by Robert W. Colby, Senior Analyst, TraderPlanet.com
Stock Market: consolidated losses with an Inside Day (lower high and higher low).
There appears to be no quick and easy fix for the difficult underlying causes of this Primary Tide Bear Market.
Typical Bear Market action remains evident.
Shrinking volume on recovery attempts indicates a lack of buying power.
Short-term recovery attempts come and go, but net out to nothing.
Short-term, dead-cat bounces might be best viewed as selling opportunities when the Primary Tide Trend is Bearish, as it is now.
Investors focus on capital preservation.
On Friday, major stock price indexes opened higher, quickly erased most of that gain, then reversed again to a peak around 10:45 a.m. Prices turned choppy during the middle of the session. In the final 40 minutes, stocks rallied above their morning highs, closed near the highest levels of the day, and recovered most of the previous day’s steep loss. The Standard & Poor’s 500 cash index (930.99) closed up 26.11 points, or 2.89%. Total NYSE volume fell 19%, however, calling into question the conviction behind the recovery.
The stock market reflects future fundamental conditions several months ahead, more than it reflects current conditions. The problem is that currently there is no visible end to the downward fundamental spiral. Economic news seems to be growing worse and worse as time goes on. Nonfarm payrolls suffered their tenth consecutive monthly decline in October, the unemployment rate jumped to a 14-year high of 6.5%, and unemployment is projected to get worse in months ahead. Atlanta Fed President Lockhart stated that he sees economic weakness and higher unemployment at least through the first half of 2009. President-elect Obama said that the country is facing the greatest economic challenge in a lifetime. “Some of the choices that we’re going to make are going to be difficult. It is not going to be quick. It’s not going to be easy for us to dig ourselves out of the hole that we are in.”
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
2.47% , IGM , Technology GS, IGM
16.67% , VC , VISTEON
1.89% , RPV , Value S&P 500, RPV
20.64% , FLR , FLUOR
28.29% , AES , AES
6.65% , FEZ , Euro STOXX 50, FEZ
6.67% , EWU , United Kingdom Index, EWU
5.78% , VPL , Pacific VIPERs, VPL
4.19% , IXP , Telecommunications Global, IXP
4.82% , EWI , Italy Index, EWI
2.13% , BBH , Biotech H, BBH
0.73% , FDV , Value 40 Large Low P/E FT DB, FDV
3.34% , IGN , Networking, IGN
14.44% , NVDA , NVIDIA
8.44% , EWO , Austria Index, EWO
2.17% , MTK , Technology MS sT, MTK
5.91% , EFG , Growth EAFE MSCI, EFG
3.19% , ELG , Growth Large Cap, ELG
1.34% , PWY , Value SmallCap Dynamic PS, PWY
3.18% , PWC , LargeCap Blend Dynamic PS, PWC
2.35% , VIS , Industrials VIPERs, VIS
3.86% , IXJ , Healthcare Global, IXJ
1.83% , IYC , Consumer Cyclical DJ, IYC
1.65% , IWC , Microcap Russell, IWC
2.54% , WFC , WELLS FARGO
8.21% , HANS , Hansen Natural, HANS
2.36% , IVE , Value S&P 500 B, IVE
3.93% , EWL , Switzerland Index, EWL
1.55% , DSG , Growth Small Cap DJ, DSG
2.74% , ISI , LargeCap Blend S&P 1500 iS, ISI
5.93% , EWQ , France Index, EWQ
4.24% , ACE , ACE
1.85% , VDC , Consumer Staples VIPERs, VDC
3.29% , RSH , RADIOSHACK
5.19% , EWG , Germany Index, EWG
12.83% , FXI , China 25 iS, FXI
1.46% , PBE , Biotech & Genome, PBE
13.52% , AN , AUTONATION
3.04% , IWW , Value LargeCap Russell 3000, IWW
2.42% , VHT , Health Care VIPERs, VHT
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-43.19% , GNW , GENWORTH FINANCIAL (NYSE:GNW)
-3.13% , BHH , Internet B2B H, BHH
-30.00% , UIS , UNISYS
-0.72% , RZV , Value SmallCap S&P 600, RZV
-9.17% , GM , GENERAL MOTORS
-8.56% , ETFC.O , E*TRADE FINANCIAL
-8.42% , S , SPRINT NEXTEL
-4.87% , SBUX , STARBUCKS
-18.22% , LPX , LOUISIANA PAC
-3.64% , GS , GOLDMAN SACHS
-12.61% , YHOO , YAHOO
9 Major U.S. Stock Sectors
Ranked on Latest One-Day Price Change
% Price Change, Sector ETF, Symbol
4.73% Energy SPDR, XLE
4.38% Utilities SPDR, XLU
2.86% Technology SPDR, XLK
1.86% Financial SPDR, XLF
1.73% Consumer Discretionary SPDR, XLY
1.63% Materials SPDR, XLB
1.26% Health Care SPDR, XLV
1.02% Industrial SPDR, XLI
0.46% Consumer Staples SPDR, XLP
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 10/10/08, XLP/SPY Relative Strength Ratio rose to another new 5-year high, but XLP absolute price fell to a new 2-year low. All 9 sectors have lost in 2008, but XLP has lost least.
