by Robert W. Colby, Senior Analyst, TraderPlanet.com
Stock Market: new 9-day price lows confirm short-term downtrend. Selling pressure dominates.
Typical Primary Tide Trend Bear Market action remains evident.
Investors focus on capital preservation.
On Tuesday, major stock price indexes gapped open lower and soon broke down below the lowest lows of the previous 9 trading days. Stocks continued to fall until about 12:25 p.m. A countertrend ABC recovery wave ran until 2:35 p.m. but never made it to the previous close. Stocks chopped lower in late trading and closed below the open, midpoint, and previous close. The Standard & Poor’s 500 cash index (898.95) closed down 20.26 points, or 2.20%, for its lowest close since 10/27/08. Total NYSE volume rose 9%, indicating rising selling pressure on stocks.
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. 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, “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
7.01% , WYNN , Wynn Resorts L
8.97% , MTG , MGIC INVESTMENT
7.25% , LM , LEGG MASON
11.11% , PWER , POWER ONE
4.65% , MZZ , Short 200% MidCap 400 PS, MZZ
4.30% , ROK , ROCKWELL AUTOMAT
2.38% , MYY , Short 100% MidCap 400, MYY
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-45.12% , FMCN , Focus Media, FMCN
-54.41% , GNW , GENWORTH FINANCIAL (NYSE:GNW)
-2.73% , PEJ , Leisure & Entertainment, PEJ
-3.16% , EZU , EMU Europe Index, EZU
-22.75% , HIG , HARTFORD FINL
-14.21% , TYC , TYCO INTL
-4.35% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-2.64% , FDV , Value 40 Large Low P/E FT DB, FDV
-7.80% , IIH , Internet Infrastructure H, IIH
-1.88% , PZJ , SmallCap PS Zacks, PZJ
-2.46% , PPA , Aerospace & Defense, PPA
-16.60% , ODP , OFFICE DEPOT
-2.09% , JKK , Growth SmallCap iS M, JKK
-13.29% , DISH , EchoStar Communications Corporation
-10.79% , PRU , PRUDENTIAL FINL
-7.96% , NTRS , NORTHERN TRUST
-9.34% , BEN , FRANKLIN RSC
-11.35% , PLD , PROLOGIS TRUST
-6.59% , TDC , Teradata Corporation, TDC
-3.30% , PWP , Value MidCap Dynamic PS, PWP
-18.06% , CTB , COOPER TIRE
-6.35% , VRSN , VeriSign Inc
-4.57% , IXG , Financials Global LargeCap Value, IXG
-11.88% , GT , GOODYEAR TIRE
-2.53% , DSG , Growth Small Cap DJ, DSG
-8.47% , NIHD , NII Holdings, Inc.
-4.12% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
-4.19% , RPG , Growth S&P 500, RPG
-2.28% , VTI , Blend Total Market VIPERs, VTI
-10.24% , HGSI , Human Genome Sciences Inc
-7.08% , VIA , VIACOM INC. (New)
-6.78% , TIF , TIFFANY
-1.85% , FDL , Dividend Leaders, FDL
-2.01% , PWT , Growth SmallCap Dynamic PS, PWT
-4.35% , WLP , WELLPOINT HEALTH
-15.27% , LNC , LINCOLN NATL
-7.59% , RFMD , RF Micro Devices Inc
-1.86% , PBJ , Food & Beverage, PBJ
-4.35% , ASH , ASHLAND
-2.28% , JKE , Growth LargeCap iS M, JKE
9 Major U.S. Stock Sectors
Ranked on Latest One-Day Price Change
% Price Change, Sector ETF, Symbol
0.00% Utilities SPDR, XLU
-1.79% Health Care SPDR, XLV
-2.16% Technology SPDR, XLK
-2.22% Industrial SPDR, XLI
-2.26% Consumer Staples SPDR, XLP
-2.88% Energy SPDR, XLE
-3.48% Financial SPDR, XLF
-3.49% Consumer Discretionary SPDR, XLY
-3.98% Materials SPDR, XLB
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.
Energy (XLE) Bearish, Underweight. On 10/10/08, the XLE absolute price hit another new 18-month intraday low.
Technology (XLK) Bearish, Underweight. On 10/24/08, the XLK absolute price fell to a new 5-year low.
Industrial (XLI) Bearish, Underweight. On 10/24/08, the XLI absolute price fell to a new 5-year low.
Consumer Discretionary (XLY) Bearish, Underweight. On 10/24/08, XLY absolute price fell to its lowest level in 5 years.
