Small Caps Bearish

by

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) whipsawed back down below its 50-day SMA on 7/19/12, thereby turning systematically bearish again.

Financial stock sector Relative Strength Ratio (XLF/SPY) turned systematically bearish on 7/19/12, when its 50-day SMA fell below its 200-day SMA.

VIX Fear Index fell to 15.45 intraday, its lowest level since 4/2/12. VIX fell from an intraday peak of 27.73 on 6/4/12. This large drop suggests a rapid shift from worried concern to bullish complacency.

The S&P 500 (SPX: 1,376.51) rose 3.73 points or 0.27% on Thursday. SPX rose above the highs of the previous 2 months, to the highest level since 5/4/12. SPX might be getting somewhat overbought., however. And some indexes and indicators failed to confirm this higher high for the SPX.

NYSE volume rose 10% to a moderately above-average level, suggesting somewhat better demand for stocks.

Last week, the S&P 500 bounced off its 50-day SMA, where it often tries to make a stand, if only temporarily. Nevertheless, downside risk still may exceed upside potential for the stock market looking out weeks ahead.

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Hedge funds and equity mutual funds both lost money last year, 2011, and some are down again this year as well.

Meanwhile, one money manager made gains for 5 consecutive quarters; see:
Robert W. Colby Asset Management, Inc. (click here).


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Stock Market Indicators

The Dow Theory signaled a Primary Tide Bear Market on 5/17/12 when both Industrials and Transports closed below their closing price lows of the previous 4 months, including the critical lows of March and April, 2012. The Averages gave an early warning by diverging after 2/3/12, as the Transports turned corrective and failed to confirm higher highs by the Industrials. Again on 5/1/12, the Industrials rose to a higher closing price high while the Transports failed to rise to a higher closing price high, thereby indicating a non-confirmation and bearish divergence.

NASDAQ Composite/S&P 500 Relative Strength Ratio remains systematically neutral: below its 50-day SMA, above its 200-day SMA, and its 50-day SMA has been above its 200-day SMA since 2/3/12, but the 50-200 spread has been narrowing.

iShares MSCI BRIC Fund (BKF) Relative Strength Ratio (BKF/SPY) fell below its lows of the previous 3 years on 6/25/12, reconfirming its bearish trend. Systematically, BKF/SPY remains bearish below its 50-day SMA, below its 200-day SMA, and with the 50-day SMA below the 200-day SMA every day since 1/13/11.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell below its lows of the previous 3 years on 5/25/12, reconfirming its bearish trend. EEM/SPY remains below its 50-day and 200-day SMAs. Longer term, the 50-day SMA has remained below the 200-day SMA every day since 2/3/11.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) reconfirmed a bearish major trend when it fell below its lows of the previous 9 years on 6/25/12. Systematically, EFA/SPY remains bearish below its 50-day and 200-day SMAs, and the 50-day SMA has remained below the 200-day SMA consistently every day since 1/14/11.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) rose above its highs of the previous 2 years on 7/16/12, reconfirming its preexisting major bullish trend. OEX/SPX remains systematically bullish above its 50-day SMA, above its 200-day SMA, and the 50-day SMA has been above the 200-day SMA consistently every day since 8/24/11. Large Caps tend to outperform in bearish general market trends as investors seek the perceived relative safety of large size. On the other side of the coin, Large Caps tend to underperform Mid Caps and Small Caps in bullish general market trends as investors prefer riskier and more volatile stocks.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) whipsawed back down below its 50-day SMA on 7/19/12, thereby turning systematically bearish again. IWM/SPY remains below its 200-day SMA, and its 50-day SMA has remained below its 200-day SMA consistently every day since 4/20/12.

The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) fell below its 200-day SMA on 7/6/12, thereby turning systematically bearish again. MDY/SPY remains below its 200-day SMA, and its 50-day SMA has been below its 200-day SMA since 6/6/12.
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Sentiment for Contrary Thinking

Investor sentiment data indicated alarming degrees of optimism and bullish complacency at the February to May 2012 market highs. That was bearish because when the majority of investors has been bullish for some time, investors are already fully invested in the market. Once everyone who is going to buy has already bought, stocks are vulnerable to a downside shakeout. The pendulum of emotion tends to swing too far in one direction, but market mood always reverts to the mean, as it did during the April-June downside stock market correction.

AAII Sentiment shows a drop in bullish sentiment. According to the AAII weekly survey of individual investors reported on 7/19/12, there were 22.19% Bulls and 41.79% Bears. Individual investors have grown less optimistic in recent weeks.

