Confounding The Bullish Majority of Investors Yet Again

The S&P 500 Composite (SPX: 1,277.81) fell 0.25% on Friday. Volume on the NYSE fell 15%, reflecting a more cautious trading mood after 3 consecutive up days.

SPX has been consolidating in a trading range since October, 2011, from a low of 1074.77 to high of 1292.66. With the SPX overbought and losing upside momentum, I doubt that SPX will be able to break through the upper end of its range at this time, thereby confounding the bullish majority of investors yet again.

AAII bullish sentiment rose to 48.9%, the highest level of optimism since February 10, 2011. AAII bearish sentiment fell to 17.2%, the lowest level of pessimism since December 23, 2010, and 1.3 standard deviation below the 20-year average of 30%. Applying Humphrey Bancroft Neill’s Art of Contrary Thinking, this may be taken as a warning of a stock market decline ahead.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell below the lows of the previous 2 years on 1/6/12, reconfirming the preexisting major bearish trend.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below the lows of the previous 7 years on 1/6/12, reconfirming the preexisting major bearish trend.

Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) price whipsawed back above its 50-day SMA on 1/6/12. TLT remains well above its 200-day SMA, and the 50-day SMA has remained bullishly above the 200-day SMA every day since 6/24/11, suggesting a persistent bullish trend for the longer term.

U.S. dollar ETF (UUP) rose above the high of the previous 10 months on 1/6/12, reconfirming its bullish major trend.

Agriculture, PowerShares DB Agriculture Fund ETF (DBA) fell steeply since peaking at 29.36 on 1/3/12. DBA encountered significant resistance near its falling 50-day SMA. DBA was in a vulnerable, overbought position on 1/3/12.

Crude Oil, United States Oil ETF (USO) fell below the lows of the previous 3 trading days on 1/6/12 but reversed to close slightly higher for the day. USO broke out above the highs of the previous 7 months on 1/4/12, thereby signaling a major uptrend.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity Mutual Funds lost 6% in 2011, according to Lipper Research Services.

Hedge Funds suffered their second-worst year on record in 2011, according to an index maintained by Eurekahedge, an independent research firm that specializes in hedge fund data. Some of the world’s largest and best-known hedge funds suffered huge losses, down 20% to 50%.

But not all money managers were down in 2011; see:
Robert W. Colby Asset Management, Inc. (click here).

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stock Market Indicators

The Dow Theory signaled a Primary Tide Bear Market on 8/2/11, when both Dow-Jones Industrial and Transportation Averages closed below their closing price lows of the previous 11 months. On 1/4/12, both Averages reconfirmed a Secondary Reaction upside bounce by closing above their closing price highs of the previous 5 months. This appears to be one of those junctures when interpretation of the Dow Theory could be open to debate. Significantly, in my opinion, the higher highs on 1/4/12 were NOT confirmed by the broad-based, capitalization-weighted price indexes. I want to see broader upside confirmation before changing my bearish interpretation of the major trend.

NASDAQ Composite/S&P 500 Relative Strength Ratio broke down below the lows of the previous 6-months on 12/23/11. The Ratio has been trending lower since peaking on 9/23/11. Absolute price of the NASDAQ Composite has been correcting and consolidating since peaking at 2887.75 on 5/2/11. The price 50-day SMA has remained bearishly below the 200-day SMA consistently every day since 8/12/11.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) rose above the highs of the previous 7 months on 1/4/12 and has been in a rising trend since 11/4/11. Longer term, the 50-day SMA has remained bullishly above the 200-day SMA every day since 8/25/11. Large Caps tend to outperform in bearish general market trends as investors seek the perceived relative safety of large size. 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) fell below is 50-day SMA on 1/4/12. IWM/SPY has remained below its 200-day SMA consistently every day since 7/6/11. Longer term, the 50-day SMA has remained bearishly below the 200-day SMA consistently every day since 8/11/11.

The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) fell below is 50-day SMA on 12/12/11. MDY/SPY has remained below its 200-day SMA consistently every day since 8/1/11. Longer term, the 50-day SMA has remained bearishly below the 200-day SMA consistently every day since 8/24/11.

Advisory Service Sentiment: There were 69.5% Bulls plus Neutrals versus 30.5% Bears as of 1/4/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The 20-year median of Bulls plus Neutrals is 69.40 and the mean is 68.32.

