By Robert W. Colby, Senior Analyst TraderPlanet.com
Uncertain outlook. High risk environment.
Industrial Sector Relative Strength fell to a new 6-month low.
Technology Sector Relative Strength fell to a new 3-month low.
Consumer Discretionary Sector Relative Strength fell to its lowest level in 6 years.
NASDAQ Composite and NASDAQ 100 Relative Strength fell to new 3-month lows.
The EFA (international developed country stock markets) fell to a new 5-month price low.
Semiconductors fell to a new 18-month price low.
The Small Cap/Large Cap Relative Strength Ratio broke down to a new 2.5-year low.
Steep short-term downtrend lines were broken last week. Downward price momentum has slowed since the low at 2:15 p.m. on Wednesday afternoon, 1/9/07. It appears that the stock market could be building and testing some kind of a technical base which could lead to a further oversold bounce attempted. But at the same time, underlying fundamental trends appear hostile to stocks. Relatively weak economic and corporate earnings reports appear probable for the weeks ahead. Bottom fishing should be attempted only with protective stops.
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
5.71% , CTB , COOPER TIRE
2.44% , ACS , AFFILIATED COMPUTER
3.39% , WFMI , Whole Foods Market Inc
17.58% , MBI , MBIA
1.63% , UST , UST
3.08% , XMSR , XM Satellite R
4.18% , NCC , NATIONAL CITY
8.88% , CIT , CIT GROUP
1.65% , PCG , PG&E
5.11% , MER , MERRILL LYNCH
7.46% , CC , CIRCUIT CITY STR
1.38% , SIRI , Sirius Satellite
3.53% , SYK , STRYKER
1.68% , QCOM , QUALCOMM
0.89% , HOLX , Hologic, Inc., HOLX
0.65% , STJ , ST JUDE MEDICAL
0.91% , DBC , Commodity Tracking, DBC
1.81% , ERIC.O , LM Ericsson Telephone Company
1.68% , SRCL , Stericycle, SRCL
1.28% , ABC , AMERISOURCEBERGN
0.74% , TIP , Bond, TIPS, TIP
1.46% , HGSI , Human Genome Sciences Inc
0.85% , LMT , LOCKHEED MARTIN
0.64% , IEF , Bond, 10 Year Treasury, IEF
0.55% , NOC , NORTHROP GRUMMAN
0.66% , BBH , Biotech H, BBH
1.28% , SRE , SEMPRA ENERGY
3.74% , WM , WASHINGTON MUT
0.89% , VFC , VF
1.99% , BBT , BB&T
0.43% , AGG , Bond, Aggregate, AGG
0.11% , MTG , MGIC INVESTMENT
0.45% , EP , EL PASO
1.79% , WPI , WATSON PHARM
0.09% , NTAP , NETWK APPLIANCE
0.50% , PMTC.O , PARAMETRIC
0.13% , AMGN , AMGEN
0.61% , GENZ , GENZYME GEN
0.12% , IR , INGER RAND
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-25.70% , RFMD , RF Micro Devices Inc
-2.86% , PXQ , Networking, PXQ
-3.19% , XSD , Semiconductor SPDR, XSD
-3.04% , PHW , Hardware & Electronics, PHW
-10.28% , CECO , CAREER EDUCATION CORP
-13.27% , JNPR , Juniper Networks Inc
-11.21% , TIF , TIFFANY
-10.06% , AXP , AMERICAN EXPRESS
-6.62% , MCD , MCDONALDS
-6.82% , YUM , YUM BRANDS
-9.57% , CTSH , Cognizant Technology Solutions
-2.68% , PZJ , SmallCap PS Zacks, PZJ
-2.34% , ADRA , Asia 50 BLDRS, ADRA
-3.67% , TDC , Teradata Corporation, TDC
-2.16% , IGM , Technology GS, IGM
-1.90% , VIS , Industrials VIPERs, VIS
-8.08% , BRCM , BROADCOM STK A
-13.91% , SANM , SANMINA
-0.53% , RPG , Growth S&P 500, RPG
-2.27% , SWH , Software H, SWH
-3.06% , MHS , MEDCO HEALTH
-2.03% , VPL , Pacific VIPERs, VPL
-2.29% , EFG , Growth EAFE MSCI, EFG
-5.01% , CBE , COOPER INDS STK A
-4.20% , NIHD , NII Holdings, Inc.
