By Robert W. Colby, Senior Analyst TraderPlanet.com
“Increasing downside risks”?
DJIA, S&P 100, S&P 500, and NASDAQ Composite all closed at new 15-month closing price lows, thereby confirming their major downtrends.
Volatility is relatively high and rising.
RSI-14 is extremely oversold at 23.62.
But further waves of selling and testing of lows are still possible.
Pundits had hoped for government help for the troubled financial sector, which has been sinking under the weight of new and overly complex instruments of financial mass destruction gone bad. Few ever really understood these instruments, but many bought and sold them anyway. After all, they had high credit ratings—until the assumptions proved wrong. And even if the U.S. government did come up with something for the financial sector, the trouble goes well beyond the U.S. because foreign financial institutions also bought securities containing repackaged mortgages that have gone sour. Global institutional capital has been lost. Normal lending activity has been impaired. The full extent of the worldwide credit problem is still unknown. Such uncertainty alone is impeding the normal flow of business. The latest news seems to indicate that the problem is much worse than most pundits thought.
Underlying fundamental trends appear hostile to stocks. More relatively weak economic and corporate earnings reports appear probable for the weeks ahead.
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
3.71% , PMR , Retail, PMR
2.35% , RFV , Value MidCap S&P 400, RFV
21.01% , CC , CIRCUIT CITY STR
11.65% , SHLD , SEARS HOLDINGS
10.59% , LOW , LOWES
12.65% , FAST , Fastenal Company
9.13% , COH , COACH
7.85% , XHB , Homebuilders SPDR, XHB
12.56% , KEY , KEYCORP
1.96% , XLY , Consumer Discretionary SPDR, XLY
7.53% , BSC , BEAR STEARNS
7.58% , MS , MORGAN STANLEY
8.17% , BBBY , BED BATH BEYOND
6.89% , SPG , SIMON PROP GRP
6.70% , NCC , NATIONAL CITY
7.31% , HD , HOME DEPOT
1.71% , PWY , Value SmallCap Dynamic PS, PWY
9.77% , RSH , RADIOSHACK
0.48% , MYY , Short 100% MidCap 400, MYY
6.71% , VFC , VF
8.47% , CTX , CENTEX
3.80% , ITT , ITT INDS
4.68% , STI , SUNTRUST BANKS
5.37% , CSX , CSX
0.30% , JKI , Value MidCap iS M, JKI
8.35% , DDS , DILLARD STK A
2.03% , RPV , Value S&P 500, RPV
7.45% , TGT , TARGET
1.59% , FDL , Dividend Leaders, FDL
6.16% , GWW , WW GRAINGER
7.23% , KSS , KOHLS
2.93% , NWL , NEWELL RUBBER
8.84% , DE , DEERE & CO
6.81% , PETM , PETsMART Inc
9.42% , LIZ , LIZ CLAIRBORNE
2.25% , BMS , BEMIS
3.59% , RTH , Retail H, RTH
6.56% , AN , AUTONATION
3.79% , SOV , SOVEREIGN BANC
3.95% , BAC , BANK OF AMERICA
1.39% , BC , BRUNSWICK
4.03% , MAS , MASCO
4.08% , TROW , T ROWE PRICE GP
5.84% , JCP , JC PENNEY
1.63% , SH , Short 100% S&P 500, SH
4.90% , RF , REGIONS FINAN
4.13% , CCL , CARNIVAL STK A
3.37% , IYR , Real Estate US DJ, IYR
1.13% , SDY , Dividend SPDR, SDY
9.07% , JWN , NORDSTROM
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-14.59% , CECO , CAREER EDUCATION CORP
-3.75% , ADRU , Europe 100 BLDRS, ADRU
-3.83% , BDH , Broadband H, BDH
-20.01% , WAT , WATERS
-4.06% , PBE , Biotech & Genome, PBE
-3.57% , ADRD , Developed 100 BLDRS, ADRD
-7.58% , MOT , MOTOROLA
-2.18% , PWO , OTC Dynamic PS, PWO
-3.90% , BHH , Internet B2B H, BHH
-5.40% , FEZ , Euro STOXX 50, FEZ
-3.83% , ADRA , Asia 50 BLDRS, ADRA