VIX Fear Index broke down below the lows of the previous 5-months on 12/22/11, hitting 20.34 intraday. That is down from recent peaks of 30.91 on 12/8/11, 37.83 on 11/1/11, 46.88 on 10/4/11, and 48.00 on 8/8/11. This drop indicates a shift away from fear and toward confidence, which, according to Humphrey Bancroft Neill’s Art of Contrary Thinking, may be bearish. 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
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1370.58, high of 5/2/11
1359.44, high of 5/10/11
1356.48, high of 7/7/11
1347.00, high of 7/21/11
1307.28, Fibonacci 78.6% of 2011 range
1292.66, high of 10/27/11
1284.62, high of 1/3/2012

The S&P 500 Composite Potential Support
1265.26, low of 1/5/2012
1262.30, low of 12/27/2011
1258.54, 200-day SMA
1257.46, low of 12/30/11
1257.58, Fibonacci 61.8% of 2011 range
1255.22, high of 12/22/2011
1248.64, low of 12/29/2011
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 11/3/11
1231.04, high of 12/16/11
1226.64, low of 11/9/2011
1222.68, Fibonacci 50% of 2011 range
1224.57, high of 12/19/11
1215.20, low of 12/16/11
1209.47, low of 12/14/2011
1209.43, low of 11/17/2011
1204.49, Fibonacci 23.6% of 2009-11 range
1202.37, low of 12/19/11
1187.77, Fibonacci 38.2% of 2011 range
1158.66, low of 11/25/2011
1144.38, Fibonacci 23.6% of 2011 range
1101.73, Fibonacci 38.2% of 2009-11 range
1074.77, low of 10/4/2011
1039.70, low of 8/27/10
1039.31, Fibonacci 23.6% of June-Aug. 2010 range
1010.91, low of 7/1/2010
1018.69, Fibonacci 50% of 2009-11 range
1008.55, Fibonacci 38.2% of 2009-2010 range
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
943.29, Gann 50.0% of 2009-2010 range
935.64, Fibonacci 61.8% of 2009-11 range
878.04, Fibonacci 61.8% of 2009-2010 range
874.17, Gann 62.5% of 2009-2010 range
869.32, low of 7/8/2009
817.40, Fibonacci 78.6% of 2009-11 range
805.17, Gann 75.0% of 2009-2010 range
785.13, Fibonacci 78.6% of 2009-2010 range
666.79, intraday low of 3/6/2009
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible Assets, Commodities

Gold, SPDR Gold Shares ETF (GLD) rose above the highs of the previous 3 weeks on 1/6/12 but reversed to close slightly lower on the day, suggesting exhaustion of the minor uptrend. GLD fell below the lows of the previous 5 months on 12/29/11, confirming a significant bearish trend. On 12/12/11, I warned that a break below the low at 165.53 set on 12/6/11 would be bearish. GLD remains below its 50-day and 200-day SMAs. Support: 154.55, 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 158.63, 162.07, 165.53, 170.80, 175.46, 177.40, and 185.85.

Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) remains bearishly below its 50-day and 200-day SMAs. Longer term, the 50-day SMA has remained bearishly below the 200-day SMA every day since 2/22/11. GDX/GLD fell below 3-year lows on 12/19/11, reconfirming a bearish major trend for the long term.

Silver, iShares Silver Trust ETF (SLV) fell below the lows of the previous 11 months on 12/29/11. SLV remains bearishly below its falling 50-day and 200-day SMAs. SLV crossed below its 50-day SMA on 12/8/11 and crossed below its 200-day SMA on 9/22/11. Longer term, the 50-day SMA has remained bearishly below the 200-day SMA every day since 10/27/11. Support 25.65 and 24.44. Resistance: 28.99, 32.53, 34.44, 34.51, 40.23, 41.49, 42.30, 42.78, 44.71 and 48.35.

Silver/Gold ETFs Ratio (SLV/GLD) fell below the lows of the previous 14 months on 12/28/11, confirming a bearish trend. SLV/GLD remains bearishly below 50-day and 200-day SMAs. Longer term, the 50-day SMA has remained bearishly below the 200-day SMA every day since 8/30/11. This SLV/GLD downtrend means investors prefer Gold over Silver.

Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) whipsawed back below its 50-day SMA on 1/4/12. JJC remains below its 200-day SMA, and the 50-day SMA has remained bearishly below the 200-day SMA every day since 8/8/11. Major trend weakness in Copper suggests serious concerns about the economic outlook.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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
0.64% , PSJ , Software, PSJ
0.44% , DBC , Commodity Tracking, DBC
5.44% , APOL , APOLLO GROUP
6.02% , DV , DeVry, Inc.
8.81% , NFLX , Netflix, NFLX
2.87% , PKI , PERKINELMER
1.38% , MUB , Bond Muni ATM-Free S&P iS, MUB
2.82% , AMZN , Amazoncom Inc
3.24% , WLP , WELLPOINT HEALTH
3.63% , FII , FED INVESTORS STK B
3.04% , EMN , EASTMAN CHEM
1.67% , SNDK , SanDisk Corporation
2.34% , BLL , BALL
2.32% , HMA , HEALTH MGMT STK A
1.54% , MSFT , MICROSOFT
2.19% , CTAS , CINTAS
0.60% , WAT , WATERS
1.77% , GLW , CORNING
0.13% , NYC , LargeCap Blend NYSE Composite iS, NYC
1.53% , WPO , Washington Post
2.74% , CTB , COOPER TIRE
0.84% , ADBE , ADOBE SYS
1.40% , MDT , MEDTRONIC
2.33% , BRCM , BROADCOM STK A
0.76% , VIA.O , VIACOM INC. (New)
2.76% , TMO , THERMO ELECTRON
0.92% , DGX , QUEST DIAG
1.35% , LVLT.K , LEVEL 3 COMMUNICATIONS
1.97% , CMA , COMERICA
1.90% , ESRX , EXPRESS SCRIPTS
0.26% , DOG , Short 100% Dow 30, DOG
2.04% , NWL , NEWELL RUBBER
0.07% , RPG , Growth S&P 500, RPG

