70% Growth SmallCap R 2000, IWO
0.70% Growth SmallCap iS M, JKK
0.69% Silver Trust iS, SLV
0.68% Value LargeCap NYSE 100 iS, NY
0.67% Growth MidCap Russell, IWP
0.67% MidCap Russell, IWR
0.66% Growth EAFE MSCI, EFG
0.65% Utilities VIPERs, VPU
0.65% Hardware & Electronics, PHW
0.64% Japan LargeCap Blend TOPIX 150, ITF
0.63% Growth MidCap S&P 400, RFG
0.63% Growth LargeCap Russell 3000, IWZ
0.63% Developed 100 BLDRS, ADRD
0.63% LargeCap VIPERs, VV
0.62% LargeCap Blend Total Market DJ, IYY
0.62% Wilshire 5000 ST TM, TMW
0.61% LargeCap Blend S&P 100, OEF
0.61% Growth 1000 Russell, IWF
0.60% LargeCap 1000 R, IWB
0.60% Ultra MidCap400 Double, MVV
0.60% Growth MidCap 400 B, IJK
0.60% Value S&P 500 B, IVE
0.60% EAFE Index, EFA
0.59% Extended Mkt VIPERs, VXF
0.58% Value Large Cap DJ, ELV
0.58% LargeCap Blend Russell 3000, IWV
0.57% Networking, IGN
0.57% Nanotech Lux, PXN
0.56% S&P 500 iS LargeCap Blend, IVV
0.56% Software, PSJ
0.55% Value LargeCap Fundamental RAFI 1000, PRF
0.55% Growth VIPERs, VUG
0.54% Dividend Achievers PS, PFM
0.54% South Africa Index, EZA
0.54% LargeCap Blend Socially Responsible iS, KLD
0.52% Growth SmallCap VIPERs, VBK
0.51% Value EAFE MSCI, EFV
0.48% DIAMONDS (DJIA), DIA
0.48% United Kingdom Index, EWU
0.47% Global Titans, DGT
0.46% S&P 500 SPDRs LargeCap Blend, SPY
0.46% LargeCap Blend S&P 1500 iS, ISI
0.45% Mexico Index, EWW
0.44% Short 200% QQQ PS, QID
0.43% Growth S&P 500, RPG
0.42% MidCap S&P 400 iS, IJH
0.42% Software, IGV
0.41% Bond, TIPS, TIP
0.41% Broadband H, BDH
0.40% Software H, SWH
0.40% MidCap S&P 400 SPDRs, MDY
0.38% Utilities, PUI
0.38% Growth BARRA Small Cap 600, IJT
0.38% Utilities SPDR, XLU
0.37% Global 100, IOO
0.36% Blend Total Market VIPERs, VTI
0.36% Building & Construction, PKB
0.33% Growth Mid Cap Dynamic PS, PWJ
0.32% MidCap Blend Core iS M, JKG
0.31% Telecom H, TTH
0.31% Technology DJ US, IYW
0.30% Value LargeCap Russell 3000, IWW
0.30% LargeCap Blend Core iS M, JKD
0.29% Bond, 10 Year Treasury, IEF
0.29% Growth LargeCap NASDAQ Fidelity, ONEQ
0.29% Value VIPERs, VTV
0.28% Bond, 20+ Years Treasury, TLT
0.27% France Index, EWQ
0.27% IPOs, First Tr IPOX-100, FPX
0.26% LargeCap Blend S&P=Weight R, RSP
0.26% Technology GS, IGM
0.26% Germany Index, EWG
0.26% Value MidCap S&P 400 B, IJJ
0.25% Growth SmallCap Dynamic PS, PWT
0.24% Real Estate US DJ, IYR
0.24% Value MidCap Russell, IWS
0.22% Micro Cap Zachs, PZI
0.22% Europe 350 S&P Index, IEV
0.22% Realty Cohen & Steers, ICF
0.22% Technology SPDR, XLK
0.22% European VIPERs, VGK
0.21% SmallCap S&P 600, IJR
0.20% Value 40 Large Low P/E FT DB, FDV
0.20% Small Cap VIPERs, VB
0.19% Value SmallCap Russell 2000, IWN