-4.73% , LIZ , LIZ CLAIRBORNE
-4.25% , HOG , HARLEY DAVIDSON
-2.33% , RZV , Value SmallCap S&P 600, RZV
-3.07% , PBI , PITNEY BOWES
-4.48% , THC , TENET HEALTHCARE
-1.67% , EZU , EMU Europe Index, EZU
-7.00% , COH , COACH
-2.12% , EWU , United Kingdom Index, EWU
-4.33% , AM , AMER GREETINGS STK A
-4.39% , VLO , VALERO ENERGY
-2.90% , PXN , Nanotech Lux, PXN
-4.41% , BF.B , BROWN FORMAN STK B
-5.09% , BBY , BEST BUY
-2.39% , PWT , Growth SmallCap Dynamic PS, PWT
-1.09% , PPA , Aerospace & Defense, PPA
-4.37% , TXT , TEXTRON
-4.47% , SSCC , Smurfit-Stone Container Corporation
-0.84% , CEPH , Cephalon Inc
-1.82% , VGK , European VIPERs, VGK
-2.88% , K , KELLOGG
-3.17% , PG , PROCTER & GAMBLE
-2.89% , TAP , ADOLPH COORS STK B, TAP
-1.84% , CL , COLGATE
-3.95% , JNS , JANUS CAPITAL
-1.53% , JKD , LargeCap Blend Core iS M, JKD
Sectors: among the 9 major U.S. sectors, 2 rose and 7 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.30% Health Care
-1.40% Consumer Staples
-2.39% Consumer Discretionary
Energy (XLE) Bullish, Overweight. On 1/3/08, both XLE Price and Relative Strength made new all-time highs. XLE has been strong compared to the S&P since 3/12/03.
Utilities (XLU) Bullish, Overweight. This defensive sector performs best when investors worry about a recession. Relative Strength made a new all-time high on 1/9/08, and Price made a new all-time high on 12/10/07.
Health Care (XLV) Bullish, Overweight. XLV price moved up to a new 6-month high on 12/3/07. Relative Strength moved up to a new 26-month high on 1/11/08.
Consumer Staples (XLP) Bullish, Overweight. This defensive sector performs best when investors worry about a recession. Price made a new all-time high on 12/10/07, and Relative Strength made a new 3-year high on 1/9/08.
Materials (XLB) Bullish, Overweight. The XLB/SPY Relative Strength Ratio made a new all-time high on 1/3/08. Price made new all-time high on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.
Technology (XLK) Bearish, Underweight. On 1/8/08, price made a new 4-month low. On 1/11/08, Relative Strength made a new 3-month low. XLK/SPY has underperformed since 11/5/07.
Industrial (XLI) Bearish, Underweight. On 1/8/08, price made a new 4-month low. On 1/11/08, Relative Strength made a new 6-month low. XLI/SPY has underperformed since 8/3/07.
Consumer Discretionary (XLY) Bearish, Underweight. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years. On 1/9/08, XLY price made a new 41-month low. Relative Strength has been trending down since 1/5/05.
Financial (XLF) Bearish, Underweight. On 1/8/08, Relative Strength fell to a new 7-year low, and Price fell to a new 3-year low, thereby confirming a Bearish major trend.
Foreign stock indexes fell to a new 5-month price low. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) underperformed since 11/27/07. Previously, EFA outperformed from 2002 to 11/27/07.
NASDAQ Composite and NASDAQ 100 Relative Strength fell to new 3-month lows on 1/11/08. Both have underperformed the S&P since 11/7/07.
Growth Stock/Value Stock Relative Strength Ratio has been struggling choppy sideways since 11/7/07. Still, the long-term main trend for the Growth/Value ratio (IWF/IWD) has been rising since 8/8/06.
The Small Cap/Large Cap Relative Strength Ratio broke down to a new 2.5-year low on 1/11/07. It has been trending down since 4/19/06. The main long-term trend is Relatively Bearish for Small Caps.
Crude Oil Futures broke down below 11-day lows. Oil’s short-term trend looks down, but its main long-term trend remains Bullish. The 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 has outperformed Crude Oil since 11/26/07.
February Gold Futures made another new all-time high. On 1/8/08, Gold penetrated resistance at its all-time high at 875 set on 1/21/80. Gold’s main trend remains obviously Bullish.
