By Robert W. Colby, Senior Analyst TraderPlanet.com
Stocks: Bearish Engulfing Line,
Outside Day Reversal.
Traders are apprehensive about the potential for more bad news from the financial sector.
The market remains vulnerable to bad news, and further waves of selling could hit at any time.
The reversal was blamed on speculation and rumors about more trouble brewing in the financial sector (mortgage bankers and commercial banks, U.S. and foreign), as well as rumors of large hedge fund losses in January.
Major underlying technical trends remain Bearish for stocks. In addition, underlying fundamental trends appear difficult. There is a sense that problems are already baked into the cake, in the pipeline. Trouble is coming, and it is too late to prevent it, no matter what governments or the Fed may do.
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
17.53% , PKI , PERKINELMER
13.94% , CPWR , COMPUWARE
7.63% , EMN , EASTMAN CHEM
2.35% , WEN , WENDYS INTL
6.10% , CMI , CUMMINS
8.05% , ETFC.O , E*TRADE FINANCIAL
4.38% , AMGN , AMGEN
5.11% , F , FORD MOTOR
2.22% , DBC , Commodity Tracking, DBC
3.65% , HON , HONEYWELL INTL
2.11% , EPP , Pacific ex-Japan, EPP
3.10% , TMO , THERMO ELECTRON
1.65% , ITF , Japan LargeCap Blend TOPIX 150, ITF
3.08% , TIN , TEMPLE INLAND
0.93% , MYY , Short 100% MidCap 400, MYY
1.36% , BIIB , BIOGEN IDEC
1.24% , PCAR , PACCAR
1.16% , PTEN , Patterson-UTI Energy Inc
2.22% , HAL , HALLIBURTON
3.95% , MCHP , Microchip Technology Incorporated
3.32% , XME , Metals & Mining SPDR, XME
0.99% , TBH , Telebras HOLDRS, TBH*
1.49% , GNTX , Gentex Corporation
3.17% , CTL , CENTURYTEL
1.64% , FDX , FEDEX
3.32% , DOV , DOVER
2.58% , PH , PARKER HANNIFIN
1.95% , PHM , PULTE HOMES
0.77% , GLW , CORNING
0.57% , LH , LAB CRP OF AMER
0.26% , HET , HARRAHS ENTER
2.49% , BRCM , BROADCOM STK A
4.75% , LEN , Lennar Corp. (LEN)
1.37% , EWS , Singapore Index, EWS
0.48% , KLAC , KLA TENCOR
0.58% , ADBE , ADOBE SYS
1.04% , CAT , CATERPILLAR
1.76% , ETN , EATON
0.97% , IYM , Basic Materials DJ US, IYM
0.93% , IEF , Bond, 10 Year Treasury, IEF
1.76% , MZZ , Short 200% MidCap 400 PS, MZZ
0.43% , EQR , EQUITY RESIDENT BEN INT
1.04% , AIV , APT INV MNGMT
1.42% , RF , REGIONS FINAN
0.26% , SHY , Bond, 1-3 Year Treasury, SHY
0.24% , INTU , INTUIT
0.91% , HUM , HUMANA
0.15% , DYN , DYNEGY
0.18% , AGG , Bond, Aggregate, AGG
0.19% , MCD , MCDONALDS
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-2.28% , IAH , Internet Architecture H, IAH
-1.22% , IYK , Consumer Non-Cyclical, IYK
-5.70% , SGP , SCHERING PLOUGH
-5.38% , HOG , HARLEY DAVIDSON
-2.45% , EZU , EMU Europe Index, EZU
-1.09% , RPV , Value S&P 500, RPV
-1.60% , JKD , LargeCap Blend Core iS M, JKD
-1.84% , XLG , LargeCap Rydex Rus Top 50, XLG
-6.33% , RYAAY , Ryanair Holdings plc
-2.03% , VCR , Consumer D. VIPERs, VCR
-4.95% , ACE , ACE
-2.02% , XBI , Biotech SPDR, XBI
-2.75% , SIAL , SIGMA ALDRICH
-2.69% , PPH , Pharmaceutical H, PPH
-4.73% , CEPH , Cephalon Inc
-1.42% , PFM , Dividend Achievers PS, PFM
-1.64% , PWO , OTC Dynamic PS, PWO
-3.57% , MRK , MERCK & CO
-2.69% , EWN , Netherlands Index, EWN
-1.60% , IGM , Technology GS, IGM
-0.86% , IWC , Microcap Russell, IWC
-0.78% , SWH , Software H, SWH
-2.01% , IGW , Semiconductor iS GS, IGW
-5.40% , LEG , LEGGETT & PLATT
-5.55% , GILD , Gilead Sciences Inc
-1.82% , HSP , HOSPIRA
-4.80% , SCHW.O , CHARLES SCHWAB
-0.81% , PZI , Micro Cap Zachs, PZI
-1.87% , IIH , Internet Infrastructure H, IIH
-5.96% , HIG , HARTFORD FINL
-4.16% , LRCX , LAM RESEARCH CORP
-0.88% , PBW , WilderHill Clean Energy PS, PBW
-1.97% , PTE , Telecommunications & Wireless, PTE
-1.56% , OEF , LargeCap Blend S&P 100, OEF
-0.87% , PBE , Biotech & Genome, PBE
-1.23% , VDC , Consumer Staples VIPERs, VDC
-1.58% , IXJ , Healthcare Global, IXJ
-2.61% , BF.B , BROWN FORMAN STK B
-2.95% , CSX , CSX
-2.16% , SNV , SYNOVUS
-5.85% , NIHD , NII Holdings, Inc.
