by Robert W. Colby, Senior Analyst, TraderPlanet.com
Stock Market: a normal fractional retracement of Wednesday’s steeper loss.
Temporary short-term rallies are normal after big downswings.
Stocks appeared to be attempting to stabilize following the latest installment in the ongoing financial storm…to be continued…
Government intervention into markets and privately-owned companies may offer risks and opportunities that are difficult to estimate, unsettling investors.
Sometimes the best offense is a strong defense. Focus on capital preservation.
On Thursday, major stock price indexes saw large swings in both directions, up and down. Stocks were slightly negative just before 2:30 p.m. but turned upward in the final 90 minutes to close solidly into positive territory and near their highest levels of the day. The Standard & Poor’s 500 cash index (946.43) closed up 38.59 points, or 4.25%. It was a normal fractional retracement of Wednesday’s steeper loss. Total NYSE volume rose 23%, confirming the upturn.
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
47.78% , ABK , AMBAC FINL GRP
7.06% , TBH , Telebras HOLDRS, TBH*
22.65% , STLD , Steel Dynamics, STLD
10.55% , YHOO , YAHOO
10.16% , PXE , Energy Exploration & Prod, PXE
32.16% , MBI , MBIA
3.63% , ITF , Japan LargeCap Blend TOPIX 150, ITF
14.83% , PPG , PPG INDUSTRIES
3.32% , KCE , Capital Markets KWB ST, KCE
3.86% , FDL , Dividend Leaders, FDL
7.72% , EWP , Spain Index, EWP
14.66% , NOVL , NOVELL
12.39% , MTG , MGIC INVESTMENT
10.69% , CMS , CMS ENERGY
3.67% , ADRD , Developed 100 BLDRS, ADRD
5.89% , IOO , Global 100, IOO
4.44% , PIV , Value Line Timeliness MidCap Gr, PIV
8.57% , TDC , Teradata Corporation, TDC
7.66% , EWD , Sweden Index, EWD
15.94% , NUE , NUCOR
4.11% , VPU , Utilities VIPERs, VPU
6.36% , IWC , Microcap Russell, IWC
15.26% , SHW , SHERWIN WILLIAMS
5.22% , IGN , Networking, IGN
9.13% , PH , PARKER HANNIFIN
3.59% , HHH , Internet H, HHH
5.21% , SWH , Software H, SWH
3.53% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
11.37% , QLD , Ultra QQQ Double, QLD
9.60% , DLX , DELUXE
7.10% , KMB , KIMBERLY CLARK
5.71% , EWN , Netherlands Index, EWN
5.95% , PXQ , Networking, PXQ
7.59% , HSIC , Henry Schein Inc
6.36% , PWER , POWER ONE
10.13% , LSI , LSI LOGIC
9.13% , WMT , WAL MART STORES
6.55% , IWM , SmallCap Russell 2000, IWM
6.79% , GPC , GENUINE PARTS
10.88% , ADM , ARCHER DANIELS
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-37.82% , CIT , CIT GROUP
-30.77% , SSCC , Smurfit-Stone Container Corporation
-15.24% , LNC , LINCOLN NATL
-10.38% , PRU , PRUDENTIAL FINL
-5.93% , PBI , PITNEY BOWES
-9.73% , DXD , Short 200% Dow 30 PS, DXD
-4.26% , EK , EASTMAN KODAK
-8.32% , UNM , UNUMPROVIDENT
-3.06% , MYY , Short 100% MidCap 400, MYY
-4.54% , DDS , DILLARD STK A
-4.96% , LVLT , LEVEL 3 COMMUNICATIONS
-10.52% , MWV , MEADWESTVACO
-4.37% , BC , BRUNSWICK
-7.14% , SIRI , Sirius Satellite
-8.12% , SDS , Short 200% S&P 500 PS, SDS
-4.83% , GLD , Gold Shares S.T., GLD
-3.69% , JCI , JOHNSON CONTROLS
-2.03% , MDT , MEDTRONIC
-1.50% , FPX , IPOs, First Tr IPOX-100, FPX
-6.52% , SLV , Silver Trust iS, SLV
-4.15% , EP , EL PASO
-5.35% , SUN , SUNOCO
-4.47% , TMK , TORCHMARK
-7.52% , AMP , Ameriprise Financial Inc.
