Stocks opened higher, rose further in the first half hour, then stabilized for the balance of the day on Friday: the S&P 500 (SPX: 1,517.93) finished up 0.57%, while the Nasdaq Composite Index rose 0.91%.
Bullish momentum appears to be slowing. The S&P 500 rose 0.31% last week, its smallest weekly gain in 6 weeks. Popular daily price momentum oscillators eased moderately lower, but now they are showing more clearly bearish momentum divergences compared to absolute price. For example, RSI(14) is 66.79, down from 74.46 on 1/29/13. MACD(12,26,9) crossed below its signal line on 2/4/13 and remains below it. Momentum is a leading indicator of price.
The Art of Contrary Thinking called for questioning strong bullish sentiment. Investor sentiment data indicated high degrees of optimism and bullish complacency in recent weeks, matching or exceeding extremes in September, 2012, when many stock price indexes hit peaks and reversed to the downside. Elevated levels of optimism are bearish because when the majority is extremely bullish, 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 the market mood always reverts to the mean–eventually. Sentiment extremes are a leading indicator of price.
Our clients’ separately managed accounts made gains in 6 of the past 7 consecutive quarters; see:
Robert W. Colby Asset Management, Inc. (click here).
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Stock Market Indicators
The Dow Theory confirmed a Primary Tide Bull Market on 1/18/13, when both Dow-Jones Industrial and Transportation Averages closed above their closing price highs of the previous 5 years.
NASDAQ 100/S&P 500 Relative Strength Ratio (QQQ/SPY) turned systematically bearish again on 1/3/13, when it whipsawed back down below its 50-day SMA.
iShares MSCI BRIC Fund (BKF) Relative Strength Ratio (BKF/SPY) fell below its 50-day SMA on 2/4/13, thereby turning systematically neutral. Price peaked on 2/1/13.
Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) turned systematically neutral on 1/23/13, when it fell below its 50-day SMA. Price peaked on 1/2/13 and fell below its 50-day SMA on 2/7/13.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below its 50-day SMA on 2/4/13, thereby turning systematically neutral. Price peaked on 2/1/13.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEF/SPY) turned systematically bearish on 12/17/12, when the 50-day SMA fell below the 200-day SMA. Large Caps tend to underperform Mid Caps and Small Caps in bullish general market trends as investors seek greater potential returns in more volatile, smaller stocks. On the other hand, Large Caps tend to outperform in bearish general market trends as investors seek the perceived relative stability and safety of large size.
The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) 50-day SMA rose above the 200-day SMA on 1/8/13, thereby turning systematically bullish.
The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) turned systematically bullish on 12/14/12, when the 50-day SMA crossed above the 200-day SMA.
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Sentiment for Contrary Thinking
Investor sentiment data indicates high degrees of optimism and bullish complacency, matching extremes in September, 2012, when many stock price indexes hit a peak and reversed to the downside. Elevated levels of optimism are bearish because when the majority is extremely bullish, 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 the market mood always reverts to the mean.
The CFTC’s Commitments of Traders report for stock indexes showed smart professionals selling heavily to dumb speculators. Large commercial hedging firms enjoy an enormous inside informational advantage over speculators, who are usually wrong at major market turning points, according to Steve Briese, bullishreview.com. The current maximum bearish reading indicates that a major top is brewing and next move should be down big, possibly to SPX 1074.77, the low of 10/4/2011.
Large speculators held a record net-long position in futures and options contracts on the NASDAQ 100, according to the CFTC’s Commitment of Traders report. Large Speculators, which are mainly hedge funds, are trend-followers, and their aggregate position usually becomes extreme near market reversals.
Small traders just moved to their largest net-long position since the stock market highs in May, 2011, according to The Elliott Wave Financial Forecast.
Commercials hold their largest net-short position in 3.5 years, according to The Elliott Wave Financial Forecast.
SentimentTrader.com noted that 67% of the “dumb money” was bullish, compared to 29% of the “smart money”. At such readings in the past, the stock market suffered a 3% to 8% downside correction spread out over a few weeks.
