By Robert W. Colby, Senior Analyst TraderPlanet.com
Bearish Engulfing Line: A Big Downside Reversal Day
Trick or Treat?
Profit taking is normal and natural and has been lasting only 1 to 4 days.
Gold and Gold Miners made new highs.
U.S. dollar fell again—down 3 days in a row.
On Thursday, major stock price indices gapped up on the open, following strength in foreign stock markets. Prices trended strongly upward to a peak at about 1:15 p.m., stalled out, then fell steeply into the red between 1:50 p.m. and 3:30 p.m. The indices made back only a moderate fraction of their losses by the close, thereby demonstrating somewhat less impressive Bullish resilience than they have been displaying recently.
Breadth was 24% net Bearish, with more Declining stocks than Advancing stocks on the NYSE. In addition, the Cumulative Daily Advance-Decline line for the NYSE is far from its July high, lagging the price indices. The A-D Line lag is much more pronounced (I could say “dramatic”) for the NASDAQ.
New Highs-New Lows ratios were 64% net Bullish.
Short-term momentum indicators turned Bearish and are still lagging relative to the price indices.
The market does not move in a straight line, and temporary minor sinking spells are to be expected in any uptrend. The stock market has absorbed 1- to 4-day bouts of normal profit taking with minimal damage and with resilience since the low on 8/16/07. That indicates underlying demand and a Bullish intermediate-term trend for stocks. Finally, the long-term Primary Tide Trend remains Bullish, according to the Dow Theory.
Seasonal tendencies are a concern in days ahead. October has been a losing month on average, based on 101 years of month-end closing prices for the Dow-Jones Industrial Average, from 1900 through 2000. (See my book, pages 403-410.) October can be a month of trick or treat, and it has seen some very notable downside shakeouts in the past. So, we definitely do not want to get complacent. Be alert and flexible.
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
4.88% , GM , GENERAL MOTORS
6.44% , F , FORD MOTOR
4.19% , ABK , AMBAC FINL GRP
1.65% , PSQ , Short 100% QQQ, PSQ
0.86% , EWD , Sweden Index, EWD
1.51% , GT , GOODYEAR TIRE
4.19% , ROST , Ross Stores Inc
3.91% , TJX , TJX
2.87% , WMT , WAL MART STORES
2.53% , BSX , BOSTON SCIENT
2.63% , QID , Short 200% QQQ PS, QID
2.50% , C , CITIGROUP
0.46% , UTH , Utilities H, UTH
1.85% , EXC , EXELON CORP
3.77% , SANM , SANMINA
1.14% , SSCC , Smurfit-Stone Container Corporation
2.86% , ADM , ARCHER DANIELS
1.62% , IXP , Telecommunications Global, IXP
1.14% , SLV , Silver Trust iS, SLV
0.93% , SDS , Short 200% S&P 500 PS, SDS
0.23% , EWQ , France Index, EWQ
0.57% , MYY , Short 100% MidCap 400, MYY
4.23% , JCI , JOHNSON CONTROLS
2.30% , PTV , PACTIV
1.55% , CIT , CIT GROUP
1.99% , ODP , OFFICE DEPOT
1.89% , FE , FIRSTENERGY
1.59% , RDC , ROWAN COMPANIES
1.21% , PH , PARKER HANNIFIN
1.70% , EOG , EOG RESOURCES
1.50% , COF , CAPITAL ONE FNCL
1.69% , MBI , MBIA
1.75% , NEM , NEWMONT MINING
0.61% , EZU , EMU Europe Index, EZU
0.41% , IEV , Europe 350 S&P Index, IEV
1.67% , RTN , RAYTHEON
1.98% , CVS , CVS
1.42% , PWER , POWER ONE
1.24% , NTAP , NETWK APPLIANCE
0.93% , MZZ , Short 200% MidCap 400 PS, MZZ
0.75% , GLD , Gold Shares S.T., GLD
1.02% , XLU , Utilities SPDR, XLU
1.66% , SRE , SEMPRA ENERGY
1.38% , TEVA , Teva Pharmaceutical Industries Limited
1.79% , APC , ANADARKO PETRO
1.64% , ASH , ASHLAND
1.05% , PFG , PRINCIPAL FINL
1.80% , BEN , FRANKLIN RSC
0.85% , OXY , OCCIDENTAL
0.98% , DVN , DEVON ENERGY
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-2.18% , XSD , Semiconductor SPDR, XSD
-6.96% , JCP , JC PENNEY
-10.23% , FAST , Fastenal Company
-7.49% , JWN , NORDSTROM
-0.99% , BDH , Broadband H, BDH
-5.58% , BC , BRUNSWICK
-5.77% , SNDK , SanDisk Corporation
-0.52% , VOX , Telecom Services VIPERs, VOX
-5.62% , AMZN , Amazoncom Inc
-0.70% , PMR , Retail, PMR
-1.13% , PSJ , Software, PSJ
-2.40% , HHH , Internet H, HHH
-2.27% , IVGN , Invitrogen Corporation
-2.73% , AAPL , APPLE COMPUTER
-2.39% , PSI , Semiconductors, PSI
-4.53% , CTSH , Cognizant Technology Solutions
-5.03% , RIMM , RESEARCH IN MOTION LTD
-3.19% , TXN , TEXAS INSTRUMENT
-2.49% , PEP , PEPSICO
-0.81% , KLD , LargeCap Blend Socially Responsible iS, KLD
-1.36% , BHH , Internet B2B H, BHH
-1.16% , PWO , OTC Dynamic PS, PWO
-1.11% , IYW , Technology DJ US, IYW
-0.26% , ELV , Value Large Cap DJ, ELV
-2.91% , QLD , Ultra QQQ Double, QLD
-0.42% , RFG , Growth MidCap S&P 400, RFG
-0.90% , RZV , Value SmallCap S&P 600, RZV
-1.25% , JKK , Growth SmallCap iS M, JKK
-1.59% , QQQQ.O , Growth LargeCap NASDAQ 100, QQQQ
-0.89% , CNP , CENTERPNT ENERGY
-1.50% , IWO , Growth SmallCap R 2000, IWO
-1.74% , INTC , INTEL
-1.96% , BNI , BURLINGTON NORTH
-1.43% , OMX , OFFICEMAX INC., OMX
-0.70% , IWR , MidCap Russell, IWR
-0.49% , DSV , Value Small Cap DJ, DSV
-0.28% , RFV , Value MidCap S&P 400, RFV
-2.82% , CI , CIGNA