-5.01% , IAU , Gold COMEX iS, IAU
-6.53% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.82% , HNZ , HJ HEINZ
-3.43% , PLD , PROLOGIS TRUST
-6.07% , ODP , OFFICE DEPOT
-2.07% , LAMR , Lamar Advertising Company
-2.29% , USO , Oil, Crude, U.S. Oil Fund, USO
-3.57% , JNS , JANUS CAPITAL
-4.56% , AES , AES
-2.59% , MMC , MARSH & MCLENNAN
-1.35% , FLEX , Flextronics International Ltd
-2.21% , SLB , SCHLUMBERGER
-3.22% , PGR , PROGRESSIVE OHIO
-1.22% , JCP , JC PENNEY
-4.51% , DOG , Short 100% Dow 30, DOG
-1.00% , JKI , Value MidCap iS M, JKI
Sectors: among the 9 major U.S. sectors, all 9 rose.
Major Sectors Ranked for the Day
% Price Change, Sector ETF, Symbol
6.60% Consumer Discretionary SPDR, XLY
5.23% Technology SPDR, XLK
5.22% Health Care SPDR, XLV
3.81% Energy SPDR, XLE
2.91% Utilities SPDR, XLU
2.27% Financial SPDR, XLF
2.03% Industrial SPDR, XLI
0.96% Consumer Staples SPDR, XLP
0.68% Materials SPDR, XLB
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 10/10/08, XLP/SPY Relative Strength Ratio rose to another new 5-year high, but XLP absolute price fell to a new 2-year low. XLP is the best of a bad lot.
Health Care (XLV) Bearish, Underweight. On 10/10/08, XLV absolute price fell to a new 5-year low.
Technology (XLK) Bearish, Underweight. On 10/10/08, the XLK absolute price fell to another new 41-month low.
Utilities (XLU) Bearish, Underweight. On 10/10/08, the XLU absolute price fell to another new 2-year low.
Consumer Discretionary (XLY) Bearish, Underweight. On 10/10/08, XLY absolute price fell to its lowest level in 5 years.
Industrial (XLI) Bearish, Underweight. On 10/10/08, the XLI absolute price hit another new 58-month low, indicating long-term trend weakness.
Materials (XLB) Bearish, Underweight. On 10/16/08, the XLB absolute price made another new 26-month intraday low.
Financial (XLF) Bearish, Underweight. On 10/10/08, the XLF absolute price hit another new 10-year low. The XLF long-term trend of relative strength has been trending down since 2/20/07.
Energy (XLE) Bearish, Underweight. On 10/10/08, the XLE absolute price hit another new 18-month intraday low.
Foreign stock index EFA Relative Strength Ratio has underperformed the S&P 500 since 11/27/07. EFA absolute price fell to a new 4-year low on 10/10/08 and has been in a falling trend since 10/31/07. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.
NASDAQ Composite remains Bearish. On 10/16/08, the XLB absolute price made another new 5-year low, reconfirming long-term trend weakness.
NASDAQ 100 Index closing price broke down to a new 5-year low on 10/16/08, reconfirming long-term trend weakness.
Growth Stock/Value Stock Relative Strength Ratio has been trending down since it peaked on 7/15/08.
The Small Cap/Large Cap Relative Strength Ratio has been trending down since it peaked on 9/19/08.
Crude Oil futures November contract price hit a new 12-month low of 68.57. The short-term and intermediate-term trends remain Bearish. 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 underperformed Crude Oil since 5/30/07.
Gold futures contract price broke down below previous 4-week lows. Gold is in a short-term downtrend and has been in an intermediate-term downtrend since the peak of 1033.90 on 3/17/08.
Gold Mining stocks continue to underperform Gold futures on a major trend basis.
U.S. Treasury Bond futures contract price consolidated recent losses. Bonds remain Bearish for the short term and appear uncertain for the intermediate-term trend. Long term, Bonds have been in a neutral sideways trend since June 2003.
iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows on 10/10/08. All trends remain Bearish. Bond investors appear to be seriously concerned about the economic outlook.
iShares Lehman TIPS Bond (TIP) ETF absolute price hit a new 15-month closing price low on 10/10/08, implying deflation. All trends remain Bearish.
The U.S. dollar moved above the highs of the previous 3 trading days. Most trends remain Bullish, except perhaps for the secular, which is more than one major cycle.
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 22.4% Bulls versus 52.9% Bears as of 10/15/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.42, down from 0.48 the previous week. This is an extreme level of pessimism. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47. Contrary Opinion must be tempered with other timing tools, of course.
