By Robert W. Colby, Senior Analyst TraderPlanet.com
Growth stocks’ Relative Strength made a new 20-month high relative to Value stocks.
U.S. Treasury Bond prices jumped sharply higher and broke a 5-week downtrend line.
Crude Oil Futures rose to another new all-time high at $89 before reversing to close down on the day.
Energy stock sector also hit an all-time high but reversed with a Bearish Engulfing Line.
Gold and Gold Miners closed lower.
Sentiment Jumped Up to Extreme Bullishness. According to the weekly Investors Intelligence newsletter survey, the ratio of Bullish advisors to Bearish advisors jumped to 3.21 to 1 as of 10/17/07—the highest ratio in more than 3 years! The ratio is up from a low of 1.09 to 1 as of 8/22/07. Currently, there are 62.0% Bulls and 19.3% Bears. Contrarians take note.
On Wednesday, major stock price indices bucked wildly up and down on news, both good and bad. The market bottomed at 1:54 p.m., following a sinking spell on news that the Turkish Assembly backed a possible incursion into Iraq, which also helped propel Crude Oil Futures prices to a new record $89 a barrel. Stock prices rebounded late in the session to close on the Bullish side.
The Bulls were relieved to see the market demonstrate its good old ability to bounce back from sinking spells. The market’s persistent tendency toward Bullish resilience indicates underlying demand for stocks.
Breadth ended 4% net Bullish, with more Advancing stocks than Declining stocks on the NYSE. 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.
Up Volume finished the day 2% net Bearish, with more Down Volume than Up Volume on the NYSE.
Total volume rose on both the NYSE and the NASDAQ, indicating both active buying and active selling.
New Highs-New Lows ratios were nearly a standoff, with less than 1% net Bullish.
Very short-term momentum indicators turned upward enough to cancel out Bearish divergences.
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 clearly a concern. 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 has seen some very notable downside shakeouts in the past. The media is all over this story, however, so a cautious exploration of the Art of Contrary Thinking could prove to be a good idea.
The market is a trick or treat monster, perhaps more so than usual at this time. Therefore, I am considering any and all opinions lightly, taking them with a few grains of salt, while staying alert, flexible, and ready to change quickly as “the tape” dictates.
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
7.68% , NVDA , NVIDIA
8.28% , PGJ , China LargeCap Growth G D H USX PS, PGJ
5.18% , EBAY , EBAY
9.77% , FXI , China 25 iS, FXI
4.91% , UST , UST
3.62% , MRVL , MARVELL TECHNOLOGY
3.70% , CI , CIGNA
3.69% , AMAT , APPLIED MATERIAL
4.87% , INTC , INTEL
3.03% , ABI , Applera Corp-Applied Biosystems Group (ABI)
4.81% , RFMD , RF Micro Devices Inc
3.77% , ISIL , INTERSIL CORP
2.91% , URBN , Urban Outfitters Inc.
2.41% , UNP , UNION PACIFIC
2.30% , KO , COCA COLA
7.98% , YHOO , YAHOO
6.42% , LNCR , Lincare Holdings Inc
1.14% , EWC , Canada Index, EWC
4.77% , EWH , Hong Kong Index, EWH
1.60% , MTK , Technology MS sT, MTK
1.38% , HNZ , HJ HEINZ
0.17% , IIH , Internet Infrastructure H, IIH
3.39% , KLAC , KLA TENCOR
1.05% , IXP , Telecommunications Global, IXP
1.09% , TLT , Bond, 20+ Years Treasury, TLT
1.55% , RHI , ROBERT HALF
1.48% , MIL , MILLIPORE
2.16% , MWV , MEADWESTVACO
2.37% , TER , TERADYNE
2.76% , DELL , DELL
2.00% , IVGN , Invitrogen Corporation
2.07% , FLEX , Flextronics International Ltd
0.88% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
3.58% , HGSI , Human Genome Sciences Inc
2.79% , JPM , J P MORGAN CHASE
1.35% , AN , AUTONATION
2.51% , MSFT , MICROSOFT
2.95% , SANM , SANMINA
2.02% , BMY , BRISTOL MYERS
5.86% , CSX , CSX
1.20% , EZA , South Africa Index, EZA
1.72% , EWW , Mexico Index, EWW
2.00% , HPQ , HEWLETT PACKARD
1.93% , EWP , Spain Index, EWP
3.76% , RIMM , RESEARCH IN MOTION LTD
1.06% , CEG , CONSTELL ENERGY
1.27% , SBUX , STARBUCKS
1.35% , AYE , ALLEGHENY ENERGY
2.26% , PLD , PROLOGIS TRUST
0.78% , PLL , PALL
% Price Change, Symbol, Name
-15.26% , MTG , MGIC INVESTMENT
-47.87% , CTSH , Cognizant Technology Solutions
-5.77% , CIT , CIT GROUP
-1.24% , PMR , Retail, PMR
-3.58% , UTX , UNITED TECH
-2.27% , NYT , NY TIMES STK A
-0.47% , RPV , Value S&P 500, RPV
-3.96% , NEM , NEWMONT MINING
-5.27% , PCAR , PACCAR
-4.14% , MBI , MBIA
-1.59% , XRAY , DENTSPLY International Inc
-0.62% , IYE , Energy DJ, IYE
-2.43% , FRE , FREDDIE MAC
-2.44% , LLTC , LINEAR TECH
-3.19% , IBM , IBM
-2.45% , FNM , FANNIE MAE
-3.22% , LEN , Lennar Corp. (LEN)
-2.45% , CECO , CAREER EDUCATION CORP
-2.71% , MON , MONSANTO
-2.11% , ACV , Alberto-Culver Co.