-1.39% , IGN , Networking, IGN
-1.36% , TBH , Telebras H, TBH
-1.34% , K , KELLOGG
-1.08% , XLK , Technology SPDR, XLK
-2.30% , COH , COACH
-1.45% , PEJ , Leisure & Entertainment, PEJ
-2.77% , CFC , COUNTRYWIDE FNCL
-2.50% , YHOO , YAHOO
-1.25% , EWT , Taiwan Index, EWT
-1.41% , PZI , Micro Cap Zachs, PZI
-1.42% , GWW , WW GRAINGER
-0.90% , SWH , Software H, SWH
Sectors: among the 9 major U.S. sectors, 1 rose and 8 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.25% Consumer Staples
-0.45% Consumer Discretionary
-0.85% Health Care
Looking beyond the daily fluctuation to the major trends (listed in order of relative strength):
Energy (XLE) Bullish, Overweight. XLE made an all-time price high on 10/11/07. Relative strength made a new all-time high on 9/21/07. XLE has been strong compared to the S&P since 3/12/03.
Materials (XLB) Bullish, Overweight. Price made a new high on 10/11/07. Relative strength made a new 10-week high on 10/1/07. The relative strength trend strongly outperformed since the price shakeout low on 8/16/07, and its long term trend has been Bullish since 9/27/2000.
Technology (XLK) Bullish, Overweight. XLK made a new 6-year price high on 10/11/07, and relative strength made a new 2-year high on 9/26/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.
Industrial (XLI) Bullish, Overweight. Industrial stock sector price made an all-time price high on 10/10/07. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06.
Utilities (XLU) Bearish, Underweight. This defensive sector’s relative strength made a new 8-week low on 9/28/07.
Consumer Staples (XLP) Bearish, Underweight. This defensive sector’s relative strength broke down to a new 11-week low on 10/9/07 and has been underperforming for 5 years, since 10/9/02.
Health Care (XLV) Bearish, Underweight. Relative strength has been trending down since 10/9/02, and it made a new 5-year low on 7/19/07, thereby confirming a major downtrend.
Consumer Discretionary (XLY) Bearish, Underweight. Price hit a new 10-month low on 8/16/07. Relative strength made another new 6-year low on 9/27/07.
Financial (XLF) Bearish, Underweight. The long-term trend of relative strength has been trending down since 2/20/07.
Foreign stock indices closed at a new price high and a new relative strength high. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) 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 are all Foreign.
NASDAQ Composite index price made a new 6-year high on 10/11/07. Relative strength made a new 17-month high on 10/10/07. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.
Growth stocks made a new 6-year high on 10/11/07 and outperformed Value stocks since 8/8/06. The main trend is confirmed Bullish.
Small Caps underperformed again. Small substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.
Crude Oil futures rose to the top of their month-long trading range. Oil held previous minor lows in the 78.25-78.35 zone. Note that the U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil. The longer-term trends for both remain Bullish.
The Energy stock sector underperformed the USO. Longer term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.
Gold made a new 28-year high on 10/11/07. The Gold Trust ETF (NYSE: GLD) confirmed. These major trends remain Bullish.
Silver’s main trend is relatively Bearish. Compared to Gold, the iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.
The Gold Miners ETF (GDX) made another new closing price high.
Inflation expectations appear choppy and uncertain, especially since 6/22/07. This is based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bond prices were weak, and the short-term trend is still Bearish. Long-term, it seems possible that the iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) ended a normal oversold bounce in a Bearish trend on 9/10/07. 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.
U.S. dollar fell again—down 3 days in a row. The short-term trend appears Bearish. Longer term, the dollar fell 16% over the past 23 months and its main trend remains very Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
0.81% Australian Dollar
0.71% Natural Gas
0.66% Canadian Dollar
0.57% Euro Index
0.49% United Kingdom
0.34% Dow Utilities
0.25% Consumer Staples
0.24% Oil Services
0.14% AMEX Composite
0.12% Gold Mining
0.08% Swiss Franc
-0.04% Japanese Yen
-0.14% Commodity Related
-0.14% 30Y T-Bond
-0.19% NYSE Composite
-0.21% US Dollar Index
-0.30% South Korea
-0.37% British Pound
-0.41% Dow Composite
-0.43% S&P 100
-0.45% Dow Industrial
-0.45% Consumer Discretionary
-0.45% Health Care Products
-0.52% S&P 500
-0.54% Russell 1000
-0.58% Wilshire 5000
-0.60% Russell 3000
-0.61% Health Care
-0.63% S&P Mid Caps
-0.82% Value Line
-0.85% Health Care
-0.86% Dow Transports
-0.87% Hong Kong
-1.01% Broker Dealers
-1.16% Computer Tech
-1.19% S&P Small Caps
-1.21% Russell 2000
-1.40% Nasdaq Composite
-1.66% Nasdaq 100
-2.34% Disk Drives