VIX Fear Index, now at 67.61, backed down from its all-time high of 69.95 set on 10/10/08. 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 72.39, backed down from its 7-year high of 72.93 set on 10/15/08. 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 0.94, which indicates Bearish 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 0.95, 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 and seem likely to weaken further over the next several months.
The Dow Theory reconfirmed a Primary Tide Bear Market on 10/9/08, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their lowest closing prices of March through September, 2008. These two Averages originally confirmed a Primary Tide Bear Market on 11/21/07, when both closed below their closing price lows of August, 2007.
Shock and Fear. There is nothing new under the sun. The Dow Theory described this type of market many decades ago. From my book, The Encyclopedia of Technical Market Indicators, Second Edition: “The second Bear phase is marked by a sudden mood change, from optimism and hope to shock and fear. One day, the public wakes up and sees, much to its surprise, that “the emperor has no clothes”. Actual fundamental business conditions are not panning out to be as positive as previously hoped. In fact, there may be a little problem. The smart money is long gone, and there is no one left to buy when the public wants out. Stock prices drop steeply in a vacuum. Fear quickly replaces greed. Repeated waves of panic may sweep the market. Transactional volume swells as the unsophisticated investor screams, “Get me out at any price!” Sharp professional traders are willing to bid way down in price for stocks when prices drop too far too fast. The best that can be expected, however, is a dead-cat bounce that recovers only a fraction of the steep loss.”
The breadth of the market has been in a 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 10/10/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 24-month lows, reconfirming that the 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 (946.43):
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
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008
1,220.03, high of 9/25/2008
1,077.08, Fibonacci 61.8% of 2002-2007 upmove
1,044.91, high of 10/14/2008
970.50, Gann 75.0% of 2002-2007 upmove
941.43, Fibonacci 78.6% of 2002-2007 upmove
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 (946.43):
Potential Support
839.80, low of 10/10/2008
768.63, low of 10/10/2002
Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
11.37% Ultra QQQ Double, QLD
10.16% Energy Exploration & Prod, PXE
9.21% Ultra Dow30 Double, DDM
9.00% Internet Infrastructure H, IIH
8.91% South Africa Index, EZA
8.86% Energy DJ, IYE
8.75% China 25 iS, FXI
7.94% China LargeCap Growth G D H USX PS, PGJ
7.83% Growth SmallCap R 2000, IWO
7.75% Nanotech Lux, PXN
7.72% Spain Index, EWP
7.68% Energy VIPERs, VDE
7.66% Sweden Index, EWD
7.30% Hong Kong Index, EWH
7.00% Value 40 Large Low P/E FT DB, FDV
6.90% Australia Index, EWA
6.83% Latin Am 40, ILF
6.74% Value SmallCap S&P 600, RZV
6.60% Consumer Discretionary SPDR, XLY
6.59% Pacific VIPERs, VPL
6.55% Ultra S&P500 Double, SSO
6.55% SmallCap Russell 2000, IWM