Put/Call Ratios signal a bearish turning point. The CBOE Equity Put/Call Ratio (which includes only options traded on individual stocks, while excluding options on indexes) fell to 53 on 1/3/13. This matched the 53 reading at the S&P 500 peak on 9/14/12, which was immediately followed by a 9% downside shakeout.
Market Vane’s Bullish Consensus survey shows extreme optimism. The percentage of stock market bulls surged to 70% recently, the highest since June 2007.
AAII Sentiment shows that individual investors are extremely bullish. As of 1/24/13, there were 52.34% bulls, 23.39% neutral, and 24.27% bears. This is the highest percentage of bulls in more than 2 years, since 1/13/11.
Investors Intelligence Sentiment confirms that stock market newsletter advisors are extremely bullish. With 54.7% Bulls versus only 21.1% Bears as of 2/6/13, advisors are more bullish than they were at the stock market top in September, 2012, just before a 9% downside correction into November.
Hulbert Nasdaq Sentiment at record extremes. The current reading of 87.5 is the highest levels in many years. It is up from a low of -39 in November, 2012.
Corporate insiders are extremely bearish, and history shows that insiders are usually right. Insiders sold 9.20 shares for each share bought in January 2013. That is up from 1.54-to-1 in November 2012 and up from a 20-year average of 3.41-to-1. This data is compiled by Vickers Weekly Insider Report, published by Argus Research.
NYSE Margin Debt rose for the fifth consecutive month to $331 billion, the highest level since February 2008. Stocks may be vulnerable to forced selling if stock prices turn down.
Short interest in stocks listed on NYSE and Nasdaq both fell 5%, to 12.9 billion and 7.2 billion, respectively, in December. A decline in short interest means less potential demand for stocks from short covering.
Investors are all in, fully invested. The current reading of 104% long is the most bullish sentiment since the beginning of the survey in 2006 by the National Association of Active Investment Managers.
VIX Fear Index collapsed to 12.29 on 1/18/13, its lowest level in 5 years, indicating a remarkable level of 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
The S&P 500 Composite Potential Support
1495.02, low of 2/4/2013
1489.46, low of 1/24/2013
1474.51, high of 9/14/2012
1463.76, low of 1/15/2013
1456.71, 50-day SMA
1451.64, low on 1/8/13
1448.00, high of 12/19/2012
1440.24, high of 5/19/2008
1439.15, high of 9/12/2012
1438.59, high of 12/12/2012
1434.27, high of 11/2/2012
1432.82, low of 12/20/2012
1430.53, low of 9/26/2012
1426.76, low of 12/12/2012
1425.53, low of 10/12/2012
1425.48, Fibonacci 23.6% of June-Sept ’12 range
1424.41, Fibonacci 61.8% of Sept-Nov ’12 range
1423.73, high of 12/3/2012
1422.58, low of 12/21/2012
1422.38, high of 4/2/2012
1422.06, low of 10/22/2012
1421.12, high of 10/25/2012
1420.34, high of 12/7/2012
1419.70, high of 11/29/2012
1418.71, high of 8/17/2012
1415.32, high of 5/1/2012
1409.16, high of 11/23/2012
1403.28, low of 10/26/12
1402.99, 200-day SMA
1401.58, low of 12/28/12
1398.11, low of 12/31/2012
1397.68, low of 11/26/2012
1396.56, low of 9/4/2012
1395.14, Fibonacci 38.2% of June-Sept 2012 range
1391.04, low of 8/6/2012
1388.71, low of 5/3/2012
1385.43, low of 11/28/2012
1381.50, Fibonacci 78.6% of 2007-2009 range
1380.39, high of 7/19/2012
1374.81, high of 7/3/2012
1370.62, Fibonacci 50.0% of June-Sept 2012 range
1370.58, high of 5/2/2011
1363.49, high of 6/19/2012
1357.38, low of 4/10/2012
1355.70, low of 7/2/2012
1346.11, Fibonacci 61.8% of June-Sept 2012 range
1343.35, low of 11/16/2012
1340.03, low of 3/6/2012
1335.52, high of 6/11/2012
1334.93, high of 5/31/2012
1329.24, low of 7/24/2012
1329.05, high of 6/7/2012
1328.49, high of 5/22/2012
1325.41, low of 7/12/2012
1311.20, Fibonacci 78.6% of June-Sept 2012 range
1306.62, low of 6/12/2012
1291.98, low of 5/18/2012
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
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
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
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) turned systematically neutral on 2/7/13 when it rose above its 50-day SMA. UUP fell below its 200-day SMA on 8/31/12, and the 50-day SMA fell below the 200-day SMA on 10/2/12. Support 21.53, 21.07, and 20.84. Resistance 22.05, 22.30, 22.45, 23.14, 23.52, 25.84, 27.19, 28.97.
