By Robert W. Colby, Senior Analyst TraderPlanet.com
Money is flowing into the defensive sectors, reflecting fears of recession.
Industrials are lagging.
Last week, news of rising unemployment stoked fears of recession. The stock market appears to be reactive to such news reports. Furthermore, relatively weak economic reports appear probable for the days and weeks ahead. On Tuesday, 1/8/07, there will be reports on Pending Home Sales and Consumer Credit. Given the trends that by now have become quite evident, they seem likely to make grim reading.
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
9.55% , NIHD , NII Holdings, Inc.
7.24% , BIIB , BIOGEN IDEC
1.46% , VDC , Consumer Staples VIPERs, VDC
4.74% , BUD , ANHEUSER BUSCH
1.86% , VHT , Health Care VIPERs, VHT
4.66% , FPL , FPL GROUP INC
2.44% , UTH , Utilities H, UTH
5.52% , ESRX , EXPRESS SCRIPTS
0.42% , RZV , Value SmallCap S&P 600, RZV
5.31% , LLY , ELI LILLY
1.81% , VPU , Utilities VIPERs, VPU
2.32% , EWM , Malaysia Index, EWM
2.65% , LNC , LINCOLN NATL
0.68% , VIG , Dividend Appreciation Vipers, VIG
0.94% , TDC , Teradata Corporation, TDC
1.08% , VOX , Telecom Services VIPERs, VOX
3.07% , ABT , ABBOTT LABS
4.30% , VFC , VF
5.16% , BCR , C R BARD
3.19% , XL , XL CAPITAL STK A
0.50% , VBR , Value SmallCap VIPERS, VBR
1.96% , PUI , Utilities, PUI
2.76% , RAI , RJR TOBACCO HLDS
2.71% , EWH , Hong Kong Index, EWH
4.15% , INTU , INTUIT
4.18% , PEG , PUBL SVC ENTER
3.93% , ETR , ENTERGY
3.31% , BAX , BAXTER INTL
2.45% , TBH , Telebras HOLDRS, TBH*
2.95% , BDX , BECTON DICKINSON
1.77% , ECL , ECOLAB
1.66% , PMR , Retail, PMR
4.02% , AES , AES
2.29% , CPWR , COMPUWARE
1.98% , XLV , Health Care SPDR, XLV
1.82% , TAP , ADOLPH COORS STK B, TAP
2.78% , PPL , PPL
1.62% , PJP , Pharmaceuticals, PJP
7.66% , HMA , HEALTH MGMT STK A
1.32% , IYK , Consumer Non-Cyclical, IYK
1.83% , PPH , Pharmaceutical H, PPH
0.38% , ISI , LargeCap Blend S&P 1500 iS, ISI
3.00% , GNTX , Gentex Corporation
1.99% , IYH , Healthcare DJ, IYH
1.09% , EWP , Spain Index, EWP
2.67% , CI , CIGNA
1.13% , PWY , Value SmallCap Dynamic PS, PWY
0.39% , PSQ , Short 100% QQQ, PSQ
4.39% , FE , FIRSTENERGY
2.26% , NI , NISOURCE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-7.22% , XMSR , XM Satellite R
-2.58% , IGN , Networking, IGN
-3.96% , TXT , TEXTRON
-12.38% , ETFC.O , E*TRADE FINANCIAL
-3.96% , GR , GOODRICH CORP
-1.78% , PSI , Semiconductors, PSI
-5.05% , AA , ALCOA
-1.88% , PPA , Aerospace & Defense, PPA
-1.90% , IAH , Internet Architecture H, IAH
-5.39% , NCR , NCR
-5.20% , WFMI , Whole Foods Market Inc
-5.77% , SIRI , Sirius Satellite
-10.33% , NVDA , NVIDIA
-5.67% , FLR , FLUOR
-0.93% , RFG , Growth MidCap S&P 400, RFG
-1.37% , VAW , Materials VIPERs, VAW
-3.44% , BA , BOEING
-0.92% , JKH , MidCap Growth iS M, JKH
-3.10% , DOV , DOVER
-3.33% , PH , PARKER HANNIFIN
-1.89% , PXJ , Oil & Gas, PXJ
-2.68% , VRSN , VeriSign Inc
-4.45% , DRI , DARDEN REST
-0.38% , JKE , Growth LargeCap iS M, JKE
-0.42% , PSJ , Software, PSJ
-0.92% , VGT , Info Tech VIPERs, VGT
-5.58% , CIEN.O , CIENA
-1.59% , BDH , Broadband H, BDH
-2.54% , DHR , DANAHER
-4.52% , JCP , JC PENNEY
-3.41% , RIMM , RESEARCH IN MOTION LTD
-4.43% , X , US STEEL CORP
-0.39% , VO , MidCap VIPERs, VO
-2.60% , GS , GOLDMAN SACHS
-2.30% , ITT , ITT INDS
-2.75% , EBAY , EBAY
-5.59% , EMC , EMC
-4.31% , ATI , ALLEGHENY TECH
-2.68% , CTXS , CITRIX SYSTEMS
-1.33% , IIH , Internet Infrastructure H, IIH
-1.09% , FPX , IPOs, First Tr IPOX-100, FPX
-0.37% , VBK , Growth SmallCap VIPERs, VBK
-1.42% , EWC , Canada Index, EWC
-1.40% , PWJ , Growth Mid Cap Dynamic PS, PWJ
-3.61% , IR , INGER RAND
-2.79% , BIG , BIG LOTS
-1.92% , EWT , Taiwan Index, EWT
-1.20% , VDE , Energy VIPERs, VDE
-3.06% , PBW , WilderHill Clean Energy PS, PBW
-1.92% , EFX , EQUIFAX
Sectors: among the 9 major U.S. sectors, 5 rose and 4 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
1.98% Health Care
1.17% Consumer Staples
0.36% 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’s performs best when investors worry about a recession. Relative Strength made a new all-time high on 1/7/08, and Price made a new all-time high on 12/10/07.
