By Robert W. Colby, Senior Analyst TraderPlanet.com
Financial stock sector Relative Strength fell to its lowest level in more than 6 years.
U.S. dollar consolidated within its downtrend.
On Wednesday, major stock price indices gaped lower on news of disappointing earning reports and outlooks. Prices plunged deeper into the red following a report of a decline in existing home sales. Rising oil prices added to the selling pressure. But a sharp upside bounce after 2:00 p.m. recovered most of the loss on the day.
The Bulls were encouraged by the market’s resilience in the face of bad news. Also, they liked it that Monday’s low held. The worst seems to be over, and downside momentum seems broken.
Breadth ended 26% net Bearish, with more Declining stocks than Advancing stocks on the NYSE. The Cumulative Daily Advance-Decline line for the NASDAQ moved upward after breaking down to a new low on 10/19/07.
Total volume rose on both the NYSE and on the NASDAQ, reflecting very active selling and buying.
New Highs-New Lows ratios ended 38% net Bearish.
The U.S. stock market recently retraced 43.2% (intraday) of its August-October gain. That magnitude is entirely typical and normal for a minor correction. The market does not move in a straight line, and downside corrections or shakeouts are to be expected in any uptrend. The long-term Primary Tide Trend remains Bullish, according to the Dow Theory.
Earnings reports and troublesome seasonal tendencies are clearly of concern to many traders. 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.) Earnings reports and guidance may continue to influence the price action over the next few days.
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
11.05% , QLGC , QLOGIC
3.81% , CEPH , Cephalon Inc
3.98% , SWK , STANLEY WORKS
11.59% , PCAR , PACCAR
0.75% , UTH , Utilities H, UTH
6.79% , SNA , SNAP ON
4.43% , AFL , AFLAC
3.33% , GD , GENERAL DYNAMICS
3.42% , NOC , NORTHROP GRUMMAN
4.30% , MCHP , Microchip Technology Incorporated
4.50% , VC , VISTEON
4.52% , PX , PRAXAIR
2.26% , MDP , MEREDITH
4.71% , BDK , BLACK & DECKER
2.68% , VLO , VALERO ENERGY
3.39% , DISH , EchoStar Communications Corporation
3.02% , GENZ , GENZYME GEN
3.00% , HES , AMERADA HESS
1.96% , CCE , COCA COLA ENTER
2.01% , ABT , ABBOTT LABS
1.31% , AYE , ALLEGHENY ENERGY
1.82% , MI , MARSHAL & ILSLEY
2.73% , WMB , WILLIAMS
5.21% , ATI , ALLEGHENY TECH
2.95% , EP , EL PASO
0.74% , TLT , Bond, 20+ Years Treasury, TLT
1.96% , AZO , AUTOZONE
0.41% , PMR , Retail, PMR
1.69% , ETN , EATON
0.83% , WFC , WELLS FARGO
1.08% , PEG , PUBL SVC ENTER
2.29% , TRB , TRIBUNE
1.39% , NIHD , NII Holdings, Inc.
1.20% , SUN , SUNOCO
0.36% , VAW , Materials VIPERs, VAW
0.30% , VPU , Utilities VIPERs, VPU
1.44% , TWX , TIME WARNER INC
0.07% , JKG , MidCap Blend Core iS M, JKG
1.67% , RIG , TRANSOCEAN
0.62% , BUD , ANHEUSER BUSCH
1.08% , GPC , GENUINE PARTS
3.11% , WAG , WALGREEN
1.62% , OXY , OCCIDENTAL
0.72% , JPM , J P MORGAN CHASE
2.69% , COF , CAPITAL ONE FNCL
1.13% , MSFT , MICROSOFT
0.44% , AGG , Bond, Aggregate, AGG
1.17% , CMS , CMS ENERGY
2.30% , PLL , PALL
1.26% , MIL , MILLIPORE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-5.48% , CINF , CINCINNATI FIN
-8.37% , BCR , C R BARD
-15.69% , ALTR , ALTERA
-16.98% , BRCM , BROADCOM STK A
-8.33% , WWY , WM WRIGLEY JR
-5.21% , DOV , DOVER
-1.26% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
-6.22% , GLW , CORNING
-12.60% , RFMD , RF Micro Devices Inc
-8.11% , CFC , COUNTRYWIDE FNCL
-3.55% , FNM , FANNIE MAE
-4.73% , MBI , MBIA
-8.77% , ABK , AMBAC FINL GRP
-2.34% , PHW , Hardware & Electronics, PHW
-4.11% , FRE , FREDDIE MAC
-8.40% , JNPR , Juniper Networks Inc
-1.08% , JKK , Growth SmallCap iS M, JKK
-0.50% , DSG , Growth Small Cap DJ, DSG
-0.77% , EWP , Spain Index, EWP
-1.22% , PZJ , SmallCap PS Zacks, PZJ
-3.72% , NCC , NATIONAL CITY
-3.06% , MCO , MOODYS CORP
-2.34% , TUP , TUPPERWARE
-4.49% , MRVL , MARVELL TECHNOLOGY
-5.81% , MER , MERRILL LYNCH
-0.92% , IYW , Technology DJ US, IYW
-1.20% , PWO , OTC Dynamic PS, PWO
-5.32% , ETFC.O , E*TRADE FINANCIAL
-2.91% , DHI , D.R. HORTON, DHI
-4.03% , PWER , POWER ONE
-4.67% , DGX , QUEST DIAG
-1.86% , PRU , PRUDENTIAL FINL
-4.44% , AMD , ADV MICRO DEV
-2.58% , ACE , ACE
-0.98% , JKJ , SmallCap Core iS M, JKJ