Investors Intelligence Sentiment has shifted substantially toward bullish confidence since May. According to the Investors Intelligence weekly survey of stock market newsletter advisors reported on 7/18/12, there were 43.6% Bulls and 24.5% Bears. Advisors are bullish.

Hulbert Stock Newsletter Sentiment Index showed that the average recommended equity exposure among a subset of the shortest-term stock market timers jumped 24 percentage points (in just one week) to 47.0% as stocks ran up to their highs of 7/3/12. That was greater bullish exposure than at the May high and "is a worrisome sign", according to Mark Hulbert.

Corporate Insiders Are Bearish. Insiders sold 5.5 shares for each share bought as of 7/6/12--up from 1.6-to-1 in May and up from a long-term average of 2.25-to-1. The data is was reported by Vickers Weekly Insider Report, published by Argus Research, and Mark Hulbert.

NYSE Short Interest fell by more than 0.5 billion shares, the largest drop since January. This source of short-covering, potential demand for stocks has diminished.

The ICI reported $62.6 billion has been withdrawn from domestic equity mutual funds so far in 2012. This is another confirmation that supply is greater than demand for stocks.

VIX Fear Index fell to 15.45 intraday on 7/19/12, its lowest level since 4/2/12. VIX fell from an intraday peak of 27.73 on 6/4/12. This large drop suggests a rapid shift from worried concern to bullish complacency. 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.

The S&P 500 Composite Potential Resistance
1576.09, high of 10/11/2007
1552.76, high of 10/31/2007
1523.57, high of 12/11/2007
1498.85, high of 12/26/2007
1440.24, high of 5/19/2008
1422.38, high of 4/2/2012
1415.32, high of 5/1/2012
1389.07, Fibonacci 78.6% of April-June 2012 range
1388.71, low of 5/3/2012
1381.50, Fibonacci 78.6% of 2007-2009 range

The S&P 500 Composite Potential Support
1374.81, high of 7/3/2012
1370.58, high of 5/2/2011
1363.49, high of 6/19/2012
1362.93, Fibonacci 61.8% of April-June 2012 range
1357.38, low of 4/10/2012
1355.70, low of 7/2/2012
1344.56, Fibonacci 50% of April-June 2012 range
1340.34, Fibonacci 23.6% of 2011-12 range
1340.03, low of 3/6/2012
1335.52, high of 6/11/2012
1334.93, high of 5/31/2012
1333.09, 50-day SMA
1329.05, high of 6/7/2012
1328.49, high of 5/22/2012
1326.19, Fibonacci 38.2% of April-June 2012 range
1325.41, low of 7/12/2012
1312.13, 200-day SMA
1306.62, low of 6/12/2012
1303.47, Fibonacci 23.6% of April-June 2012 range
1291.98, low of 5/18/2012
1289.59, Fibonacci 38.2% of 2011-12 range
1266.74, low of 6/4/2012
1265.26, low of 1/5/2012
1262.30, low of 12/27/2011
1257.58, Fibonacci 61.8% of 2011 range
1248.58, Fibonacci 50.0% of 2011-12 range
1244.80, low of 12/7/2011
1239.73, low of 12/1/2011
1238.81, Fibonacci 78.6% of 1,576.09 high
1234.81, low of 11/3/2011
1231.04, high of 12/16/2011
1228.74, Fibonacci 61.8% of 2007-2009 range
1226.64, low of 11/9/2011
1224.57, high of 12/19/2011
1215.20, low of 12/16/2011
1207.56, Fibonacci 61.8% of 2011-12 range
1202.37, low of 12/19/2011
1158.66, low of 11/25/2011
1121.44, Fibonacci 50% of 2007-2009 range
1074.77, low of 10/4/2011
1149.16, Fibonacci 78.6% R of 2011-12 range
1014.14, Fibonacci 38.2% of 2007-2009 range
1010.91, low of 7/1/2010
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
881.38, Fibonacci 23.6% of 2007-2009 range
869.32, low of 7/8/2009
666.79, intraday low of 3/6/2009
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Tangible Assets, Commodities

U.S. dollar ETF (UUP) price rose above its highs of the past 18 months on 7/12/12, thereby confirming its preexisting uptrend. UUP remains systematically bullish: above its 50-day SMA, above its 200-day SMA, and with the 50-day SMA above the 200-day SMA. Support 22.38, 22.14, 21.89, 21.74, 21.58, 21.07, and 20.84. Resistance 23.07, 23.52, 25.84, 27.19, 28.97.