Consumer Staples (XLP) Bullish, Overweight. This defensive sector’s 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 1/7/08.
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.
Health Care (XLV) Neutral, Market Weight. XLV price moved up to a new 6-month high on 12/3/07. Relative Strength moved up to a new 15-month high on 1/7/08.
Technology (XLK) Neutral, Market Weight. Price and Relative Strength have underperformed since 11/5/07. But longer-term trends since 7/24/06 may still be Bullish.
Industrial (XLI) Neutral, Market Weight. Price and Relative Strength have underperformed since 8/3/07. But longer-term trends may still be Bullish.
Consumer Discretionary (XLY) Bearish, Underweight. On 1/4/08, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years, and XLY price made a new 17-month low. Relative Strength has been trending down since 1/5/05.
Financial (XLF) Bearish, Underweight. On 1/4/08, 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 indices have outperformed U.S. stock indices since 12/24/07. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made a new price high on 10/31/07 and a new relative strength high on 11/27/07. EFA has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is still Bullish. My Top 10 ETF Relative Strength Ranks have been mostly Foreign for many months.
NASDAQ Composite and NASDAQ 100 underperformed the S&P since 12/26/07. Longer term, NASDAQ outperformed from 8/8/06 to 11/7/07, including a new 6-year Relative Strength high on 11/7/07 and a new price high on 10/31/07.
Growth Stock/Value Stock Relative Strength Ratio fell sharply and now looks weak for the short term. The long-term, the main trend for the Growth/Value ratio (IWF/IWD) has been rising since 8/8/06.
The Small Cap/Large Cap Relative Strength Ratio has been trending down since 4/19/06. Historically, year end and early January often have been good for Small Caps, but it does not seem to be working at all this year. The main long-term trend is Relatively Bearish for Small Caps.
Crude Oil Futures reversed to the downside to close below the previous 6 days’ closing lows. Oil’s main trend is 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 outperformed the USO since 11/26/07.
February Gold Futures consolidated with a second consecutive “inside day”. Gold’s next resistance is at the all-time high at 875 set on 1/21/80. Gold’s main trend is 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) turned down over the past two trading days and has underperformed 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 rose to a new one-month closing price high. Bonds could challenge their price top set on 11/26/07. 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 recovered slightly, a day after falling to a new 4-week low. Support is at the oversold low at 74.65 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 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 about normal. According to the weekly Investors Intelligence newsletter survey as of 1/2/08, there were 52.2% Bulls and 24.5% Bears. The ratio of Bullish advisors to Bearish advisors fell to 2.13 to 1, which near 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 23.79, remains above its 50-day and 200-day simple moving averages. 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 29.39 and rising, remains above its 50-day and 200-day simple moving averages. 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 0.78, 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. Its 4-year range is 0.35 to 1.28.
ISEE Call/Put Ratio is at 0.95, 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.
2.71% Hong Kong
2.45% Health Care Products
2.17% Health Care
1.98% Health Care
1.17% Consumer Staples
0.87% Dow Composite
0.82% South Korea
0.77% 30Y T-Bond
0.53% Dow Transports
0.45% US Dollar Index
0.38% S&P Small Caps
0.36% Consumer Discretionary
0.33% Russell 2000
0.33% S&P 100
0.32% NYSE Composite
0.32% S&P 500
0.30% United Kingdom
0.21% Dow Industrial
0.21% Russell 3000
0.20% Russell 1000
0.15% Value Line
0.13% Wilshire 5000
-0.02% AMEX Composite
-0.08% British Pound
-0.15% Natural Gas
-0.21% Nasdaq Composite
-0.27% S&P Mid Caps
-0.31% Nasdaq 100
-0.32% Australian Dollar
-0.53% Computer Tech
-0.53% Euro Index
-0.54% Japanese Yen
-0.56% Canadian Dollar
-1.00% Broker Dealers
-1.01% Swiss Franc
-1.30% Commodity Related
-1.77% Oil Services
-1.93% Gold Mining
-2.68% Disk Drives