Silver’s main trend is Bearish compared to Gold. The iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.
The Gold Miners ETF (GDX) made a new 2-month price high on 1/8/08 but still has underperformed Gold since 10/31/07.
Inflation expectations have been weak since the peak on 11/12/07, based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bond prices recovered part of Thursday’s loss. Bonds’ short-term trend appears questionable, but the main long-term trend remains Bullish. Bonds remain reactive to news about the credit crisis: the worse the credit crisis, the higher the Bond prices; the better the credit crisis, the lower the Bond prices.
The U.S. dollar rose slightly but not enough to change the short-term down trend. Support is at the oversold low at 74.65 set on 11/23/07. There could be overhead resistance at the 77.86 high of 12/20/07. The main trend remains Bearish.
The Art of Contrary Thinking: The mood has been moving away from optimism as stock prices move lower. Sentiment is far from a level associated with extreme pessimism. So, crowd psychology could get more Bearish before it is over. The business and financial news has flipped from Bearish to Bullish and back again. Investors’ moods and stock volatility have jumped up and down abruptly with the latest news. When everything shifts so dramatically from one day to the next, risk control becomes more important than aggressive profit seeking. Stay flexible.
Sentiment/Contrary Opinion: Bullish opinion is moderately below normal. According to the weekly Investors Intelligence newsletter survey as of 1/2/08, there were 48.4% Bulls and 25.8% Bears. The ratio of Bullish advisors to Bearish advisors fell to 1.88 to 1, which below its 4-year simple moving average at 2.14 and its 4-year median at 2.17. The ratio’s 4-year range is 1.00 to 3.46.
VIX “Fear Index”, now at 23.45, down from 25.43 on 1/8/08, is relatively normal by Bear Market standards (around 20 to 40), but relatively high by Bull Market standards (around 10 to 20). VIX peaked at 31.09 on 11/12/07 and bottomed at 18.47 on 12/21/07. Longer term, VIX has been in a rising trend since it hit a 13-year low of 9.89 on 1/24/07. The all-time high was 45.74 on 10/8/98. 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 28.82, down from 30.77 on 1/8/08, is relatively low by Bear Market standards (around 35 to 80), but relatively high by Bull Market standards (around 12 to 26). VXN peaked at 34.94 on 11/12/07 and bottomed at 20.90 on 12/21/07. Longer term, VXN has been in a rising trend since it hit its all-time low of 12.61 on 7/29/05. The all-time high was 114.23 on 10/8/98. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.
CBOE Put/Call Ratio rose to 0.97 on 1/8/07, indicating pessimistic sentiment. It is above its 4-year simple moving average and median at 0.62. That means there was more trading activity in put options and less in call options than normal. Its 4-year range is 0.35 to 1.28.
ISEE Call/Put Ratio fell to 0.72 on 1/9/07, indicating pessimistic sentiment. It is below its 4-year simple moving average at 1.50 and its 4-year median at 1.47. That means customers opened fewer long call options and more long put options than normal. Its 4-year range is 0.51 to 3.04.
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 appears to have derailed that engine. Economic statistics are weakening and at the same time inflation is rising, suggesting Stagflation.
0.64% 30Y T-Bond
0.46% Japanese Yen
0.44% Health Care Products
0.38% Gold Mining
0.30% Health Care
0.29% Broker Dealers
0.22% Swiss Franc
0.14% US Dollar Index
0.04% Health Care
-0.05% Euro Index
-0.13% British Pound
-0.46% Australian Dollar
-0.56% Natural Gas
-0.76% Dow Utilities
-0.80% Commodity Related
-1.11% Canadian Dollar
-1.34% Oil Services
-1.35% Russell 1000
-1.36% S&P 500
-1.40% Consumer Staples
-1.41% S&P Mid Caps
-1.42% Russell 3000
-1.42% Wilshire 5000
-1.44% S&P 100
-1.51% NYSE Composite
-1.68% Dow Composite
-1.82% Computer Tech
-1.86% Value Line
-1.92% Dow Industrial
-1.95% Nasdaq Composite
-2.02% Dow Transports
-2.03% S&P Small Caps
-2.09% Nasdaq 100
-2.12% United Kingdom
-2.16% Russell 2000
-2.25% AMEX Composite
-2.39% Consumer Discretionary
-3.67% Hong Kong
-4.42% South Korea