Advisors Show Surprising Bullish Complacency in the Face of Dramatic Stock Price Weakness

Advisory Service Sentiment: There were 47.3% Bulls versus 23.7% Bears as of 8/10/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio actually rose to 2.00, up from 1.87 the previous week, indicating surprising bullish complacency in the face of dramatic stock price weakness. The 20-year median is 1.56 and the mean is 1.64.

The S&P 500 Composite (SPX, 1,120.76) fell 51.77 points or 4.42% on Wednesday, August 10, 2011. Stock prices opened lower, tried to rally in midsession to a peak at 2:12 p.m. ET, only to fall below the morning lows in the final 6 minutes of trading.

NYSE trading volume fell 9% below Tuesday’s active pace.

Consider the weekly, broader-based Wilshire 5000 Composite Index ($WLSH). RSI (14) has collapsed below 30, nearly the same level as it was 29 months ago, at the bottom in March, 2009. RSI is well below its 2010 low, while major price indexes are well above their 2010 lows. This is what is known as “bearish momentum divergence”. As the name suggests, it is bearish.

The high-volume price drops in recent days might add up to a temporary selling climax that could clear the decks for recovery attempts in days ahead. Because it is now a Dow Theory Primary Tide Bear Market, however, playing Minor Ripple rally attempts against the Primary Tide probably will be difficult and risky.

In days ahead, I would not be surprised to see two-way volatility as the bulls and bears struggle for dominance in an atmosphere of substantial uncertainty.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
There is a strategy that gained this month and each of the past 3 months, while most other strategies lost —
NOW WITH A NO-RISK FREE TRIAL.
The Colby Global Markets Report
(click here for a no-risk free trial)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stock Market Indicators

NASDAQ Composite/S&P 500 Relative Strength Ratio fell below the lows of the previous 5 weeks and its 200-day SMA on 8/8/11. The Ratio’s 50-day SMA crossed above the 200-day SMA on 8/10/11, which is encouraging for the long-term trend of Relative Strength. Absolute price broke down below 10-month lows on 8/9/11 and remains bearish.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) remains bearish. The EEM/SPY Ratio broke down below 5-month lows on 8/8/11, remains below its 50- and 200-day SMAs, and the 50-day SMA remains below the 200-day SMA. Absolute price has been weak since 5/2/11 and broke down below 13-month lows on 8/8/11.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) has been in a major long-term downtrend since peaking on 11/27/07. The EFA/SPY Ratio remains below its 50- and 200-day SMAs, and the 50-day SMA remains below the 200-day SMA. Absolute price has been weak since 5/2/11 and broke down below 11-month lows on 8/8/11.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) rose above the highs of the previous 12 months on 8/8/11, confirming a relatively modest recovery in comparison to the previous major decline. OEX/SPX fell below 28-year lows on 5/26/11, confirming a bearish major trend. Absolute price of OEX fell below the lows of the previous 11 months on 8/9/11 and remains bearish.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) remains bearish. IWM/SPY fell below 10-month lows on 8/8/11.

The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) remains bearish. MDY/SPY fell below 11-month lows on 8/8/11.

Advisory Service Sentiment: There were 47.3% Bulls versus 23.7% Bears as of 8/10/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio actually rose to 2.00, up from 1.87 the previous week, indicating surprising bullish complacency in the face of dramatic stock price weakness. The 20-year median is 1.56 and the mean is 1.64.

VIX Fear Index rose to 48.00 on 8/8/11, its highest level in 14 months, since 5/21/10. Options players appear to be growing more fearful as the stock price decline accelerates. 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 Dow Theory signaled a Primary Tide Bear Market on 8/2/11, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their closing price lows of June, 2011.

The S&P 500 Composite (SPX, 1,120.76) fell 51.77 points or 4.42% on Wednesday, August 10, 2011.