CRB Commodity Price Index remains systematically neutral: above its 50-day SMA, above its 200-day SMA, and its 50-day SMA has remained below its 200-day SMA every day since 8/18/11.

Agriculture, PowerShares DB Agriculture Fund ETF (DBA) has been rising for 5 weeks but remains systematically neutral: above its 50-day SMA, above its 200-day SMA, and its 50-day SMA has remained below its 200-day SMA every day since 8/8/11.

Crude Oil, United States Oil ETF (USO) turned systematically neutral on 7/16/12, when price rose above its 50-day SMA. USO remains far below its 200-day SMA, and its 50-day remains far below its 200-day SMAs. Support 29.02, 26.28, and 22.74. Resistance 33.08, 33.66, 34.76, 35.19, 36.97, 40.29, 41.38, 42.30, and 45.60.

Gold, SPDR Gold Shares ETF (GLD) whipsawed back down below its 50-day SMA again on 7/6/12, thereby turning systematically bearish again. GLD remains below its 200-day SMA, and its 50-day SMA remains below its 200-day SMA. Support: 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 159.20, 162.18, 163.20, 164.89, 166.57, 174.00, 175.46, 177.40, and 185.85.

Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) whipsawed back down below its 50-day SMA on 7/9/12, turning systematically bearish again. GDX/GLD remains below its 200-day SMA, and the 50-day SMA has remained bearishly below the 200-day SMA every day since 2/22/11.

Silver, iShares Silver Trust ETF (SLV) fell below its lows of the previous 19 months on 6/28/12, thereby confirming its preexisting major bearish trend. SLV remains systematically bearish: below its 50-day and 200-day SMAs, and with the 50-day SMA below the 200-day SMA every day since 10/27/11. Support 25.34, 25.00, 24.44, 22.52, 20.73, and 19.44. Resistance: 27.98, 28.26, 29.02, 30.52, 31.64, 32.34, 33.44, 36.44, 40.23, 41.49, 42.30, 42.78, 44.71, and 48.35.

Silver/Gold ETFs Ratio (SLV/GLD) fell below its lows of the previous 20 months on 6/28/12, reconfirming its major downtrend. SLV/GLD remains systematically bearish: below its 50-day SMA, below its 200-day SMA, and the 50-day SMA has remained below the 200-day SMA every day since 8/30/11.

Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) remains below its 200-day SMA, and its 50-day SMA remains below its 200-day SMA. In addition, JJC remains far below its 2011 high at 61.69 and has underperformed the stock market since JJC peaked at 51.41 on 2/9/12. Given that "Dr. Copper" is one of the better indicators of investor confidence (or lack thereof) in the global industrial economy, this weakness may be suggesting rising doubts about prospects going forward.
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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
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name

11.79% , WAG , WALGREEN
7.46% , PPG , PPG INDUSTRIES
1.54% , ITF , Japan LargeCap Blend TOPIX 150, ITF
7.48% , VFC , VF
9.62% , SNA , SNAP ON
8.63% , EBAY , EBAY
1.76% , DBO , Oil Fund PowerShares, DBO
4.00% , AMZN , Amazoncom Inc
3.74% , SHW , SHERWIN WILLIAMS
7.61% , CIEN.O , CIENA
5.26% , WHR , WHIRLPOOL
3.61% , DISH , EchoStar Communications
11.53% , TXT , TEXTRON
2.70% , COF , CAPITAL ONE FNCL
5.87% , BRCM , BROADCOM STK A
2.12% , GOOG , Google
1.09% , IYM , Basic Materials DJ US, IYM
5.23% , COH , COACH
0.83% , PIN , India PS, PIN
5.14% , RFMD , RF Micro Devices Inc
3.52% , UNP , UNION PACIFIC
1.04% , EIS , Israel MSCI iS, EIS
4.63% , KSU , Kansas City Southern, KSU
3.54% , COL , ROCKWELL COLLINS
1.85% , ESRX , EXPRESS SCRIPTS
4.24% , FCX , FREEPRT MCMORAN STK B
1.09% , VAW , Materials VIPERs, VAW
2.82% , USO , Oil, Crude, U.S. Oil Fund, USO
1.55% , RIG , TRANSOCEAN
1.31% , EWK , Belgium Index, EWK
0.35% , TMW , Wilshire 5000 ST TM, TMW
3.10% , DDS , DILLARD STK A
2.42% , GPC , GENUINE PARTS