-1.27% , SWK , STANLEY WORKS
-2.96% , NTRS , NORTHERN TRUST
-0.36% , FDV , Value 40 Large Low P/E FT DB, FDV
-3.26% , XHB , Homebuilders SPDR, XHB
-2.43% , FAST , Fastenal Company
-1.62% , ITW , ILLINOIS TOOL
-2.24% , ABK , AMBAC FINL GRP
-1.25% , VIA , VIACOM INC. (New)
-2.25% , HD , HOME DEPOT
-0.42% , UTH , Utilities H, UTH
-1.81% , ETFC.O , E*TRADE FINANCIAL
-1.94% , DHI , D.R. HORTON, DHI
-1.48% , ABT , ABBOTT LABS
-0.80% , LIZ , LIZ CLAIRBORNE
-1.21% , HPC , HERCULES
-1.39% , MHP , MCGRAW HILL
-0.69% , PEY , Dividend High Yield Equity PS, PEY
-1.01% , SNV , SYNOVUS
-0.23% , IGE , Natural Resource iS GS, IGE
-1.65% , ADSK , AUTODESK
-0.66% , AEP , AM ELEC POWER
-0.89% , CAG , CONAGRA FOODS
-0.17% , PIC , Insurance, PIC
-1.96% , CMA , COMERICA
-1.81% , VLO , VALERO ENERGY
-1.84% , GNW , GENWORTH FINANCIAL (NYSE:GNW)
-1.33% , LOW , LOWES
-1.84% , CTB , COOPER TIRE
-0.82% , JKL , Value SmallCap iS M, JKL
-2.16% , TLAB , TELLABS
Sectors: among the 9 major U.S. sectors, 5 rose and 3 fell.
% Price Change, Sector
0.84% Technology
0.36% Consumer Staples
0.27% Industrial
0.27% Utilities
0.11% Consumer Discretionary
0.08% Health Care
-0.05% Materials
-0.06% Financial
-0.64% Energy
Energy (XLE) Bullish, Overweight. XLE made an all-time closing price high on 10/16/07, and relative strength confirmed. XLE has been strong compared to the S&P since 3/12/03.
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 10/16/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.
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.
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) Neutral, Market Weight. 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 XLF/SPY relative strength ratio fell to its lowest level in more than 6 years. The long-term trend of relative strength has been trending down since 2/20/07.
Foreign stock indices outperformed on Tuesday. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made new price and relative strength highs on 10/11/07. 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 are all Foreign.
NASDAQ Composite index is performing well, relative to most other indices. Price made a new 6-year high on 10/11/07. Relative strength made a new 17-month high on 10/17/07. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.
Growth stocks’ relative strength made a new 20-month high relative to Value stocks. Growth price 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 substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.
Crude Oil Futures rose to another new all-time high at $89 before reversing to close down on the day. Support appears at previous resistance at 84.10 and at 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 and the SPY. 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 touched a new 28-year high at 89 intraday but reversed downward with a Bearish Engulfing Line. The Gold Trust ETF (NYSE: GLD) confirmed. Some profit taking seems due, but 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) fell again and underperformed the metal since 10/12/07. Some profit taking would be normal after the recent price run-up.
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 jumped sharply higher and broke a 5-week downtrend line. The short-term trend now appears Bullish. 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 moved down to test recent lows. If these lows hold, it could prove to be a pinky fingernail in the dike for the very short term. Longer term, the dollar fell 16% over the past 23 months, and the main tidal force remains very Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
4.77% Hong Kong
2.67% Brazil
1.93% Spain
1.85% Semiconductors
1.82% Austria
1.72% Mexico
1.71% Netherlands
1.69% Disk Drives
1.59% Computer Tech
1.46% South Korea
1.40% Hospitals
1.38% United Kingdom
1.35% Taiwan
1.31% Singapore
1.30% Nasdaq 100
1.30% Hardware
1.24% Malaysia
1.23% France
1.20% Internet
1.14% Canada
1.13% 30Y T-Bond
1.04% Nasdaq Composite
1.02% Airlines
0.96% Dow Transports
0.91% AMEX Composite
0.89% Germany
0.89% Sweden
0.84% Technology
0.78% Switzerland
0.72% DOT
0.69% Biotechs
0.67% Paper
0.53% Network
0.51% Belgium
0.39% NYSE Composite
0.38% Canadian Dollar
0.36% Consumer Staples
0.34% Italy
0.28% Australia
0.27% Industrial
0.27% Utilities
0.26% S&P 100
0.22% Japanese Yen
0.21% Wilshire 5000
0.19% Russell 2000
0.18% S&P 500
0.17% Dow Composite
0.17% Russell 1000
0.17% Russell 3000
0.16% British Pound
0.14% Japan
0.14% Euro Index
0.13% Value Line
0.11% Consumer Discretionary
0.11% Swiss Franc
0.08% Health Care
0.03% S&P Mid Caps
0.02% Health Care
-0.02% Insurance
-0.03% S&P Small Caps
-0.03% Broker Dealers
-0.05% Materials
-0.05% Health Care Products
-0.06% Financial
-0.08% Drugs
-0.11% Banks
-0.15% Dow Industrial
-0.18% Dow Utilities
-0.20% REITs
-0.20% US Dollar Index
-0.24% Australian Dollar
-0.53% Retailers
-0.55% Chemicals
-0.56% Natural Gas
-0.64% Energy
-0.66% Commodity Related
-0.82% Oil
-1.13% Oil Services
-1.96% Gold Mining