S&P 500 Cash Index 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
1370.50, 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
1238.81, Fibonacci 78.6% of 1,576.09 high
1235.05, high of 12/7/10
1,234.56, low of 8/3/11
1232.85, low of 12/16/10
1228.74, Fibonacci 61.8% of 2007-2009 range
1227.08, high of 11/5/10
1249.05, low of 3/16/11
1246.73, high of 12/13/10
1238.81, Fibonacci 78.6% of 1,576.09 high
1235.05, high of 12/7/10
1232.85, low of 12/16/10
1228.74, Fibonacci 61.8% of 2007-2009 range
1227.08, high of 11/5/10

S&P 500 Cash Index Potential Support
1091.15, low of 9/7/2010
1039.70, low of 8/27/10
1039.31, Fibonacci 23.6% of June-Aug. 2010 range
1010.91, low of 7/1/2010
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
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
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
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fixed-Income Investments

Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) rose above the highs of the previous 11 months on 8/9/11, again confirming a significant uptrend. Support 102.27, 96.31, 94.83, 93.14, 89.65, and 88.14. Resistance 109.37, 116.92, and 123.15.

Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) fell below 2-year lows and fell further below its 20-, 50-, and 200-day simple moving averages on 8/10/11, confirming a major bearish trend.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF) fell below the lows of the previous 7 weeks on 8/8/11, confirming a short-term downtrend. TIP/IEF has been weak since peaking on 4/8/11 and remains below 3 key SMAs, of 20, 50, and 200 days. This means fixed-income investors have been choosing the unprotected 7-10 Year U.S. Treasury Note ETF (IEF) over the inflation-protected TIPs.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tangible Assets, Commodities

U.S. dollar ETF (UUP) remains in a major downtrend. UUP had been consolidating sideways since hitting a low of 20.84 on 5/4/11. On 8/9/11 UUP fell below the lows of the previous 5 trading days, which might be bearish for the short term. Support 20.91 and 20.84. Resistance 21.74, 21.86, and 22.21.

Agriculture, PowerShares DB Agriculture Fund ETF (DBA) topped out on 3/4/11 and remains bearish.

Crude Oil, United States Oil ETF (USO) fell below the lows of the previous 2 years on 8/9/11, again confirming a significant downtrend. Support 30.31, 26.28, 22.74. Resistance 39.25, 40.74, and 45.60.

Gold, SPDR Gold Shares ETF (GLD) rose above all-time highs on 8/10/11. Although minor price consolidations and corrections are to be expected in bullish price trends, the dominant trend remains persistently bullish. In a world of too much debt, weak currencies, and self-serving politicians, investors around the globe seek the safety of gold as the only forever-true money. Support: 159.68, 156.11, 154.10, 153.61, 147.19, 143.97, 143.42, and 142.55. Resistance: none.

Gold Mining Stocks ETF (GDX) Relative (to the Gold bullion ETF) Strength Ratio (GDX/GLD) fell below 29-month lows on 8/8/11, again confirming a bearish major trend for the long term.

Silver, iShares Silver Trust ETF (SLV) fell below 3-week lows on 8/9/11, confirming a short-term price pullback. Longer term, the price action in Silver appears choppy and erratic since the spike top at 48.35 on 4/28/11. Support 35.29, 34.02, and 31.97. Resistance: 44.71 and 48.35.

Silver/Gold ETFs Ratio (SLV/GLD) fell below 6-month lows on 8/9/11, suggesting a significant downtrend.

Copper, iPath DJ-UBS Copper TR Sub-Idx ETN (JJC ) fell below the lows of the previous 8 months on 8/10/11, again confirming a significant downtrend. Strength in Copper suggests confidence in the economic outlook, while Weakness suggests doubts about the future. Support 49.00. Resistance: 56.64, 57.48, 59.06, 60.04, and 61.69.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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
4.53% , RL , Polo Ralph Lauren
2.98% , TLT , Bond, 20+ Years Treasury, TLT
0.51% , GVI , Bond Interm U.S. Gov, GVI
0.56% , COF , CAPITAL ONE FNCL
0.29% , SJM , J. M. Smucker
0.74% , NEM , NEWMONT MINING