-3.51% , LM , LEGG MASON
-3.06% , IGW , Semiconductor iS GS, IGW
-2.06% , CI , CIGNA
-3.38% , NVDA , NVIDIA
-3.49% , HHH , Internet H, HHH
-0.77% , SDY , Dividend SPDR, SDY
-1.49% , XL , XL CAPITAL STK A
-2.11% , MOT , MOTOROLA
-0.37% , RFV , Value MidCap S&P 400, RFV
-3.25% , XSD , Semiconductor SPDR, XSD
-0.76% , FDL , Dividend Leaders, FDL
-1.97% , ADM , ARCHER DANIELS
-2.60% , ZION , ZIONS
-1.21% , NWL , NEWELL RUBBER
-2.37% , PAYX , PAYCHEX
Sectors: among the 9 major U.S. sectors, 2 rose and 7 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.29% Consumer Staples
-0.33% Consumer Discretionary
-0.73% Health Care
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
Energy (XLE) Bullish, Overweight. XLE made an all-time closing price high on 10/16/07, and XLE made an all-time high in relative strength 10/18/07. 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 10/23/07. 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 3-month high on 10/19/07. 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.
Consumer Staples (XLP) Neutral, Market Weight. This defensive sector’s relative strength has improved since its low on 10/9/07.
Utilities (XLU) Neutral, Market Weight. This defensive sector’s relative strength has improved modestly since its low on 9/28/07.
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 and is back down to that low now.
Financial (XLF) Bearish, Underweight. On 10/24/07, 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’ also held above Monday’s’ lows. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made a new price high on 10/11/07 and a new relative strength high on 10/19/07. 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 has been Relatively Strong, compared to most other indices. Price made a new 6-year high on 10/11/07. Relative strength made a new 17-month high on 10/23/07. Longer term, NASDAQ has outperformed since 8/8/06.
Growth Stock/Value Stock Relative Strength ratio rose to a another new 20-month high. Growth price made a new 6-year high on 10/11/07. Growth stocks outperformed Value stocks since 8/8/06. The main trend for Growth is confirmed Bullish.
Small Caps substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.
November Crude Oil Futures reversed strongly to the upside with an Outside Day and Bullish Engulfing Line. On 10/19/07, price hit a record high at $90.07 a barrel intraday. 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. Some profit taking seems normal after oil’s sharp price run-up since 8/22/07, but these major trends remain Bullish.
The Energy stock sector underperformed the USO but outperformed 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 outperformed stocks. Gold set a new 28-year high on 10/19/07, and Relative Strength versus the S&P 500 confirmed. The Gold Trust ETF (NYSE: GLD) also confirmed the uptrend on 10/19/07. Some profit taking seems normal after gold’s sharp price run-up since 8/16/07, 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) has underperformed the metal steadily since 10/12/07. Profit taking seems normal after the previous 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 Bonds rose as investors’ focus shifted back toward financial risks. The short-term trend is confirmed 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 consolidated, ending little changed with an Inside Day. The main trend has been confirmed Bearish—again and again. 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:
1.16% Natural Gas
0.87% Oil Services
0.66% 30Y T-Bond
0.61% Dow Utilities
0.60% Japanese Yen
0.58% Commodity Related
0.51% Gold Mining
0.18% Swiss Franc
0.11% Australian Dollar
0.00% Euro Index
-0.01% Dow Industrial
-0.05% US Dollar Index
-0.12% British Pound
-0.14% S&P 100
-0.16% Dow Composite
-0.21% S&P Mid Caps
-0.24% S&P 500
-0.24% Russell 1000
-0.29% Consumer Staples
-0.30% Russell 3000
-0.32% NYSE Composite
-0.32% Wilshire 5000
-0.33% Consumer Discretionary
-0.37% Health Care
-0.46% United Kingdom
-0.51% AMEX Composite
-0.52% Value Line
-0.59% Hong Kong
-0.62% Health Care Products
-0.64% Canadian Dollar
-0.72% Computer Tech
-0.73% Health Care
-0.75% Nasdaq 100
-0.75% S&P Small Caps
-0.84% Broker Dealers
-0.88% Nasdaq Composite
-0.94% Dow Transports
-0.94% Russell 2000
-1.18% South Korea
-2.24% Disk Drives