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name

-6.54% , CVS , CVS
-7.94% , JCI , JOHNSON CONTROLS
-5.27% , SLM.O , SLM CORP
-5.29% , MS , MORGAN STANLEY
-5.89% , LH , LAB CRP OF AMER
-2.41% , UNH , UNITEDHEALTH GRP
-4.18% , SWY , SAFEWAY
-3.53% , AXP , AMERICAN EXPRESS
-6.06% , LPX , LOUISIANA PAC
-3.20% , DGX , QUEST DIAG
-2.16% , WFM.O , Whole Foods Market Inc
-0.61% , FRN , Frontier Markets Guggenheim , FRN
-2.67% , SYK , STRYKER
-3.93% , AN , AUTONATION
-2.02% , STI , SUNTRUST BANKS
-3.06% , PHM , PULTE HOMES
-2.87% , LUV , SOUTHWEST AIRLS
-1.90% , DHR , DANAHER
-0.83% , PZI , Micro Cap Zachs, PZI
-1.39% , PAYX , PAYCHEX
-1.81% , WMT , WAL MART STORES
-2.15% , AET , AETNA
-1.01% , ETFC , E*TRADE FINANCIAL
-3.84% , FII , FED INVESTORS STK B
-0.77% , CAG , CONAGRA FOODS
-1.74% , JNS , JANUS CAPITAL
-1.77% , KR , KROGER
-2.23% , XLNX , XILINX
-1.51% , CI , CIGNA
-1.24% , NUE , NUCOR
-0.73% , BF.B , BROWN FORMAN STK B
-1.07% , DLX , DELUXE
-0.23% , SO , SOUTHERN
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