6.53% Oil & Gas, PXJ
6.52% WilderHill Clean Energy PS, PBW
6.51% Internet B2B H, BHH
6.49% Basic Materials DJ US, IYM
6.36% Microcap Russell, IWC
6.29% Real Estate US DJ, IYR
6.22% Dividend High Yield Equity PS, PEY
6.20% Value SmallCap Russell 2000, IWN
6.19% Value EAFE MSCI, EFV
6.12% Switzerland Index, EWL
6.11% Pacific ex-Japan, EPP
6.11% Japan Index, EWJ
6.04% REIT Wilshire, RWR
5.96% India Earnings WTree, EPI
5.95% Networking, PXQ
5.95% Realty Cohen & Steers, ICF
5.89% Growth EAFE MSCI, EFG
5.89% DIAMONDS (DJIA), DIA
5.89% Global 100, IOO
5.89% EAFE Index, EFA
5.89% Value SmallCap S&P 600 B, IJS
5.87% MidCap S&P 400 SPDRs, MDY
5.84% Ultra MidCap400 Double, MVV
5.81% REIT VIPERs, VNQ
5.76% Aerospace & Defense, PPA
5.71% Netherlands Index, EWN
5.58% Singapore Index, EWS
5.56% Small Cap VIPERs, VB
5.54% Biotech & Genome, PBE
5.52% SmallCap S&P 600, IJR
5.52% Brazil Index, EWZ
5.50% Germany Index, EWG
5.45% Building & Construction, PKB
5.42% Growth LargeCap NASDAQ 100, QQQQ
5.39% Value SmallCap VIPERS, VBR
5.38% Growth SmallCap VIPERs, VBK
5.36% Value SmallCap iS M, JKL
5.25% Growth BARRA Small Cap 600, IJT
5.23% Technology SPDR, XLK
5.22% Networking, IGN
5.22% Health Care SPDR, XLV
5.21% Software H, SWH
5.21% Telecommunications Global, IXP
5.20% SmallCap Core iS M, JKJ
5.18% European VIPERs, VGK
5.16% Industrials VIPERs, VIS
5.13% United Kingdom Index, EWU
5.00% Info Tech VIPERs, VGT
4.98% Europe 350 S&P Index, IEV
4.94% MidCap VIPERs, VO
4.94% Value SmallCap Dynamic PS, PWY
4.94% Retail H, RTH
4.92% Technology DJ US, IYW
4.91% Emerging Markets, EEM
4.88% Micro Cap Zachs, PZI
4.88% Energy Global, IXC
4.86% Semiconductor iS GS, IGW
4.83% Natural Resource iS GS, IGE
4.82% Dividend Appreciation Vipers, VIG
4.77% Extended Mkt VIPERs, VXF
4.77% Growth VIPERs, VUG
4.75% Growth Large Cap, ELG
4.65% Metals & Mining SPDR, XME
4.63% Growth SmallCap iS M, JKK
4.62% Consumer Staples VIPERs, VDC
4.61% Semiconductor H, SMH
4.60% Blend Total Market VIPERs, VTI
4.57% Consumer Cyclical DJ, IYC
4.57% Software, IGV
4.52% Euro STOXX 50, FEZ
4.51% LargeCap Blend S&P 100, OEF
4.46% EMU Europe Index, EZU
4.44% Value Line Timeliness MidCap Gr, PIV
4.43% LargeCap Blend Russell 3000, IWV
4.41% LargeCap 1000 R, IWB
4.37% Growth MidCap S&P 400, RFG
4.35% Growth Mid Cap Dynamic PS, PWJ
4.34% Value 1000 Russell, IWD
4.32% S&P 500 iS LargeCap Blend, IVV
4.30% Value VIPERs, VTV
4.28% Growth MidCap Russell, IWP
4.28% Consumer D. VIPERs, VCR
4.24% Biotech SPDR, XBI
4.23% Healthcare Global, IXJ
4.21% Pharmaceutical H, PPH
4.20% Materials VIPERs, VAW
4.19% Utilities DJ, IDU
4.17% Dividend DJ Select, DVY
4.17% S&P 500 SPDRs LargeCap Blend, SPY
4.12% LargeCap Rydex Rus Top 50, XLG
4.12% Transportation Av DJ, IYT
4.11% Wilshire 5000 ST TM, TMW
4.11% Utilities VIPERs, VPU
4.06% Italy Index, EWI
4.03% Asia 50 BLDRS, ADRA
4.00% Health Care VIPERs, VHT
3.98% LargeCap VIPERs, VV
3.96% Semiconductors, PSI
3.95% LargeCap Blend Total Market DJ, IYY
3.91% LargeCap Blend Dynamic PS, PWC
3.90% Value LargeCap Russell 3000, IWW
3.89% Growth S&P 500/BARRA, IVW
3.86% Dividend Leaders, FDL
3.86% Value LargeCap Dynamic PS, PWV
3.84% Industrial LargeCap Blend DJ US, IYJ
3.83% MidCap S&P 400 iS, IJH
3.81% Energy SPDR, XLE