-4.94% , SWH , Software H, SWH
-3.53% , IXJ , Healthcare Global, IXJ
-1.32% , KLD , LargeCap Blend Socially Responsible iS, KLD
-2.73% , IXC , Energy Global, IXC
-2.98% , IYH , Healthcare DJ, IYH
-3.13% , EWI , Italy Index, EWI
-3.24% , MTK , Technology MS sT, MTK
-3.30% , EWQ , France Index, EWQ
-1.38% , NYC , LargeCap Blend NYSE Composite iS, NYC
-1.85% , JKH , MidCap Growth iS M, JKH
-4.85% , ERIC.O , LM Ericsson Telephone Company
-3.34% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-3.31% , ABI , Applera Corp-Applied Biosystems Group (ABI)
-3.83% , EZU , EMU Europe Index, EZU
-4.26% , EWP , Spain Index, EWP
-5.52% , JBL , JABIL CIRCUIT
-8.40% , FXI , China 25 iS, FXI
-6.25% , PGJ , China LargeCap Growth G D H USX PS, PGJ
-5.72% , MCHP , Microchip Technology Incorporated
-0.77% , IIH , Internet Infrastructure H, IIH
-6.50% , BMY , BRISTOL MYERS
-2.42% , EWN , Netherlands Index, EWN
-5.85% , UNH , UNITEDHEALTH GRP
-5.12% , PMTC.O , PARAMETRIC
-4.98% , WLP , WELLPOINT HEALTH
-6.86% , IVGN , Invitrogen Corporation
-5.10% , COL , ROCKWELL COLLINS
-3.15% , EWM , Malaysia Index, EWM
-4.59% , NSM , NATL SEMICONDUCT
-3.40% , UTH , Utilities H, UTH
-6.69% , SIAL , SIGMA ALDRICH
-2.97% , EFV , Value EAFE MSCI, EFV
-6.30% , EWG , Germany Index, EWG
-2.80% , VGK , European VIPERs, VGK
-4.00% , EMC , EMC
-2.75% , NYT , NY TIMES STK A
-2.33% , HMA , HEALTH MGMT STK A
-4.20% , CCU , CLEAR CHANNEL
-3.18% , EWY , South Korea Index, EWY
Sectors: among the 9 major U.S. sectors, 3 rose and 6 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
2.16% Financial
1.96% Consumer Discretionary
0.35% Industrial
-0.91% Materials
-1.03% Consumer Staples
-1.86% Technology
-3.11% Energy
-3.45% Utilities
-3.47% Health Care
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
Consumer Staples (XLP) Bullish, Overweight. Price fell to a new 15-month low on 1/22/08. Price made a new all-time high on 12/10/07, and Relative Strength made a new 3-year high on 1/17/08.
Utilities (XLU) Bullish, Overweight. Price fell to a new 12-month low on 1/22/08. Relative Strength made a new all-time high on 1/9/08, and Price made a new all-time high on 12/10/07.
Energy (XLE) Bullish, Overweight. Price hit a new 5-month low on 1/22/08. 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.
Health Care (XLV) Bullish, Overweight. Price fell to a new 18-month low on 1/22/08. Relative Strength moved up to a new 26-month high on 1/17/08.
Materials (XLB) Bullish, Overweight. Price hit a new 5-month low on 1/22/08. The XLB/SPY Relative Strength Ratio made a new all-time high on 1/14/08. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.
Industrial (XLI) Bearish, Underweight. Price fell to a new 16-month low on 1/22/08. On 1/11/08, Relative Strength made a new 6-month low. XLI/SPY has underperformed since 8/3/07.
Technology (XLK) Bearish, Underweight. Price fell to a new 17-month low on 1/22/08. On 1/16/08, Relative Strength made a new 4-month low. XLK/SPY has underperformed since 11/5/07.
Consumer Discretionary (XLY) Bearish, Underweight. Price fell to a new 4-year low on 1/22/08. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years.
Financial (XLF) Bearish, Underweight. Price fell to a new 4-year low on 1/22/08. On 1/8/08, Relative Strength fell to a new 7-year low. These confirmed a Bearish major trend.