Health Care (XLV) Neutral, Market Weight. On 10/24/08, XLV/SPY Relative Strength Ratio rose to another new 4-year high. But on 10/10/08, XLV absolute price fell to a new 5-year low.
Utilities (XLU) Bearish, Underweight. On 10/10/08, the XLU absolute price fell to another new 2-year low.
Technology (XLK) Bearish, Underweight. On 10/24/08, the XLK absolute price fell to a new 5-year low.
Energy (XLE) Bearish, Underweight. On 10/10/08, the XLE absolute price hit another new 18-month intraday low.
Consumer Discretionary (XLY) Bearish, Underweight. On 10/24/08, XLY absolute price fell to its lowest level in 5 years.
Industrial (XLI) Bearish, Underweight. On 10/24/08, the XLI absolute price fell to a new 5-year low.
Materials (XLB) Bearish, Underweight. On 10/27/08, the XLB absolute price fell to a new 5-year low.
Financial (XLF) Bearish, Underweight. On 10/10/08, 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 sharply underperformed the S&P 500 since 11/27/07. EFA absolute price fell to a new 5-year low on 10/27/08 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. Relative Strength underperforming S&P 500 since 8/14/08. On 10/24/08, the absolute price made another new 5-year low, reconfirming absolute 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 December contract price broke down below previous 2008 lows to confirm the already established cyclical downtrend. Oil fell to a new 19-month low of 59.97. The intermediate-term trend remains clearly 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 has outperformed Crude Oil since 10/9/08.
Gold futures contract price firmed slightly. The short-term trend still appears choppy and uncertain. Gold remains in an intermediate-term downtrend since the peak of 1,033.90 on 3/17/08.
Gold Mining stocks continue to underperform Gold futures on a major trend basis.
U.S. Treasury Bond futures contract price trends appear uncertain. Bonds trends appear uncertain both for the short term and for the intermediate term. Long term, Bonds have been in a neutral sideways trend since June 2003.
iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF absolute price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows on 10/10/08. Bond investors appear to be seriously concerned about the economic outlook.
iShares Lehman TIPS Bond (TIP) ETF Relative Strength suggests deflation. The TIP/TLT Relative Strength ratio has been in a persistent downtrend since 7/3/08.
The U.S. dollar finished little changed, losing momentum. The short-term trend appears to have turned choppy over the past 2 weeks. The dollar just made a new 24-month high on 10/27/08, so the longer-term trend is still Bullish.
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 record high levels of volatility. Investors might be wise to focus on risk control.
Sentiment/Contrary Opinion: There were 30.3% Bulls versus 48.3% Bears as of 11/5/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.63, up from 0.44 the previous week. This is still 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 56.10, eased lower. Its 18-year high was 80.06 on 10/27/08. Its 18-year 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 55.14, eased lower. Its 7-year high was 79.16 on 10/27/08. Its record high was 114.23 on 10/8/98. Its record 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 0.77, 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 1.16, 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 credit market crisis has derailed that engine. Economic statistics and corporate earnings have been weakening and seem likely to weaken further over the next several months…or longer.
