by Robert W. Colby, Senior Analyst, TraderPlanet.com
Stock Market: extraordinary risks.
Consider yourself forewarned.
The government of Iceland seized major banks and closed the stock exchange.
If this kind of action spreads to other nations, it could raise extraordinary risks for many trading strategies.
Who knows what the governments might try next?
Focus on capital preservation.
On Thursday, major stock price indexes opened higher but soon turned down after 9:45 a.m. Stocks were choppy with a moderate downside bias until about 2:40 p.m., after which stocks plummeted. The Standard & Poor’s 500 cash index (909.92) closed down 75.02 points, or 7.62%, making a new 5-year low and reconfirming Bearish trends in all time frames. The Dow-Jones Industrial Average (8,579.19) closed down 678.91 points, or 7.33%, making a new 5-year low and reconfirming Bearish trends in all time frames. Total NYSE volume fell 6%.
S&P 500 fell 22% over the past 7 trading days. It fell every day. It is the worst 7-day period since the Crash of ’87.
Shock and Fear. There is nothing new under the sun. The Dow Theory described this type of market many decades ago. From my book, The Encyclopedia of Technical Market Indicators ,Second Edition: “The second Bear phase is marked by a sudden mood change, from optimism and hope to shock and fear. One day, the public wakes up and sees, much to its surprise, that “the emperor has no clothes”. Actual fundamental business conditions are not panning out to be as positive as previously hoped. In fact, there may be a little problem. The smart money is long gone, and there is no one left to buy when the public wants out. Stock prices drop steeply in a vacuum. Fear quickly replaces greed. Repeated waves of panic may sweep the market. Transactional volume swells as the unsophisticated investor screams, “Get me out at any price!” Sharp professional traders are willing to bid way down in price for stocks when prices drop too far too fast. The best that can be expected, however, is a dead-cat bounce that recovers only a fraction of the steep loss.”
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
3.70% , MET , METLIFE
2.36% , AM , AMER GREETINGS STK A
6.22% , GLW , CORNING
1.13% , EWM , Malaysia Index, EWM
3.28% , SEE , SEALED AIR
1.81% , CVS , CVS
1.38% , LUV , SOUTHWEST AIRLS
3.49% , KG , KING PHARM
2.65% , AMAT , APPLIED MATERIAL
0.23% , AGG , Bond, Aggregate, AGG
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-29.63% , UNM , UNUMPROVIDENT
-23.15% , PRU , PRUDENTIAL FINL
-17.94% , SNV , SYNOVUS
-28.19% , SOV , SOVEREIGN BANC
-53.80% , XL , XL CAPITAL STK A
-34.54% , LNC , LINCOLN NATL
-31.11% , GM , GENERAL MOTORS
-25.08% , AIG , AMER INTL GROUP
-25.89% , MS , MORGAN STANLEY
-7.27% , FEZ , Euro STOXX 50, FEZ
-22.05% , RF , REGIONS FINAN
-29.06% , CIT , CIT GROUP
-18.47% , SLM , SLM CORP
-20.80% , MI , MARSHAL & ILSLEY
-13.08% , RZV , Value SmallCap S&P 600, RZV
-28.37% , ABK , AMBAC FINL GRP
-28.67% , KEY , KEYCORP
-17.22% , AFL , AFLAC
-12.36% , R , RYDER SYSTEM
-15.16% , CMA , COMERICA
-28.85% , WB , WACHOVIA
-14.42% , BBT , BB&T
-14.67% , AN , AUTONATION
-15.70% , CINF , CINCINNATI FIN
-13.14% , TROW , T ROWE PRICE GP
-12.49% , FHN , FIRST TENNESSEE
-11.98% , MTB , M&T BANK
-14.58% , WFC , WELLS FARGO
-12.46% , ZION , ZIONS
-5.83% , IYK , Consumer Non-Cyclical, IYK
-11.71% , AET , AETNA
-9.70% , TMK , TORCHMARK
-12.70% , FII , FED INVESTORS STK B
-6.63% , PHW , Hardware & Electronics, PHW
-9.74% , WLP , WELLPOINT HEALTH
-7.37% , IOO , Global 100, IOO
-6.33% , ISI , LargeCap Blend S&P 1500 iS, ISI
-24.93% , MTG , MGIC INVESTMENT
-7.92% , VNQ , REIT VIPERs, VNQ
-13.71% , JNS , JANUS CAPITAL
Sectors: among the 9 major U.S. sectors, all 9 fell.