Foreign stock indexes remain in downtrends. EFA price fell to a new 16-month low on 1/22/08. 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 price fell to a new 15-month low on 1/22/08. Relative Strength underperformed the S&P since 11/7/07.
Growth Stock/Value Stock Relative Strength Ratio has underperformed moderately since the peak on 11/7/07. It may be an intermediate-term consolidation or correction phase. The Growth/Value ratio (IWF/IWD) was in a rising trend from 8/8/06 to 1/7/07.
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 found support just above December’s low at 85.82. Oil is down steeply from 100.09 on 1/6/08, and its short-term trend might be approaching oversold. 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 underperformed Crude Oil since 12/10/07.
February Gold Futures reversed to the Bullish side. A minor 5-day correction could be over. 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) has underperformed Gold futures since 10/31/07.
Inflation expectations have been heading down. They 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 moved to new 2.5-year highs. Bonds’ short-term trend has been Bullish since 12/26/07, and 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 suffered a Bearish Engulfing Line and One-Day Bearish “Outside Day” Reversal. The dollar could retest support down toward 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 1/16/08, there were 45.6% Bulls and 26.7% Bears. The ratio of Bullish advisors to Bearish advisors fell to 1.71 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 31.01 and rising, is up from 18.47 on 12/21/08. VIX is relatively normal by Bear Market standards (around 20 to 40) but relatively high by Bull Market standards (around 10 to 20). 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 35.63 and rising, is up from 20.90 on 12/21/08. VXN is relatively low by Bear Market standards (around 35 to 80) but relatively high by Bull Market standards (around 12 to 26). 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 1.05 on 1/15/07, 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 0.60 on 1/17/07, 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 has derailed that engine. Economic statistics and corporate earnings are weakening.
The Primary Tide Major Trend turned Bearish, and that is a strong force. The Dow Theory confirmed a Primary Bear Market on 11/21/07 when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their respective closing price lows of August, 2007. On 11/7/07, the Transports closed below their August low. Then on 11/21/07, the Dow-Jones Industrial Average closed below its 8/16/07 closing price low of 12,845.78, thereby turning the Primary Tide Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
5.33% Retailers
3.29% Banks
3.22% REITs
2.23% Broker Dealers
2.16% Financial
2.11% Gold Mining
1.96% Consumer Discretionary
0.99% 30Y T-Bond
0.77% Sweden
0.47% Japanese Yen
0.36% Paper
0.36% British Pound
0.35% Industrial
0.15% Swiss Franc
0.08% Insurance
0.00% Nasdaq Composite
0.00% Dow Industrial
0.00% S&P 500
-0.02% S&P Small Caps
-0.05% US Dollar Index
-0.12% Euro Index
-0.20% Value Line
-0.20% Canadian Dollar
-0.21% Dow Transports
-0.24% Russell 2000
-0.30% Mexico
-0.32% United Kingdom
-0.47% S&P Mid Caps
-0.60% Canada
-0.65% Disk Drives
-0.72% Commodity Related
-0.89% Wilshire 5000
-0.91% Materials
-0.99% Russell 3000
-1.03% Consumer Staples
-1.05% Russell 1000
-1.06% Australian Dollar
-1.11% Belgium
-1.23% S&P 100
-1.33% Dow Composite
-1.38% Chemicals
-1.49% Austria
-1.51% Hospitals
-1.52% NYSE Composite
-1.64% Singapore
-1.72% Switzerland
-1.75% Hong Kong
-1.76% Brazil
-1.86% Technology
-1.96% Internet
-2.16% Natural Gas
-2.42% Netherlands
-2.53% DOT
-2.63% Nasdaq 100
-2.65% Hardware
-2.75% Health Care Products
-2.78% Biotechs
-2.84% Oil Services
-2.89% Oil
-2.89% Semiconductors
-2.98% AMEX Composite
-3.11% Energy
-3.13% Italy
-3.15% Health Care
-3.15% Malaysia
-3.18% South Korea
-3.19% Airlines
-3.20% Computer Tech
-3.23% Network
-3.30% France
-3.33% Drugs
-3.37% Dow Utilities
-3.45% Utilities
-3.47% Health Care
-3.48% Taiwan
-3.68% Japan
-4.26% Spain
-4.71% Australia
-6.30% Germany