The Dow Theory last reconfirmed a Primary Tide Bear Market on 10/27/08, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their previous lowest closing prices of 2006-2008. These two Averages originally signaled a Primary Tide Bear Market on 11/21/07, when both closed below their closing price lows of August, 2007.
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.”
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 10/27/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 2-year 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 (930.99):
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
1,238.807, Fibonacci 78.6% of 1,576.09 high
1,220.03, high of 9/25/2008
1,077.08, Fibonacci 61.8% of 2002-2007 upmove
1,044.31, high of 10/14/2008
1,001.84, high of 11/4/2008
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 (930.99):
Potential Support
839.80, low of 10/10/2008
788.05, Fibonacci 50.0% of 1,576.09 high
768.63, low of 10/10/2002
602.07, Fibonacci 38.2% of 1,576.09 high
Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
12.83% China 25 iS, FXI
11.66% South Korea Index, EWY
9.99% Hong Kong Index, EWH
8.74% Singapore Index, EWS
8.60% Emerging VIPERs, VWO
8.44% Austria Index, EWO
8.12% Emerging Markets, EEM
7.95% Emerging 50 BLDRS, ADRE
7.62% India Earnings WTree, EPI
7.58% Internet Infrastructure H, IIH
7.49% REIT Wilshire, RWR
7.39% China LargeCap Growth G D H USX PS, PGJ
7.30% Taiwan Index, EWT
6.80% Realty Cohen & Steers, ICF
6.74% Sweden Index, EWD
6.67% United Kingdom Index, EWU
6.65% Euro STOXX 50, FEZ
6.56% Asia 50 BLDRS, ADRA
6.55% Energy Global, IXC
6.44% Spain Index, EWP
6.35% Pacific ex-Japan, EPP
6.34% REIT VIPERs, VNQ
6.27% EMU Europe Index, EZU
6.02% Belgium Index, EWK
5.93% France Index, EWQ
5.92% Real Estate US DJ, IYR
5.91% Growth EAFE MSCI, EFG
5.90% Latin Am 40, ILF
5.85% Japan Index, EWJ
5.84% European VIPERs, VGK
5.78% Utilities, PUI
5.78% Pacific VIPERs, VPL
5.73% Brazil Index, EWZ
5.65% Value EAFE MSCI, EFV
5.65% EAFE Index, EFA
5.63% Europe 350 S&P Index, IEV
5.45% Broadband H, BDH
5.40% WilderHill Clean Energy PS, PBW
5.34% Ultra S&P500 Double, SSO
5.33% South Africa Index, EZA
5.19% Ultra Dow30 Double, DDM
5.19% Germany Index, EWG
5.06% Value LargeCap Euro STOXX 50 DJ, FEU
5.01% Semiconductor H, SMH
4.83% Europe 100 BLDRS, ADRU
4.82% Italy Index, EWI
4.79% Utilities H, UTH
4.75% Netherlands Index, EWN
4.73% Energy SPDR, XLE
4.69% Global 100, IOO
4.69% Financials Global LargeCap Value, IXG
4.61% Utilities DJ, IDU
4.54% Utilities VIPERs, VPU
4.44% Ultra MidCap400 Double, MVV
4.43% Australia Index, EWA
4.38% Utilities SPDR, XLU
4.36% Ultra QQQ Double, QLD
4.23% MidCap S&P 400 SPDRs, MDY
4.19% Telecommunications Global, IXP