-4.22% , SNDK , SanDisk Corporation
-1.01% , PBJ , Food & Beverage, PBJ
-1.01% , HHH , Internet H, HHH
-4.62% , WYE , WYETH
-1.42% , SDY , Dividend SPDR, SDY
-4.57% , MS , MORGAN STANLEY
-1.18% , NYC , LargeCap Blend NYSE Composite iS, NYC
-4.33% , MER , MERRILL LYNCH
-4.38% , QLD , Ultra QQQ Double, QLD
Sectors: among the 9 major U.S. sectors, 1 rose and 8 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.50% Materials
-0.44% Industrial
-1.09% Utilities
-1.37% Consumer Staples
-1.55% Technology
-1.58% Health Care
-1.79% Energy
-2.06% Consumer Discretionary
-2.62% Financial
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
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.
Materials (XLB) Bullish, Overweight. Price touched a new 5-month low on 1/23/08. 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.
Consumer Staples (XLP) Bullish, Overweight. Price touched 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 touched 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.
Health Care (XLV) Bullish, Overweight. Price touched a new 18-month low on 1/22/08. Relative Strength moved up to a new 26-month high on 1/17/08.
Industrial (XLI) Bearish, Underweight. Price touched 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 touched 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 touched 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 touched 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 17-month low on 1/23/08. 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 touched a new 15-month low on 1/23/08. 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 11/7/07.
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 rose again, to the highest level in 4 days. Oil’s short-term trend turned up. Oil found support just above December’s low at 85.82. Oil is down steeply from 100.09 on 1/6/08. 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.
Gold Futures made a new all-time high at $924.3. All of Gold’s trends remain 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 bounced after a steep drop. Bonds’ short-term trend appears uncertain after having been strongly Bullish from 12/26/07 to 1/23/08. 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 the short-term trend looks weak. 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 1/23/08, there were 41.6% Bulls and 31.5% Bears. The ratio of Bullish advisors to Bearish advisors fell to 1.32 to 1, which below its 38-year median at 1.47. The ratio’s 38-year range is 0.28 to 17.51.
VIX “Fear Index”, now at 29.08 and rising, 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 33.81 and rising, 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 have been 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:
3.24% Australia
2.57% Brazil
1.55% Japan
1.37% Singapore
1.26% Hong Kong
1.18% Taiwan
0.76% 30Y T-Bond
0.71% Malaysia
0.54% AMEX Composite
0.50% Materials
0.38% US Dollar Index
0.29% British Pound
0.20% Canada
0.12% Chemicals
0.04% Dow Transports
-0.01% Commodity Related
-0.01% Paper
-0.05% Japanese Yen
-0.12% Australian Dollar
-0.19% Gold Mining
-0.29% Hospitals
-0.30% Network
-0.35% Disk Drives
-0.38% Canadian Dollar
-0.44% Industrial
-0.47% South Korea
-0.48% Airlines
-0.59% Russell 2000
-0.63% S&P Small Caps
-0.66% Euro Index
-0.73% United Kingdom
-0.75% Value Line
-0.83% Oil Services
-0.89% S&P Mid Caps
-1.00% Dow Composite
-1.02% Swiss Franc
-1.03% Biotechs
-1.09% Utilities
-1.10% DOT
-1.23% Oil
-1.23% REITs
-1.28% NYSE Composite
-1.36% Wilshire 5000
-1.37% Consumer Staples
-1.38% Dow Industrial
-1.38% Internet
-1.41% Natural Gas
-1.43% Russell 3000
-1.47% Nasdaq Composite
-1.49% Health Care Products
-1.50% Russell 1000
-1.55% Technology
-1.58% Health Care
-1.59% S&P 500
-1.60% Dow Utilities
-1.65% Health Care
-1.72% Insurance
-1.76% S&P 100
-1.79% Energy
-1.79% Austria
-1.82% Semiconductors
-1.83% Germany
-1.90% Italy
-1.95% Banks
-1.95% Computer Tech
-1.96% Spain
-2.00% Broker Dealers
-2.06% Consumer Discretionary
-2.07% Nasdaq 100
-2.10% Switzerland
-2.19% Hardware
-2.21% Drugs
-2.24% Sweden
-2.36% Mexico
-2.59% France
-2.62% Financial
-2.69% Netherlands
-2.78% Retailers
-4.09% Belgium