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-19.50% , RFMD , RF Micro Devices Inc
-7.47% , FDO , FAMILY DLR STRS
-5.43% , FMCN , Focus Media, FMCN
-1.66% , EZU , EMU Europe Index, EZU
-2.74% , EWI , Italy Index, EWI
-0.16% , PXN , Nanotech Lux, PXN
-4.50% , ROK , ROCKWELL AUTOMAT
-1.06% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-1.26% , ITW , ILLINOIS TOOL
-2.38% , BMC.O , BMC SOFTWARE
-1.25% , EPP , Pacific ex-Japan, EPP
-1.37% , RKH , Bank Regional H, RKH
-4.37% , LPX , LOUISIANA PAC
-1.79% , EWO , Austria Index, EWO
-2.66% , PMTC.O , PARAMETRIC
-3.48% , CROX , CROCS Inc., CROX
-2.56% , CTXS , CITRIX SYSTEMS
-2.01% , LM , LEGG MASON
-1.17% , SCZ , Small Cap EAFE MSCI iS, SCZ
-6.47% , OMX , OFFICEMAX INC., OMX
-1.32% , EWA , Australia Index, EWA
-3.52% , WYNN , Wynn Resorts L
-1.96% , AEE , AMEREN
-5.67% , JNY , JONES APPAREL
-2.42% , DRI , DARDEN REST
-2.23% , S , SPRINT NEXTEL
-0.21% , PEJ , Leisure & Entertainment, PEJ
-0.83% , ADRD , Developed 100 BLDRS, ADRD
-2.10% , SLV , Silver Trust iS, SLV
-1.36% , EFA , EAFE Index, EFA
-1.02% , D , DOMINION RSCS
-0.16% , FRN , Frontier Markets Guggenheim , FRN
-4.71% , MPEL , Melco Crown Entertainment, MPEL
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
1.81% Biotech SPDR, XBI
1.38% Bond Muni ATM-Free S&P iS, MUB
0.79% Bond, 20+ Years Treasury, TLT
0.60% Financial Preferred, PGF
0.47% Networking, IGN
0.44% Commodity Tracking, DBC
0.41% Oil Fund PowerShares, DBO
0.39% Bond, 10 Year Treasury, IEF
0.39% Bond, Corp, LQD
0.35% QQQ Nasdaq 100 Trust, QQQ
0.33% Bond, TIPS, TIP
0.26% Semiconductor iS IGW, SOXX
0.23% Bear, Short S&P 500, SH
0.17% Health Care SPDR, XLV
0.17% Technology DJ US, IYW
0.15% Consumer Discretionary SPDR, XLY
0.14% Preferred Stock iS, PFF
0.13% Oil, Crude, U.S. Oil Fund, USO
0.11% Dividend High Yield Equity PS, PEY
0.08% Bond, Aggregate, AGG
0.07% Capital Markets KWB ST, KCE
0.06% Info Tech VIPERs, VGT
0.06% India Earnings WTree, EPI
0.06% Metals & Mining SPDR, XME
0.04% Technology SPDR, XLK
0.01% Bond Treasury Short-Term iS, SHV
0.00% Growth VIPERs, VUG
-0.01% Bond, 1-3 Year Treasury, SHY
-0.03% Growth MidCap 400 B, IJK
-0.03% South Africa Index, EZA
-0.04% Growth MidCap Russell, IWP
-0.06% India PS, PIN
-0.06% Value SmallCap VIPERS, VBR
-0.08% Bond, High-Yield Junk, JNK
-0.08% MidCap S&P 400 iS, IJH
-0.09% Value MidCap S&P 400 B, IJJ
-0.09% MidCap S&P 400 SPDRs, MDY
-0.12% Growth 1000 Russell, IWF
-0.12% Transportation Av DJ, IYT
-0.13% LargeCap Blend S&P=Weight R, RSP
-0.13% Growth BARRA Small Cap 600, IJT
-0.14% Value MidCap Russell, IWS
-0.14% Materials SPDR, XLB
-0.16% Frontier Markets Guggenheim , FRN
-0.17% Small Cap VIPERs, VB
-0.17% LargeCap 1000 R, IWB
-0.17% MidCap Russell, IWR
-0.18% Growth S&P 500/BARRA, IVW