4.15% Energy VIPERs, VDE
4.15% Natural Resource iS GS, IGE
4.04% Energy DJ, IYE
3.93% Switzerland Index, EWL
3.93% Developed 100 BLDRS, ADRD
3.86% Healthcare Global, IXJ
3.86% LargeCap Blend NYSE Composite iS, NYC
3.78% Value LargeCap iS M, JKF
3.68% Technology Global, IXN
3.55% Basic Materials DJ US, IYM
3.52% Japan LargeCap Blend TOPIX 150, ITF
3.50% Mexico Index, EWW
3.50% Energy Exploration & Prod, PXE
3.48% Value LargeCap NYSE 100 iS, NY
3.47% Materials VIPERs, VAW
3.46% Growth VIPERs, VUG
3.44% DIAMONDS (DJIA), DIA
3.38% Water Resources, PHO
3.34% Networking, IGN
3.33% Oil Services H, OIH
3.30% S&P 500 SPDRs LargeCap Blend, SPY
3.21% LargeCap Blend S&P 100, OEF
3.19% Growth Large Cap, ELG
3.18% LargeCap Blend Dynamic PS, PWC
3.12% Networking, PXQ
3.11% Growth LargeCap iS M, JKE
3.07% Global Titans, DGT
3.05% Value MidCap Russell, IWS
3.04% Value LargeCap Russell 3000, IWW
3.00% LargeCap Rydex Rus Top 50, XLG
2.98% Value VIPERs, VTV
2.97% Dividend Appreciation Vipers, VIG
2.96% Value LargeCap Dynamic PS, PWV
2.96% Metals & Mining SPDR, XME
2.96% Value MidCap Dynamic PS, PWP
2.94% Lg Cap Growth PSD, PWB
2.91% Telecom Services VIPERs, VOX
2.88% Healthcare DJ, IYH
2.86% Software H, SWH
2.86% Technology SPDR, XLK
2.83% LargeCap Blend S&P=Weight R, RSP
2.82% Growth S&P 500/BARRA, IVW
2.80% Telecom H, TTH
2.77% LargeCap Blend Russell 3000, IWV
2.74% LargeCap Blend S&P 1500 iS, ISI
2.73% Value MidCap S&P 400 B, IJJ
2.69% Financial DJ US, IYF
2.66% Pharmaceutical H, PPH
2.65% MidCap Growth iS M, JKH
2.65% MidCap Russell, IWR
2.63% Industrial LargeCap Blend DJ US, IYJ
2.58% Blend Total Market VIPERs, VTI
2.57% S&P 500 iS LargeCap Blend, IVV
2.55% MidCap VIPERs, VO
2.52% Value LargeCap Fundamental RAFI 1000, PRF
2.49% Malaysia Index, EWM
2.47% Technology GS, IGM
2.46% Software, IGV
2.45% Value SmallCap VIPERS, VBR
2.42% Growth MidCap Russell, IWP
2.42% Health Care VIPERs, VHT
2.40% IPOs, First Tr IPOX-100, FPX
2.39% Dividend International, PID
2.38% LargeCap VIPERs, VV
2.37% MidCap Blend Core iS M, JKG
2.36% Value S&P 500 B, IVE
2.35% Industrials VIPERs, VIS
2.34% Info Tech VIPERs, VGT
2.33% Capital Markets KWB ST, KCE
2.28% Financials VIPERs, VFH
2.28% LargeCap 1000 R, IWB
2.26% Value 1000 Russell, IWD
2.25% Retail H, RTH
2.23% Extended Mkt VIPERs, VXF
2.23% Growth 1000 Russell, IWF
2.23% Value Large Cap DJ, ELV
2.22% LargeCap Blend Total Market DJ, IYY
2.21% Semiconductor iS GS, IGW
2.19% Growth Mid Cap Dynamic PS, PWJ
2.17% Technology MS sT, MTK
2.16% MidCap S&P 400 iS, IJH
2.13% Dividend Achievers PS, PFM
2.13% Biotech H, BBH
2.12% LargeCap Blend Core iS M, JKD
2.11% Growth SmallCap R 2000, IWO
2.09% Telecom DJ US, IYZ
2.08% SmallCap Russell 2000, IWM
2.06% Growth LargeCap NASDAQ 100, QQQQ