Major Sectors Ranked for the Day
% Price Change, Sector ETF, Symbol
-3.32% Technology SPDR, XLK
-5.70% Industrial SPDR, XLI
-6.02% Consumer Staples SPDR, XLP
-6.35% Consumer Discretionary SPDR, XLY
-6.41% Materials SPDR, XLB
-6.74% Utilities SPDR, XLU
-7.68% Health Care SPDR, XLV
-10.41% Financial SPDR, XLF
-14.40% Energy SPDR, XLE
Primary Tide Trends for the 9 major sectors last for years. Here are my up-to-date Relative Strength Rankings, as measured with emphasis on these long-term Primary Tide Trends (listed in order of long-term relative strength):
Consumer Staples (XLP) Neutral, Market Weight. On 10/9/08, XLP/SPY Relative Strength Ratio rose to another new 5-year high, but XLP absolute price fell to a new 2-year low. XLP is the best of a bad lot.
Health Care (XLV) Neutral, Market Weight. On 10/8/08, the XLV/SPY Relative Strength Ratio moved up to another new 4-year high. But on 10/9/08, XLV absolute price fell to a new 5-year low. XLP is the second best of a bad lot.
Utilities (XLU) Bearish, Underweight. On 10/9/08, the XLU absolute price fell to another new 2-year low.
Technology (XLK) Bearish, Underweight. On 10/9/08, the XLK absolute price fell to another new 41-month low.
Consumer Discretionary (XLY) Bearish, Underweight. On 10/9/08, XLY absolute price fell to its lowest level in 5 years.
Industrial (XLI) Bearish, Underweight. On 10/9/08, the XLI absolute price hit another new 58-month low, indicating long-term trend weakness.
Materials (XLB) Bearish, Underweight. On 10/8/08, the XLB absolute price touched another new 26-month intraday low.
Energy (XLE) Bearish, Underweight. On 10/9/08, the XLE absolute price hit another new 18-month intraday low.
Financial (XLF) Bearish, Underweight. On 10/9/08, the XLF absolute price hit another new 10-year low. The XLF long-term trend of relative strength has been trending down since 2/20/07.
Foreign stock index EFA Relative Strength Ratio has underperformed the S&P 500 since 11/27/07. EFA absolute price fell to a new 4-year low on 10/9/08 and has been in a falling trend since 10/31/07. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.
NASDAQ Composite remains Bearish. On 10/9/08, absolute price broke down to a new 5-year low, reconfirming long-term trend weakness. Relative Strength Ratio has been in a declining trend since 8/14/08.
NASDAQ 100 Index absolute price broke down to a new 5-year low on 10/9/08, reconfirming long-term trend weakness.
Growth Stock/Value Stock Relative Strength Ratio has been trending down since it peaked on 7/15/08.
The Small Cap/Large Cap Relative Strength Ratio has been trending down since it peaked on 9/19/08.
Crude Oil futures November contract price hit new 12-month lows. The short-term and intermediate-term trends remain Bearish. 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 underperformed Crude Oil since 5/30/07.
Gold futures contract price fell but held above the previous day’s low. Gold is a traditional store of value that benefits from financial panic. Still, gold has been in an intermediate-term downtrend since the peak of 1033.90 on 3/17/08.
Gold Mining stocks continue to underperform Gold futures on a major trend basis.
U.S. Treasury Bond futures contract price fell to 2-week lows. Bonds remain Bearish for the short term, but Bullish for the intermediate-term trend. Long term, Bonds have been in a neutral sideways trend since June 2003.
iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows on 9/29/08. All trends remain Bearish. Bond investors appear to be seriously concerned about the economic outlook.
iShares Lehman TIPS Bond (TIP) ETF absolute price hit a new 15-month closing price low on 10/8/08, implying deflation. All trends remain Bearish.
The U.S. dollar appears to be consolidating, short-term. Most trends remain Bullish, except perhaps for the secular, which is more than one major cycle.
The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood. The business and financial news has flipped from fear to hope and back again this year, creating higher levels of volatility. Investors might be wise to focus on risk control.
Sentiment/Contrary Opinion: There were 25.3% Bulls versus 53.0% Bears as of 10/8/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.48, down from 0.71 the previous week. This is an extreme level of pessimism. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47. Contrary Opinion must be tempered with other timing tools, of course.
VIX Fear Index, now at 63.92, broke out to a new all-time high. The all-time low was 9.89 on 1/24/07. 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 69.66, broke out to a new 7-year high. The all-time high was 114.23 on 10/8/98. The all-time low was 12.61 on 7/29/05. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.