Agriculture, PowerShares DB Agriculture Fund ETF (DBA) price fell below 7-months lows on 2/8/13. Price turned systematically bearish on 1/11/13 when the 50-day SMA crossed down below the 200-day SMA.
Crude Oil, United States Oil ETF (USO) price turned systematically neutral on 12/26/12, when price rose above its 50-day SMA. The 50-day SMA has remained below its 200-day SMA consistently every day since 6/7/12, although the 50-200 spread has narrowed since 1/3/13. Support 34.38, 33.57, 31.00, 29.02, 26.28, and 22.74. Resistance 35.53, 37.17, 38.31, 40.29, 41.38, 42.30, and 45.60.
Gold, SPDR Gold Shares ETF (GLD) price turned systematically neutral on 11/27/12, when it fell below its 50-day SMA. Support: 158.39, 157.40, 154.83, 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 164.40, 166.94, 170.01, 174.07, 175.46, 177.40, and 185.85.
Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) turned systematically bearish on 12/27/12, when the 50-day SMA crossed below the 200-day SMA.
Silver, iShares Silver Trust ETF (SLV) price appears to be in a neutral trading range, whipsawing around its 50-day SMA since 1/22/13. Support 29.73, 28.61, 27.97, 26.87, 26.13, 25.34, 25.00, 24.44, 22.52, 20.73, and 19.44. Resistance: 31.41, 32.72, 33.31, 34.08, 36.44, 40.23, 41.49, 42.30, 42.78, 44.71, and 48.35.
Silver/Gold ETFs Ratio (SLV/GLD) turned systematically neutral again on 2/7/13, when it whipsawed back down below its 50-day SMA.
Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) rose above its highs of the previous 3 months on 2/1/13, which generally should be taken as a bullish signal. Still, JJC has been consolidating in trading range between 38.99 and 51.41 since October 2011. “Dr. Copper” is widely accepted as one of the better indicators of investor confidence (or lack thereof) in the global industrial economy.
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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 later revealed to be deal stocks 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
7.22% , MCHP , Microchip Technology Incorporated
9.97% , RSH , RADIOSHACK
3.72% , NIHD , NII Holdings, Inc.
1.62% , PXE , Energy Exploration & Prod, PXE
4.36% , NCR , NCR
1.44% , XL , XL CAPITAL STK A
2.76% , ADBE , ADOBE SYS
0.72% , EZU , EMU Europe Index, EZU
1.89% , AET , AETNA
2.70% , EOG , EOG RESOURCES
2.91% , WPO , Washington Post
4.19% , SLM.O , SLM CORP
0.40% , IYF , Financial DJ US, IYF
1.79% , OMC , OMNICOM
2.45% , FDO , FAMILY DLR STRS
1.47% , CPB , CAMPBELL SOUP
1.92% , CHD , Church & Dwight
0.85% , PBE , Biotech & Genome, PBE
0.42% , COP , CONOCOPHILLIPS
0.91% , RWR , REIT Wilshire, RWR
3.20% , IGT , INTL GAME TECH
0.56% , VAW , Materials VIPERs, VAW