-0.18% Real Estate US DJ, IYR
-0.18% Agriculture DB PS, DBA
-0.19% Telecom DJ US, IYZ
-0.20% Microcap Russell, IWC
-0.20% Industrial SPDR, XLI
-0.21% LargeCap VIPERs, VV
-0.21% LargeCap Blend Russell 3000, IWV
-0.22% S&P 500 iS LargeCap Blend, IVV
-0.22% Value SmallCap Russell 2000, IWN
-0.23% Blend Total Market VIPERs, VTI
-0.23% Growth SmallCap R 2000, IWO
-0.25% SmallCap Russell 2000, IWM
-0.25% Chile MSCI iS, ECH
-0.26% LargeCap Blend S&P 100, OEF
-0.26% S&P 500 SPDRs LargeCap Blend, SPY
-0.26% Growth SmallCap VIPERs, VBK
-0.26% Dividend DJ Select, DVY
-0.28% Value 1000 Russell, IWD
-0.29% Value S&P 500 B, IVE
-0.30% Value VIPERs, VTV
-0.30% Basic Materials DJ US, IYM
-0.31% Bond, High-Yield Corporate, HYG
-0.32% Value LargeCap Dynamic PS, PWV
-0.32% Value SmallCap S&P 600 B, IJS
-0.33% Dividend Appreciation Vipers, VIG
-0.33% REIT VIPERs, VNQ
-0.33% SmallCap S&P 600, IJR
-0.34% DIAMONDS (DJIA), DIA
-0.37% Gold Shares S.T., GLD
-0.37% Russia MV, RSX
-0.37% Realty Cohen & Steers, ICF
-0.38% WilderHill Clean Energy PS, PBW
-0.40% Financial DJ US, IYF
-0.41% Energy Global, IXC
-0.42% Dividend SPDR, SDY
-0.44% Bond EmrgMkt JPM iS, EMB
-0.47% Energy DJ, IYE
-0.49% Financials VIPERs, VFH
-0.50% REIT Wilshire, RWR
-0.50% Semiconductor SPDR, XSD
-0.52% Malaysia Index, EWM
-0.54% Utilities SPDR, XLU
-0.55% Energy & Nat Res iS GS, IGE
-0.55% Homebuilders SPDR, XHB
-0.57% Bond Ex-US Treas, BWX
-0.57% Mexico Index, EWW
-0.59% Energy SPDR, XLE
-0.61% Energy VIPERs, VDE
-0.61% United Kingdom Index, EWU
-0.63% Taiwan Index, EWT
-0.63% Financial SPDR, XLF
-0.64% Water Resources, PHO
-0.65% Latin Am 40, ILF
-0.65% Consumer Staples SPDR, XLP
-0.65% Utilities VIPERs, VPU
-0.68% Dividend International, PID
-0.78% Financial Services DJ, IYG
-0.79% Thailand MSCI iS, THD
-0.81% Singapore Index, EWS
-0.85% Global 100, IOO
-0.86% Belgium Index, EWK
-0.89% Emerging 50 BLDRS, ADRE
-1.00% Brazil Index, EWZ
-1.02% Hong Kong Index, EWH
-1.03% Canada Index, EWC
-1.06% Switzerland Index, EWL
-1.10% Growth EAFE MSCI, EFG
-1.15% Japan Index, EWJ
-1.17% Small Cap EAFE MSCI iS, SCZ
-1.18% Emerging VIPERs, VWO
-1.19% Value EAFE MSCI, EFV
-1.20% Pacific VIPERs, VPL
-1.21% Europe 350 S&P Index, IEV
-1.25% Pacific ex-Japan, EPP
-1.25% Emerging Markets, EEM
-1.32% Australia Index, EWA
-1.32% Global ex US ACWI iS, ACWX
-1.36% EAFE Index, EFA
-1.37% European VIPERs, VGK
-1.41% Sweden Index, EWD
-1.46% China 25 iS, FXI
-1.50% Indonesia MV, IDX
-1.53% Netherlands Index, EWN
-1.66% EMU Europe Index, EZU
-1.75% China LargeCap Growth G D H USX PS, PGJ
-1.75% France Index, EWQ
-1.79% Austria Index, EWO
-1.82% Spain Index, EWP
-1.83% Germany Index, EWG
-2.10% Silver Trust iS, SLV
-2.23% South Korea Index, EWY
-2.45% Turkey MSCI iS, TUR
-2.74% Italy Index, EWI