CBOE Put/Call Ratio is 1.05, which indicates Bearish sentiment. Its 4-year mean and median are 0.62, and its 4-year range is 0.35 to 1.28.
ISEE Call/Put Ratio is 1.21, which indicates Bearish sentiment. The ratio’s 4-year mean is 1.50, 4-year median is 1.47, and 4-year range is 0.51 to 3.16.
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 weakened and seem likely to weaken further over the next several months.
The Dow Theory reconfirmed a Primary Tide Bear Market on 9/29/08, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their lowest closing prices of March through September, 2008. These two Averages originally confirmed a Primary Tide Bear Market on 11/21/07, when both closed below their closing price lows of August, 2007.
The breadth of the market has been in a Bearish trend long term since June 2007. The number of New Lows has exceeded the number of New Highs most days for more than a year, since July 2007, and that is one sign of a Bear Market. On 10/8/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 24-month lows, reconfirming that the major breadth trends remain Bearish.
To discover the next Resistance, traders probably will be watching how the market acts at the following levels for the Standard & Poor’s 500 cash index (909.92):
Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15, high of 8/11/2008
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008
1,220.03, high of 9/25/2008
1,077.08, Fibonacci 61.8% of 2002-2007 upmove
970.50, Gann 75.0% of 2002-2007 upmove
941.43, Fibonacci 78.6% of 2002-2007 upmove
To discover the next Support, traders probably will be watching how the market acts at the following levels for the S&P 500 cash index (909.92):
Potential Support
869.56, Gann 87.5% of 2002-2007 upmove
768.63, low of 10/10/2002
Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
13.89% Short 200% MidCap 400 PS, MZZ
13.16% Short 200% S&P 500 PS, SDS
11.35% Short 200% Dow 30 PS, DXD
6.83% Short 100% MidCap 400, MYY
6.64% Short 100% S&P 500, SH
6.56% Short 200% QQQ PS, QID
5.82% Short 100% Dow 30, DOG
3.85% Short 100% QQQ, PSQ
3.82% Silver Trust iS, SLV
1.13% Malaysia Index, EWM
0.54% Gold Shares S.T., GLD
0.23% Bond, Aggregate, AGG
0.06% Bond, 1-3 Year Treasury, SHY
-0.60% Bond, TIPS, TIP
-0.84% Bond, 20+ Years Treasury, TLT
-1.00% Bond, 10 Year Treasury, IEF
-1.37% Semiconductor SPDR, XSD
-1.72% Semiconductor iS GS, IGW
-2.25% Broadband H, BDH
-2.40% Semiconductors, PSI
-2.52% Info Tech VIPERs, VGT
-2.63% Australia Index, EWA
-2.66% Semiconductor H, SMH
-2.66% Bond, Corp, LQD
-2.69% Growth LargeCap NASDAQ 100, QQQQ
-2.75% Technology DJ US, IYW
-2.82% Software, IGV
-2.87% Internet Architecture H, IAH
-2.92% Networking, IGN
-3.02% Technology Global, IXN
-3.32% Technology SPDR, XLK
-3.46% Technology GS, IGM
-3.47% South Korea Index, EWY
-3.49% Brazil Index, EWZ
-3.56% Energy DJ, IYE
-3.56% Singapore Index, EWS
-3.68% Oil, Crude, U.S. Oil Fund, USO
-3.85% Italy Index, EWI
-3.88% Biotech H, BBH
-3.90% Growth LargeCap iS M, JKE
-4.00% Global Titans, DGT
-4.02% Growth LargeCap NASDAQ Fidelity, ONEQ