0.77% , JNY , JONES APPAREL
0.60% , VTI , Blend Total Market VIPERs, VTI
0.67% , RFV , Value MidCap S&P 400, RFV
1.00% , VGT , Info Tech VIPERs, VGT
0.92% , VNQ , REIT VIPERs, VNQ
0.44% , DD , DU PONT
0.30% , ECH , Chile MSCI iS, ECH
0.72% , PGJ , China LargeCap Growth G D H USX PS, PGJ
0.73% , JNS , JANUS CAPITAL
0.74% , IDX , Indonesia MV, IDX
0.65% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-7.70% , MCO , MOODYS CORP
-0.75% , ETR , ENTERGY
-2.49% , AVP , AVON
-1.54% , CL , COLGATE
-1.11% , MZZ , Short 200% MidCap 400 PS, MZZ
-0.34% , DOG , Short 100% Dow 30, DOG
-1.53% , FLR , FLUOR
-1.19% , INTU , INTUIT
-0.92% , EXC , EXELON CORP
-1.52% , LH , LAB CRP OF AMER
-0.68% , PIN , India PS, PIN
-0.11% , LLY , ELI LILLY
-0.40% , EWJ , Japan Index, EWJ
-0.21% , HUM , HUMANA
-0.06% , DUK , DUKE ENERGY
-0.36% , AES , AES
-0.03% , TIP , Bond, TIPS, TIP
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
2.18% Spain Index, EWP
2.02% Semiconductor SPDR, XSD
1.79% South Korea Index, EWY
1.33% Austria Index, EWO
1.32% Pacific ex-Japan, EPP
1.23% Australia Index, EWA
1.23% Semiconductor iS IGW, SOXX
1.11% Hong Kong Index, EWH
1.03% QQQ Nasdaq 100 Trust, QQQ
1.02% Technology DJ US, IYW
1.02% Singapore Index, EWS
1.00% Info Tech VIPERs, VGT
1.00% Real Estate US DJ iS, IYR
0.94% Energy SPDR, XLE
0.92% REIT VIPERs, VNQ
0.91% REIT Wilshire, RWR
0.90% Italy Index, EWI
0.89% Energy VIPERs, VDE
0.88% Technology SPDR, XLK
0.87% Realty Cohen & Steers, ICF
0.85% Europe 350 S&P Index, IEV
0.84% China 25 iS, FXI
0.83% Energy DJ, IYE
0.82% United Kingdom Index, EWU
0.81% Basic Materials DJ US, IYM
0.80% Emerging VIPERs, VWO
0.78% SmallCap Growth Russell 2000 iS, IWO
0.77% Consumer Discretionary SPDR, XLY
0.77% France Index, EWQ
0.77% Water Resources, PHO
0.76% European VIPERs, VGK
0.76% LargeCap Growth Russell 1000 iS, IWF
0.74% Indonesia MV, IDX
0.74% Health Care SPDR, XLV
0.74% Turkey MSCI iS, TUR
0.74% Switzerland Index, EWL
0.74% Frontier Markets Guggenheim , FRN
0.74% Emerging Markets MSCI iS, EEM
0.73% Value MidCap Russell, IWS
0.73% Growth VIPERs, VUG
0.73% Growth SmallCap VIPERs, VBK
0.72% China LargeCap Growth G D H USX PS, PGJ
0.72% EMU Europe Index, EZU
0.71% Biotech SPDR, XBI
0.71% SmallCap Blend Russell 2000 iS, IWM
0.70% South Africa Index, EZA
0.69% Value SmallCap VIPERS, VBR
0.68% LargeCap Growth S&P 500 iS, IVW
0.67% Emerging 50 BLDRS, ADRE
0.67% MidCap Russell, IWR
0.67% Small Cap VIPERs, VB
0.66% Global 100, IOO
0.65% Growth EAFE MSCI, EFG
0.65% MidCap Value S&P 400 iS, IJJ
0.65% LargeCap Blend Russell 3000 iS, IWV
0.64% Value EAFE MSCI, EFV
0.64% Foreign LargeCap EAFE MSCI iS, EFA
0.63% SmallCap Blend EAFE MSCI iS, SCZ