2.03% Dividend DJ Select, DVY
2.01% Value SmallCap Russell 2000, IWN
2.01% Technology DJ US, IYW
1.97% Oil & Gas, PXJ
1.93% Growth SmallCap VIPERs, VBK
1.91% Aerospace & Defense, PPA
1.89% Value S&P 500, RPV
1.86% Financial SPDR, XLF
1.86% Dividend High Yield Equity PS, PEY
1.86% Small Cap VIPERs, VB
1.85% Consumer Staples VIPERs, VDC
1.83% Consumer Cyclical DJ, IYC
1.81% LargeCap Blend Socially Responsible iS, KLD
1.78% Biotech SPDR, XBI
1.76% Pharmaceuticals, PJP
1.73% Consumer Discretionary SPDR, XLY
1.70% Growth LargeCap NASDAQ Fidelity, ONEQ
1.69% Value SmallCap S&P 600 B, IJS
1.66% Building & Construction, PKB
1.66% Value SmallCap iS M, JKL
1.65% Semiconductors, PSI
1.65% Microcap Russell, IWC
1.63% Materials SPDR, XLB
1.63% Consumer D. VIPERs, VCR
1.60% Growth LargeCap Russell 3000, IWZ
1.57% Consumer Non-Cyclical, IYK
1.55% Growth Small Cap DJ, DSG
1.53% Growth MidCap 400 B, IJK
1.51% Internet Architecture H, IAH
1.50% SmallCap S&P 600, IJR
1.46% Biotech & Genome, PBE
1.43% Transportation Av DJ, IYT
1.40% Dividend SPDR, SDY
1.39% Nanotech Lux, PXN
1.38% Value MidCap iS M, JKI
1.34% Value Line Timeliness MidCap Gr, PIV
1.34% Value SmallCap Dynamic PS, PWY
1.33% Value MidCap S&P 400, RFV
1.26% Health Care SPDR, XLV
1.17% Wilshire 5000 ST TM, TMW
1.12% Financial Services DJ, IYG
1.07% OTC Dynamic PS, PWO
1.05% Growth BARRA Small Cap 600, IJT
1.02% Industrial SPDR, XLI
0.96% Value Small Cap DJ, DSV
0.96% Hardware & Electronics, PHW
0.90% Semiconductor SPDR, XSD
0.89% Software, PSJ
0.73% Value 40 Large Low P/E FT DB, FDV
0.64% Growth SmallCap Dynamic PS, PWT
0.57% Dividend Leaders, FDL
0.51% Bond, Aggregate, AGG
0.49% Insurance, PIC
0.46% Consumer Staples SPDR, XLP
0.40% Silver Trust iS, SLV
0.39% Gold Shares S.T., GLD
0.37% Food & Beverage, PBJ
0.33% Micro Cap Zachs, PZI
0.29% SmallCap Core iS M, JKJ
0.22% Bank Regional H, RKH
0.12% Commodity Tracking, DBC
0.10% Dividend Growth PS, PHJ
0.05% Growth MidCap S&P 400, RFG
0.00% Canada Index, EWC
-0.06% Leisure & Entertainment, PEJ
-0.18% Bond, 1-3 Year Treasury, SHY
-0.21% Growth S&P 500, RPG
-0.22% Oil, Crude, U.S. Oil Fund, USO
-0.22% Internet H, HHH
-0.25% Retail, PMR
-0.36% Bond, 10 Year Treasury, IEF
-0.43% Telecommunications & Wireless, PTE
-0.43% Bond, TIPS, TIP
-0.59% Growth SmallCap iS M, JKK
-0.65% Bond, 20+ Years Treasury, TLT
-0.70% Bond, Corp, LQD
-0.72% Value SmallCap S&P 600, RZV
-1.29% SmallCap PS Zacks, PZJ
-1.54% Short 100% MidCap 400, MYY
-2.45% Homebuilders SPDR, XHB
-2.46% Short 100% QQQ, PSQ
-2.75% Short 100% S&P 500, SH
-3.00% Short 100% Dow 30, DOG
-3.13% Internet B2B H, BHH
-4.83% Short 200% QQQ PS, QID
-4.98% Short 200% S&P 500 PS, SDS
-5.82% Short 200% MidCap 400 PS, MZZ
-6.09% Short 200% Dow 30 PS, DXD