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-5.33% , IXJ , Healthcare Global, IXJ
-4.88% , IYJ , Industrial LargeCap Blend DJ US, IYJ
-9.11% , DIS , WALT DISNEY
-11.67% , CSC , COMPUTER SCIENCE
-7.61% , RKH , Bank Regional H, RKH
-2.12% , IDU , Utilities DJ, IDU
-4.18% , IWZ , Growth LargeCap Russell 3000, IWZ
-6.70% , IXG , Financials Global LargeCap Value, IXG
-3.45% , IYK , Consumer Non-Cyclical, IYK
-8.33% , EWI , Italy Index, EWI
-7.56% , EWQ , France Index, EWQ
-10.40% , KEY , KEYCORP
-4.16% , IYH , Healthcare DJ, IYH
-3.98% , IXP , Telecommunications Global, IXP
-10.66% , BBT , BB&T
-5.63% , XRX , XEROX
-6.93% , TXT , TEXTRON
-4.92% , EIS , Israel MSCI iS, EIS
-6.95% , XLF , Financial SPDR, XLF
-2.95% , PZI , Micro Cap Zachs, PZI
-4.81% , IWW , Value LargeCap Russell 3000, IWW
-9.63% , CMA , COMERICA
-9.94% , HBAN , HUNTINGTON
-6.29% , EWD , Sweden Index, EWD
-7.96% , MCO , MOODYS CORP
-10.71% , FITB , FIFTH THIRD BANC
-6.06% , SYK , STRYKER
-9.26% , LEN , Lennar Corp. (LEN)
-6.05% , IYF , Financial DJ US, IYF
-3.99% , KLD , LargeCap Blend Socially Responsible iS, KLD
-10.88% , ZION , ZIONS
-3.41% , PPH , Pharmaceutical H, PPH
-6.13% , EWU , United Kingdom Index, EWU
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
5.85% Silver Trust iS, SLV
3.54% Gold Shares S.T., GLD
2.98% Bond, 20+ Years Treasury, TLT
2.12% Silver Miners Global X, SIL
1.85% Bond, TIPS, TIP
1.32% Bond, 10 Year Treasury, IEF
1.17% Bond EmrgMkt JPM iS, EMB
1.02% Bond Muni ATM-Free S&P iS, MUB
0.90% Bond, Corp, LQD
0.81% Bond, Aggregate, AGG
0.55% Chile MSCI iS, ECH
0.51% Oil, Crude, U.S. Oil Fund, USO
0.43% Commodity Tracking, DBC
0.07% Bond, 1-3 Year Treasury, SHY
-0.03% Bond Treasury Short-Term iS, SHV
-0.04% Oil Fund PowerShares, DBO
-0.11% Preferred Stock iS, PFF
-0.66% Bond Ex-US Treas, BWX
-0.98% Agriculture DB PS, DBA
-1.37% Frontier Markets Guggenheim , FRN
-1.41% Bond, High-Yield Junk, JNK
-1.59% Canada Index, EWC
-1.69% Bond, High-Yield Corporate, HYG
-1.77% Indonesia MV, IDX
-1.89% Utilities SPDR, XLU
-1.91% Semiconductor iS IGW, SOXX
-1.98% Financial Preferred, PGF
-2.05% Utilities VIPERs, VPU
-2.11% Semiconductor SPDR, XSD
-2.31% REIT VIPERs, VNQ
-2.35% Real Estate US DJ, IYR
-2.53% Realty Cohen & Steers, ICF
-2.56% Energy & Nat Res iS GS, IGE
-2.56% REIT Wilshire, RWR
-2.79% Growth MidCap 400 B, IJK
-2.90% Brazil Index, EWZ
-3.03% Malaysia Index, EWM
-3.10% Taiwan Index, EWT
-3.11% Energy VIPERs, VDE
-3.13% Telecom DJ US, IYZ
-3.17% MidCap S&P 400 iS, IJH
-3.21% Basic Materials DJ US, IYM
-3.24% Dividend DJ Select, DVY
-3.27% Emerging 50 BLDRS, ADRE
-3.30% MidCap S&P 400 SPDRs, MDY
-3.34% Latin Am 40, ILF
-3.35% India Earnings WTree, EPI
-3.36% China LargeCap Growth G D H USX PS, PGJ
-3.42% Metals & Mining SPDR, XME