2.82% Oil, Crude, U.S. Oil Fund, USO
2.41% Networking, IGN
2.23% China 25 iS, FXI
2.00% Semiconductor iS IGW, SOXX
1.92% Semiconductor SPDR, XSD
1.89% Sweden Index, EWD
1.76% Oil Fund PowerShares, DBO
1.70% Australia Index, EWA
1.57% Russia MV, RSX
1.50% Brazil Index, EWZ
1.37% China LargeCap Growth G D H USX PS, PGJ
1.37% Growth EAFE MSCI, EFG
1.36% South Korea Index, EWY
1.36% Technology DJ US, IYW
1.35% Taiwan Index, EWT
1.33% Info Tech VIPERs, VGT
1.31% Belgium Index, EWK
1.23% Small Cap EAFE MSCI iS, SCZ
1.22% Pacific ex-Japan, EPP
1.21% Commodity Tracking, DBC
1.20% Germany Index, EWG
1.15% United Kingdom Index, EWU
1.10% QQQ Nasdaq 100 Trust, QQQ
1.09% Basic Materials DJ US, IYM
1.08% Materials SPDR, XLB
1.04% Canada Index, EWC
1.01% Emerging VIPERs, VWO
1.00% Netherlands Index, EWN
0.97% Pacific VIPERs, VPL
0.96% European VIPERs, VGK
0.95% Europe 350 S&P Index, IEV
0.92% EAFE Index, EFA
0.92% Switzerland Index, EWL
0.91% Emerging Markets, EEM
0.88% Value EAFE MSCI, EFV
0.87% Technology SPDR, XLK
0.86% EMU Europe Index, EZU
0.85% Metals & Mining SPDR, XME
0.83% Austria Index, EWO
0.83% France Index, EWQ
0.83% India PS, PIN
0.81% Indonesia MV, IDX
0.80% Growth VIPERs, VUG
0.78% Global ex US ACWI iS, ACWX
0.73% Transportation Av DJ, IYT
0.72% Energy & Nat Res iS GS, IGE
0.72% Chile MSCI iS, ECH
0.71% WilderHill Clean Energy PS, PBW
0.71% Japan Index, EWJ
0.70% Homebuilders SPDR, XHB
0.69% Latin Am 40, ILF
0.68% Emerging 50 BLDRS, ADRE
0.66% Consumer Discretionary SPDR, XLY
0.66% Growth S&P 500/BARRA, IVW
0.65% India Earnings WTree, EPI
0.63% Dividend Appreciation Vipers, VIG
0.62% Dividend SPDR, SDY
0.62% Singapore Index, EWS
0.61% Growth 1000 Russell, IWF
0.60% Hong Kong Index, EWH
0.59% Energy Global, IXC
0.50% Agriculture DB PS, DBA
0.49% Growth MidCap Russell, IWP
0.48% Italy Index, EWI
0.47% Growth MidCap 400 B, IJK
0.47% Industrial SPDR, XLI
0.43% Global 100, IOO
0.41% Dividend International, PID
0.35% LargeCap VIPERs, VV
0.35% Energy DJ, IYE
0.32% Water Resources, PHO
0.32% LargeCap Blend S&P=Weight R, RSP
0.32% LargeCap 1000 R, IWB
0.31% Dividend DJ Select, DVY
0.31% Spain Index, EWP
0.31% Energy SPDR, XLE
0.30% Energy VIPERs, VDE
0.30% Bond Muni ATM-Free S&P iS, MUB
0.28% LargeCap Blend S&P 100, OEF
0.28% LargeCap Blend Russell 3000, IWV
0.28% DIAMONDS (DJIA), DIA
0.26% S&P 500 SPDRs LargeCap Blend, SPY
0.25% Bond, High-Yield Corporate, HYG
0.25% MidCap Russell, IWR
0.23% Bond Ex-US Treas, BWX
0.23% South Africa Index, EZA
0.22% Gold Shares S.T., GLD
0.20% S&P 500 iS LargeCap Blend, IVV
0.19% Utilities SPDR, XLU
0.17% Bond, Corp, LQD
0.17% Blend Total Market VIPERs, VTI
0.16% Bond, High-Yield Junk, JNK
0.15% Growth BARRA Small Cap 600, IJT
0.14% Growth SmallCap VIPERs, VBK
0.14% Malaysia Index, EWM
0.11% Turkey MSCI iS, TUR
0.11% Utilities VIPERs, VPU
0.09% Bond, TIPS, TIP
0.08% Preferred Stock iS, PFF
0.05% MidCap S&P 400 iS, IJH
0.05% MidCap S&P 400 SPDRs, MDY
0.02% Bond, 1-3 Year Treasury, SHY
0.02% Value MidCap Russell, IWS
0.00% Silver Trust iS, SLV
0.00% Health Care SPDR, XLV
0.00% Dividend High Yield Equity PS, PEY
-0.01% Bond Treasury Short-Term iS, SHV
-0.03% Growth SmallCap R 2000, IWO
-0.03% Bond EmrgMkt JPM iS, EMB
-0.08% Bond, Aggregate, AGG
-0.09% Value 1000 Russell, IWD
-0.09% SmallCap S&P 600, IJR
-0.14% Consumer Staples SPDR, XLP
-0.14% Value LargeCap Dynamic PS, PWV
-0.15% Bond, 10 Year Treasury, IEF
-0.19% Value S&P 500 B, IVE
-0.19% Value VIPERs, VTV
-0.22% Small Cap VIPERs, VB
-0.26% Bond, 20+ Years Treasury, TLT
-0.28% Bear, Short S&P 500, SH
-0.31% Value MidCap S&P 400 B, IJJ
-0.33% Financial Preferred, PGF
-0.34% SmallCap Russell 2000, IWM
-0.40% Value SmallCap S&P 600 B, IJS
-0.47% Value SmallCap Russell 2000, IWN
-0.54% Value SmallCap VIPERS, VBR
-0.61% Frontier Markets Guggenheim , FRN
-0.65% Financial SPDR, XLF
-0.74% Mexico Index, EWW
-0.79% Financial DJ US, IYF
-0.82% Telecom DJ US, IYZ
-0.84% Real Estate US DJ, IYR
-0.84% Microcap Russell, IWC
-0.85% Biotech SPDR, XBI
-0.88% Financials VIPERs, VFH
-1.04% REIT VIPERs, VNQ
-1.06% Financial Services DJ, IYG
-1.10% Capital Markets KWB ST, KCE
-1.11% REIT Wilshire, RWR
-1.13% Realty Cohen & Steers, ICF
-1.20% Thailand MSCI iS, THD

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About the Author

Robert W. Colby, CMT, is Chairman and Chief Investment Strategist at Robert W. Colby Asset Management, Inc., a New York Registered Investment Advisory firm. His primary objective is to outperform the S&P 500 Index over the long term while taking much less risk by using actively adaptive strategies to effectively manage Rewards and Risks.  His unique Bear Market Protection Systems protect clients when stock prices fall persistently in bearish market trends. Robert is the author of The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill, 2003, which has become the standard reference for indicator and trading systems design. In his 44 years on Wall Street, Robert has worked as a portfolio manager, a research consultant to institutional and private investors and traders, proprietary trader, technical analyst, and fundamental analyst.  For a free trial to his extensive weekly analytical report, see:

http://www.colbyassetmanagement.com/

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