-4.09% Homebuilders SPDR, XHB
-4.11% Emerging VIPERs, VWO
-4.12% Growth VIPERs, VUG
-4.14% Water Resources, PHO
-4.23% Growth Mid Cap Dynamic PS, PWJ
-4.26% Utilities H, UTH
-4.33% Growth 1000 Russell, IWF
-4.45% Value Line Timeliness MidCap Gr, PIV
-4.55% Growth SmallCap R 2000, IWO
-4.59% WilderHill Clean Energy PS, PBW
-4.62% Japan Index, EWJ
-4.66% Commodity Tracking, DBC
-4.71% Technology MS sT, MTK
-4.76% Software H, SWH
-4.86% Asia 50 BLDRS, ADRA
-4.87% Metals & Mining SPDR, XME
-4.88% Japan LargeCap Blend TOPIX 150, ITF
-4.96% Internet Infrastructure H, IIH
-4.99% France Index, EWQ
-5.02% Food & Beverage, PBJ
-5.03% MidCap Blend Core iS M, JKG
-5.05% Pharmaceuticals, PJP
-5.06% Taiwan Index, EWT
-5.09% Biotech & Genome, PBE
-5.11% Pacific VIPERs, VPL
-5.13% IPOs, First Tr IPOX-100, FPX
-5.14% Wilshire 5000 ST TM, TMW
-5.15% Transportation Av DJ, IYT
-5.16% Growth Large Cap, ELG
-5.22% Consumer Cyclical DJ, IYC
-5.23% Retail H, RTH
-5.26% Dividend International, PID
-5.30% Utilities VIPERs, VPU
-5.30% Value EAFE MSCI, EFV
-5.36% Biotech SPDR, XBI
-5.39% Consumer Staples VIPERs, VDC
-5.40% Emerging 50 BLDRS, ADRE
-5.44% Industrials VIPERs, VIS
-5.46% Growth LargeCap Russell 3000, IWZ
-5.50% OTC Dynamic PS, PWO
-5.52% Netherlands Index, EWN
-5.54% Utilities DJ, IDU
-5.62% India Earnings WTree, EPI
-5.70% Healthcare DJ, IYH
-5.70% Industrial SPDR, XLI
-5.76% LargeCap Blend Core iS M, JKD
-5.78% Retail, PMR
-5.83% Consumer Non-Cyclical, IYK
-5.83% Telecommunications Global, IXP
-5.84% Industrial LargeCap Blend DJ US, IYJ
-5.84% Building & Construction, PKB
-5.86% Sweden Index, EWD
-5.89% Pacific ex-Japan, EPP
-5.90% Value 40 Large Low P/E FT DB, FDV
-5.96% Materials VIPERs, VAW
-5.98% Software, PSJ
-5.98% EAFE Index, EFA
-5.98% Growth EAFE MSCI, EFG
-6.02% Consumer Staples SPDR, XLP
-6.03% Latin Am 40, ILF
-6.05% Value VIPERs, VTV
-6.09% China LargeCap Growth G D H USX PS, PGJ
-6.10% Growth SmallCap Dynamic PS, PWT
-6.17% Consumer D. VIPERs, VCR
-6.17% LargeCap Blend Total Market DJ, IYY
-6.18% Networking, PXQ
-6.19% Basic Materials DJ US, IYM
-6.19% United Kingdom Index, EWU
-6.24% Telecom H, TTH
-6.26% Value LargeCap NYSE 100 iS, NY
-6.27% Blend Total Market VIPERs, VTI
-6.28% Internet H, HHH
-6.29% Growth MidCap Russell, IWP
-6.31% Telecom Services VIPERs, VOX
-6.32% Growth MidCap 400 B, IJK
-6.33% LargeCap Blend S&P 1500 iS, ISI
-6.35% Growth S&P 500/BARRA, IVW
-6.35% Consumer Discretionary SPDR, XLY
-6.38% EMU Europe Index, EZU
-6.40% DIAMONDS (DJIA), DIA
-6.41% Materials SPDR, XLB
-6.41% Germany Index, EWG
-6.43% LargeCap 1000 R, IWB
-6.45% Health Care VIPERs, VHT
-6.49% European VIPERs, VGK
-6.51% MidCap S&P 400 iS, IJH
-6.53% LargeCap Rydex Rus Top 50, XLG
-6.57% Dividend Appreciation Vipers, VIG
-6.60% S&P 500 iS LargeCap Blend, IVV
-6.63% Hardware & Electronics, PHW
-6.69% LargeCap VIPERs, VV
-6.71% Value 1000 Russell, IWD
-6.74% Utilities SPDR, XLU
-6.77% Growth SmallCap VIPERs, VBK
-6.79% LargeCap Blend NYSE Composite iS, NYC
-6.79% Extended Mkt VIPERs, VXF