-3.44% Materials SPDR, XLB
-3.45% Energy SPDR, XLE
-3.45% Growth MidCap Russell, IWP
-3.50% Networking, IGN
-3.60% MidCap Russell, IWR
-3.62% Dividend High Yield Equity PS, PEY
-3.64% South Africa Index, EZA
-3.66% LargeCap 1000 R, IWB
-3.67% Energy DJ, IYE
-3.73% Dividend SPDR, SDY
-3.78% Technology DJ US, IYW
-3.83% Consumer Staples SPDR, XLP
-3.83% Energy Global, IXC
-3.85% Info Tech VIPERs, VGT
-3.91% Value MidCap S&P 400 B, IJJ
-3.92% Technology SPDR, XLK
-3.96% Thailand MSCI iS, THD
-3.99% Value MidCap Russell, IWS
-4.02% Growth 1000 Russell, IWF
-4.04% Growth VIPERs, VUG
-4.04% Transportation Av DJ, IYT
-4.09% QQQ Nasdaq 100 Trust, QQQ
-4.12% Growth S&P 500/BARRA, IVW
-4.13% WilderHill Clean Energy PS, PBW
-4.20% Growth SmallCap VIPERs, VBK
-4.22% Small Cap VIPERs, VB
-4.22% Health Care SPDR, XLV
-4.23% Growth BARRA Small Cap 600, IJT
-4.23% Austria Index, EWO
-4.23% LargeCap Blend Russell 3000, IWV
-4.25% Blend Total Market VIPERs, VTI
-4.26% Consumer Discretionary SPDR, XLY
-4.29% LargeCap Blend S&P=Weight R, RSP
-4.36% Dividend Appreciation Vipers, VIG
-4.38% LargeCap VIPERs, VV
-4.42% S&P 500 SPDRs LargeCap Blend, SPY
-4.42% Value LargeCap Dynamic PS, PWV
-4.48% Pacific VIPERs, VPL
-4.49% LargeCap Blend S&P 100, OEF
-4.50% Belgium Index, EWK
-4.50% Dividend International, PID
-4.57% Value 1000 Russell, IWD
-4.60% Value SmallCap VIPERS, VBR
-4.60% Japan Index, EWJ
-4.63% Hong Kong Index, EWH
-4.63% DIAMONDS (DJIA), DIA
-4.67% Growth SmallCap R 2000, IWO
-4.67% Switzerland Index, EWL
-4.70% Value VIPERs, VTV
-4.71% Australia Index, EWA
-4.80% SmallCap S&P 600, IJR
-4.82% Mexico Index, EWW
-4.82% India PS, PIN
-4.88% Biotech SPDR, XBI
-4.89% SmallCap Russell 2000, IWM
-4.91% Value S&P 500 B, IVE
-4.92% S&P 500 iS LargeCap Blend, IVV
-5.02% Global ex US ACWI iS, ACWX
-5.09% Pacific ex-Japan, EPP
-5.10% Industrial SPDR, XLI
-5.15% Water Resources, PHO
-5.16% Emerging VIPERs, VWO
-5.16% Singapore Index, EWS
-5.17% Homebuilders SPDR, XHB
-5.17% Netherlands Index, EWN
-5.30% Emerging Markets, EEM
-5.38% Value SmallCap Russell 2000, IWN
-5.44% Growth EAFE MSCI, EFG
-5.55% Small Cap EAFE MSCI iS, SCZ
-5.59% Value SmallCap S&P 600 B, IJS
-5.63% Global 100, IOO
-5.87% Financials VIPERs, VFH
-5.97% EAFE Index, EFA
-6.05% Financial DJ US, IYF
-6.09% Microcap Russell, IWC
-6.13% United Kingdom Index, EWU
-6.25% China 25 iS, FXI
-6.26% Value EAFE MSCI, EFV
-6.29% Sweden Index, EWD
-6.47% South Korea Index, EWY
-6.95% Financial SPDR, XLF
-6.97% Europe 350 S&P Index, IEV
-7.10% Germany Index, EWG
-7.15% Capital Markets KWB ST, KCE
-7.44% EMU Europe Index, EZU
-7.52% European VIPERs, VGK
-7.56% France Index, EWQ
-7.61% Financial Services DJ, IYG
-7.85% Spain Index, EWP
-8.11% Russia MV, RSX
-8.33% Italy Index, EWI
-9.48% Turkey MSCI iS, TUR