0.19% Euro STOXX 50, FEZ
0.19% Telecommunications Global, IXP
0.18% EMU Europe Index, EZU
0.18% Value SmallCap S&P 600 B, IJS
0.17% Telecom DJ US, IYZ
0.17% Growth LargeCap NASDAQ 100, QQQQ
0.17% Microcap Russell, IWC
0.16% Telecom Services VIPERs, VOX
0.16% Short 100% MidCap 400, MYY
0.16% Bond, Aggregate, AGG
0.15% REIT VIPERs, VNQ
0.14% Industrial LargeCap Blend DJ US, IYJ
0.14% Value LargeCap Euro STOXX 50 DJ, FEU
0.14% SmallCap Russell 2000, IWM
0.13% Bond, 1-3 Year Treasury, SHY
0.13% Consumer Staples VIPERs, VDC
0.13% Sweden Index, EWD
0.12% Value MidCap Dynamic PS, PWP
0.12% Industrials VIPERs, VIS
0.11% Technology MS sT, MTK
0.10% Value SmallCap VIPERS, VBR
0.09% Short 100% QQQ, PSQ
0.09% Growth Small Cap DJ, DSG
0.08% Dividend Appreciation Vipers, VIG
0.06% Spain Index, EWP
0.04% REIT Wilshire, RWR
0.04% Dividend DJ Select, DVY
0.04% Consumer Staples SPDR, XLP
0.01% Bond, Corp, LQD
0.00% Netherlands Index, EWN
0.00% Biotech & Genome, PBE
-0.06% Value MidCap iS M, JKI
-0.06% Food & Beverage, PBJ
-0.07% Retail H, RTH
-0.10% Value SmallCap Dynamic PS, PWY
-0.12% Dividend International, PID
-0.17% Info Tech VIPERs, VGT
-0.18% Consumer Non-Cyclical, IYK
-0.19% Value S&P 500, RPV
-0.21% Dividend SPDR, SDY
-0.22% SmallCap PS Zacks, PZJ
-0.24% Technology Global, IXN
-0.27% Water Resources, PHO
-0.28% Semiconductor iS GS, IGW
-0.29% Dividend High Yield EquityPS, PEY
-0.30% Healthcare DJ, IYH
-0.31% Semiconductor SPDR, XSD
-0.32% Insurance, PIC
-0.33% Value Small Cap DJ, DSV
-0.34% Value SmallCap S&P 600, RZV
-0.36% Short 100% S&P 500, SH
-0.39% Pharmaceuticals, PJP
-0.39% Biotechnology, IBB
-0.39% Telecommunications & Wireless, PTE
-0.40% Consumer Cyclical DJ, IYC
-0.40% Value SmallCap iS M, JKL
-0.41% Aerospace & Defense, PPA
-0.46% Gold Shares S.T., GLD
-0.47% Short 100% Dow 30, DOG
-0.54% Internet H, HHH
-0.54% Biotech H, BBH
-0.55% Consumer D. VIPERs, VCR
-0.55% Dividend Growth PS, PHJ
-0.55% Semiconductors, PSI
-0.57% Health Care VIPERs, VHT
-0.57% Ultra QQQ Double, QLD
-0.63% Health Care SPDR, XLV
-0.66% Short 200% MidCap 400 PS, MZZ
-0.67% Pharmaceutical H, PPH
-0.68% Biotech SPDR, XBI
-0.69% Healthcare Global, IXJ
-0.70% Switzerland Index, EWL
-0.73% Italy Index, EWI
-0.78% Leisure & Entertainment, PEJ
-0.79% Value MidCap S&P 400, RFV
-0.80% Industrial SPDR, XLI
-0.84% Short 200% Dow 30 PS, DXD
-0.85% Short 200% S&P 500 PS, SDS
-0.87% OTC Dynamic PS, PWO
-0.88% Belgium Index, EWK
-0.94% Transportation Av DJ, IYT
-0.94% Internet Infrastructure H, IIH
-1.02% Semiconductor H, SMH
-1.13% Retail, PMR
-1.23% Consumer Discretionary SPDR, XLY
-3.21% Internet B2B H, BHH