3.81% Value Large Cap DJ, ELV
3.80% Value LargeCap iS M, JKF
3.77% Value LargeCap Euro STOXX 50 DJ, FEU
3.77% Biotech H, BBH
3.75% Growth LargeCap Russell 3000, IWZ
3.75% Telecom H, TTH
3.74% France Index, EWQ
3.73% Technology GS, IGM
3.68% Value MidCap S&P 400 B, IJJ
3.67% Developed 100 BLDRS, ADRD
3.67% Telecom DJ US, IYZ
3.67% MidCap Blend Core iS M, JKG
3.65% Dividend Achievers PS, PFM
3.63% Japan LargeCap Blend TOPIX 150, ITF
3.62% LargeCap Blend S&P 1500 iS, ISI
3.61% Growth MidCap 400 B, IJK
3.59% Internet H, HHH
3.58% Belgium Index, EWK
3.54% Emerging 50 BLDRS, ADRE
3.54% Bank Regional H, RKH
3.53% Value LargeCap Fundamental RAFI 1000, PRF
3.52% Technology Global, IXN
3.52% Utilities H, UTH
3.46% Value LargeCap NYSE 100 iS, NY
3.46% LargeCap Blend Core iS M, JKD
3.44% Lg Cap Growth PSD, PWB
3.40% Healthcare DJ, IYH
3.39% Consumer Non-Cyclical, IYK
3.39% Taiwan Index, EWT
3.38% Dividend SPDR, SDY
3.38% MidCap Russell, IWR
3.37% Value S&P 500 B, IVE
3.33% Value MidCap Russell, IWS
3.32% Capital Markets KWB ST, KCE
3.21% Growth SmallCap Dynamic PS, PWT
3.20% Broadband H, BDH
3.20% Oil Services H, OIH
3.18% Retail, PMR
3.08% LargeCap Blend S&P=Weight R, RSP
3.01% Growth 1000 Russell, IWF
3.01% SmallCap PS Zacks, PZJ
2.99% Global Titans, DGT
2.97% Growth Small Cap DJ, DSG
2.92% Financial DJ US, IYF
2.91% Utilities SPDR, XLU
2.75% Financial Services DJ, IYG
2.70% Water Resources, PHO
2.68% Value Small Cap DJ, DSV
2.63% MidCap Growth iS M, JKH
2.52% Emerging VIPERs, VWO
2.51% LargeCap Blend NYSE Composite iS, NYC
2.46% Growth LargeCap iS M, JKE
2.32% Semiconductor SPDR, XSD
2.28% Dividend International, PID
2.27% Financial SPDR, XLF
2.25% Austria Index, EWO
2.16% Telecom Services VIPERs, VOX
2.03% Industrial SPDR, XLI
1.91% Utilities, PUI
1.80% Value S&P 500, RPV
1.56% Pharmaceuticals, PJP
1.08% Homebuilders SPDR, XHB
1.05% Bond, Corp, LQD
0.96% Consumer Staples SPDR, XLP
0.88% Financials Global LargeCap Value, IXG
0.68% Materials SPDR, XLB
0.66% Malaysia Index, EWM
0.55% Value MidCap Dynamic PS, PWP
0.40% Leisure & Entertainment, PEJ
0.30% Growth S&P 500, RPG
0.27% Canada Index, EWC
0.13% South Korea Index, EWY
0.09% Telecommunications & Wireless, PTE
0.06% Technology MS sT, MTK
0.06% Growth LargeCap NASDAQ Fidelity, ONEQ
0.02% Bond, 10 Year Treasury, IEF
0.00% Internet Architecture H, IAH
-0.05% Bond, 1-3 Year Treasury, SHY
-0.07% Financials VIPERs, VFH
-0.07% Software, PSJ
-0.15% Hardware & Electronics, PHW
-0.52% Bond, 20+ Years Treasury, TLT
-0.62% Food & Beverage, PBJ
-0.64% Bond, TIPS, TIP
-1.00% Value MidCap iS M, JKI
-1.25% Europe 100 BLDRS, ADRU
-1.37% Insurance, PIC
-1.50% IPOs, First Tr IPOX-100, FPX
-1.57% Bond, Aggregate, AGG
-1.88% Commodity Tracking, DBC
-2.22% LargeCap Blend Socially Responsible iS, KLD
-2.28% Dividend Growth PS, PHJ
-2.29% Oil, Crude, U.S. Oil Fund, USO
-2.58% Mexico Index, EWW
-2.73% OTC Dynamic PS, PWO
-3.06% Short 100% MidCap 400, MYY
-4.03% Value MidCap S&P 400, RFV
-4.08% Short 100% S&P 500, SH
-4.51% Short 100% Dow 30, DOG
-4.83% Gold Shares S.T., GLD
-5.10% Short 100% QQQ, PSQ
-6.52% Silver Trust iS, SLV
-6.53% Short 200% MidCap 400 PS, MZZ
-8.12% Short 200% S&P 500 PS, SDS
-9.73% Short 200% Dow 30 PS, DXD
-10.38% Short 200% QQQ PS, QID