-6.85% Telecommunications & Wireless, PTE
-6.85% Lg Cap Growth PSD, PWB
-6.92% Austria Index, EWO
-6.98% S&P 500 SPDRs LargeCap Blend, SPY
-7.01% Healthcare Global, IXJ
-7.08% LargeCap Blend S&P 100, OEF
-7.10% MidCap VIPERs, VO
-7.15% Growth MidCap S&P 400, RFG
-7.16% Real Estate US DJ, IYR
-7.19% MidCap Russell, IWR
-7.21% LargeCap Blend Russell 3000, IWV
-7.23% Growth BARRA Small Cap 600, IJT
-7.24% LargeCap Blend S&P=Weight R, RSP
-7.26% MidCap Growth iS M, JKH
-7.27% Euro STOXX 50, FEZ
-7.31% Value S&P 500 B, IVE
-7.32% Belgium Index, EWK
-7.34% Switzerland Index, EWL
-7.37% Value LargeCap Euro STOXX 50 DJ, FEU
-7.37% Emerging Markets, EEM
-7.37% Global 100, IOO
-7.42% Leisure & Entertainment, PEJ
-7.44% China 25 iS, FXI
-7.44% Value MidCap S&P 400 B, IJJ
-7.47% Nanotech Lux, PXN
-7.47% Europe 350 S&P Index, IEV
-7.54% Spain Index, EWP
-7.54% Financials Global LargeCap Value, IXG
-7.56% SmallCap Core iS M, JKJ
-7.59% Mexico Index, EWW
-7.61% Growth Small Cap DJ, DSG
-7.61% Canada Index, EWC
-7.63% Value LargeCap Fundamental RAFI 1000, PRF
-7.68% Health Care SPDR, XLV
-7.69% Value MidCap Russell, IWS
-7.72% Value SmallCap Dynamic PS, PWY
-7.73% Ultra QQQ Double, QLD
-7.78% Pharmaceutical H, PPH
-7.78% LargeCap Blend Socially Responsible iS, KLD
-7.83% Value LargeCap iS M, JKF
-7.84% Hong Kong Index, EWH
-7.85% Utilities, PUI
-7.86% Oil & Gas, PXJ
-7.88% Small Cap VIPERs, VB
-7.92% Developed 100 BLDRS, ADRD
-7.92% REIT VIPERs, VNQ
-7.96% Value SmallCap iS M, JKL
-8.02% Value SmallCap VIPERS, VBR
-8.05% Growth SmallCap iS M, JKK
-8.11% SmallCap PS Zacks, PZJ
-8.12% South Africa Index, EZA
-8.20% Telecom DJ US, IYZ
-8.21% SmallCap Russell 2000, IWM
-8.31% SmallCap S&P 600, IJR
-8.32% Natural Resource iS GS, IGE
-8.32% Aerospace & Defense, PPA
-8.33% Internet B2B H, BHH
-8.36% Oil Services H, OIH
-8.38% REIT Wilshire, RWR
-8.48% Value SmallCap S&P 600 B, IJS
-8.51% MidCap S&P 400 SPDRs, MDY
-8.74% Realty Cohen & Steers, ICF
-9.13% Growth S&P 500, RPG
-9.14% Value SmallCap Russell 2000, IWN
-9.16% Energy Global, IXC
-9.16% Europe 100 BLDRS, ADRU
-9.28% Value LargeCap Russell 3000, IWW
-9.29% Micro Cap Zachs, PZI
-9.45% Value MidCap iS M, JKI
-9.70% Value Large Cap DJ, ELV
-9.77% Dividend Leaders, FDL
-9.78% Microcap Russell, IWC
-9.88% Bank Regional H, RKH
-9.90% Value LargeCap Dynamic PS, PWV
-9.95% Energy VIPERs, VDE
-10.02% Dividend DJ Select, DVY
-10.37% Value Small Cap DJ, DSV
-10.40% Financial DJ US, IYF
-10.41% Financial SPDR, XLF
-10.44% Financials VIPERs, VFH
-10.80% Dividend SPDR, SDY
-10.80% Energy Exploration & Prod, PXE
-10.95% Financial Services DJ, IYG
-11.15% Dividend Achievers PS, PFM
-11.23% Value MidCap S&P 400, RFV
-11.34% LargeCap Blend Dynamic PS, PWC
-11.67% Value S&P 500, RPV
-11.79% Value MidCap Dynamic PS, PWP
-12.19% Dividend Growth PS, PHJ
-12.53% Dividend High Yield Equity PS, PEY
-12.85% Capital Markets KWB ST, KCE
-13.08% Value SmallCap S&P 600, RZV
-13.33% Insurance, PIC
-14.04% Ultra S&P500 Double, SSO
-14.40% Energy SPDR, XLE
-14.49% Ultra Dow30 Double, DDM
-16.23% Ultra MidCap400 Double, MVV