0.63% SmallCap Blend S&P 600 iS, IJR
0.63% SmallCap Value Russell 2000 iS, IWN
0.63% Malaysia Index, EWM
0.63% MidCap S&P 400 SPDRs, MDY
0.63% SmallCap Value S&P 600 iS, IJS
0.62% Energy & Nat Res iS GS, IGE
0.61% SmallCap Growth S&P 600 iS, IJT
0.61% MidCap Growth S&P 400 iS, IJK
0.60% Blend Total Market VIPERs, VTI
0.59% Materials SPDR, XLB
0.58% Growth MidCap Russell, IWP
0.57% MidCap Blend S&P 400 iS, IJH
0.57% LargeCap Blend Russell 1000 iS, IWB
0.56% LargeCap VIPERs, VV
0.56% Value LargeCap Dynamic PS, PWV
0.56% S&P 500 SPDRs LargeCap Blend, SPY
0.55% Capital Markets KWB ST, KCE
0.55% Dividend International, PID
0.54% Global LargeCap Blend MSCI iS, ACWI
0.51% LargeCap Blend S&P 100, OEF
0.51% LargeCap Blend S&P 500 iS, IVV
0.50% Dividend ex-U.S. DJ iS, IDV
0.49% Global ex U.S. LargeCap Blend, ACWX
0.49% LargeCap Blend S&P=Weight R, RSP
0.49% Bond, Emerg Mkt JPM iS, EMB
0.47% LargeCap Value Russell 1000 iS, IWD
0.46% Transportation Av DJ, IYT
0.41% LargeCap Value S&P 500 iS, IVE
0.40% Germany Index, EWG
0.40% Pacific VIPERs, VPL
0.40% Financial DJ US, IYF
0.40% Value VIPERs, VTV
0.40% Industrial SPDR, XLI
0.39% Homebuilders SPDR, XHB
0.39% Commodity Tracking, DBC
0.39% Bond, 20+ Years Treasury, TLT
0.38% Financials VIPERs, VFH
0.38% Energy Global, IXC
0.37% Taiwan Index, EWT
0.36% Telecom DJ US, IYZ
0.36% Latin Am 40, ILF
0.35% Belgium Index, EWK
0.35% Dividend Appreciation Vipers, VIG
0.34% Sweden Index, EWD
0.34% Microcap Russell, IWC
0.33% Dividend U.S. DJ iS, DVY
0.32% DIAMONDS (DJIA), DIA
0.31% Dividend High Yield Equity PS, PEY
0.30% Russia MV, RSX
0.30% Chile MSCI iS, ECH
0.29% Dividend SPDR, SDY
0.27% Financial Services DJ, IYG
0.26% Mexico Index, EWW
0.23% Financial SPDR, XLF
0.22% Bond, Long-Term Corp iBoxx iS, LQD
0.20% Bond, Muni S&P ATM-Free iS, MUB
0.20% Metals & Mining SPDR, XME
0.20% Bond Ex-US Treas, BWX
0.19% Netherlands Index, EWN
0.08% Bond, 10 Year Treasury, IEF
0.07% Oil Fund PowerShares, DBO
0.06% Oil, Crude, U.S. Oil Fund, USO
0.05% Financial Preferred, PGF
0.05% Utilities VIPERs, VPU
0.05% Bond, High-Yield Junk, JNK
0.03% Bond, Intermediate US Aggregate iS, AGG
0.02% Bond, High Yield Corp iBoxx iS, HYG
0.01% Bond, 1-3 Year Treasury, SHY
0.00% Bond Treasury Short-Term iS, SHV
0.00% Canada Index, EWC
0.00% Preferred Stock iS, PFF
0.00% Utilities SPDR, XLU
-0.03% Bond, TIPS U.S. Treasury iS, TIP
-0.05% Thailand MSCI iS, THD
-0.07% Brazil Index, EWZ
-0.08% Consumer Staples SPDR, XLP
-0.10% Silver Trust iS, SLV
-0.17% Gold Shares S.T., GLD
-0.22% WilderHill Clean Energy PS, PBW
-0.40% Japan Index, EWJ
-0.53% Bear, Short S&P 500, SH
-0.68% India PS, PIN
-0.70% Agriculture DB PS, DBA
-0.71% India Earnings WTree, EPI
-1.23% Networking, IGN