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, again confirming its downtrend. Oil fell to a new 19-month low of 58.32. 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 tested the low of 11/07/08 and held. The Gold trend still appears choppy and uncertain for the short-term. 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 broke out above the highs of the previous 10 trading days, suggesting an uptrend for the short term. This suggests an uptrend for the short term. Bonds still seem uncertain both 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 rose above the highs of the previous 9 trading days, suggesting an uptrend for the short term. 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 61.44, rose slightly. 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 60.83, rose slightly. 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 0.97, 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 1.09, 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 (898.95):
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 (898.95):
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
4.97% Short 200% S&P 500 PS, SDS
4.65% Short 200% MidCap 400 PS, MZZ
4.31% Short 200% QQQ PS, QID
3.94% Short 200% Dow 30 PS, DXD
2.51% Short 100% Dow 30, DOG
2.38% Short 100% MidCap 400, MYY
2.31% Short 100% S&P 500, SH
1.94% Short 100% QQQ, PSQ
0.92% Dividend Growth PS, PHJ
0.76% Bond, Aggregate, AGG
0.37% Bond, 10 Year Treasury, IEF
0.32% Bond, Corp, LQD
0.30% Bond, 20+ Years Treasury, TLT
0.23% Bond, TIPS, TIP
0.23% Utilities H, UTH
0.07% Bond, 1-3 Year Treasury, SHY
0.03% Utilities VIPERs, VPU
0.00% Utilities SPDR, XLU
-0.10% Value LargeCap iS M, JKF
-0.12% Broadband H, BDH
-0.31% Insurance, PIC
-0.58% Pharmaceutical H, PPH
-0.59% Utilities DJ, IDU
-0.72% Software, PSJ
-0.77% Micro Cap Zachs, PZI
-0.79% Pharmaceuticals, PJP
-0.83% Value LargeCap NYSE 100 iS, NY
-0.86% OTC Dynamic PS, PWO
-0.98% Value SmallCap S&P 600, RZV
-1.04% Semiconductors, PSI
-1.09% Realty Cohen & Steers, ICF
-1.11% Semiconductor H, SMH
-1.11% Healthcare Global, IXJ
-1.14% Capital Markets KWB ST, KCE
-1.21% Dividend DJ Select, DVY
-1.27% Real Estate US DJ, IYR
-1.28% Dividend Achievers PS, PFM
-1.28% Growth LargeCap NASDAQ Fidelity, ONEQ
-1.33% Transportation Av DJ, IYT
-1.35% IPOs, First Tr IPOX-100, FPX
-1.36% Value SmallCap Dynamic PS, PWY
-1.38% Internet Architecture H, IAH
-1.39% REIT VIPERs, VNQ
-1.39% Telecommunications Global, IXP
-1.46% Retail, PMR
-1.46% LargeCap Blend Core iS M, JKD
-1.47% Bank Regional H, RKH
-1.51% Value LargeCap Dynamic PS, PWV
-1.53% Retail H, RTH
-1.58% Healthcare DJ, IYH
-1.59% Dividend SPDR, SDY
-1.62% Mexico Index, EWW
-1.65% Telecom H, TTH
-1.72% Value SmallCap iS M, JKL
-1.75% LargeCap Blend Dynamic PS, PWC
-1.76% Consumer Staples VIPERs, VDC
-1.76% Value MidCap iS M, JKI
-1.77% Biotech SPDR, XBI
-1.78% Value LargeCap Russell 3000, IWW
-1.79% Value SmallCap S&P 600 B, IJS
-1.79% Health Care SPDR, XLV
-1.81% SmallCap Core iS M, JKJ
-1.83% Health Care VIPERs, VHT
-1.84% Value Large Cap DJ, ELV
-1.85% Dividend Leaders, FDL
-1.85% Growth MidCap S&P 400, RFG
-1.85% Value SmallCap VIPERS, VBR
-1.86% Value SmallCap Russell 2000, IWN
-1.86% Food & Beverage, PBJ
-1.87% Financials VIPERs, VFH
-1.87% Dividend Appreciation Vipers, VIG
-1.88% Consumer Non-Cyclical, IYK
-1.88% SmallCap PS Zacks, PZJ
-1.88% Microcap Russell, IWC
-1.88% Netherlands Index, EWN
-1.90% Financial Services DJ, IYG
-1.91% Commodity Tracking, DBC
-1.92% Value Small Cap DJ, DSV
-1.93% LargeCap Rydex Rus Top 50, XLG
-1.94% Value MidCap S&P 400 B, IJJ
-1.95% Semiconductor SPDR, XSD
-1.96% LargeCap Blend Russell 3000, IWV
-1.96% Global Titans, DGT
-1.98% Financial DJ US, IYF
-2.01% Growth SmallCap Dynamic PS, PWT
-2.04% Growth SmallCap R 2000, IWO
-2.05% Value MidCap S&P 400, RFV
-2.07% Homebuilders SPDR, XHB
-2.07% Belgium Index, EWK
-2.08% Dividend High Yield Equity PS, PEY
-2.08% Gold Shares S.T., GLD
-2.08% LargeCap Blend Socially Responsible iS, KLD
-2.09% Growth SmallCap iS M, JKK
-2.10% United Kingdom Index, EWU
-2.11% Small Cap VIPERs, VB
-2.12% LargeCap Blend Total Market DJ, IYY
-2.13% Semiconductor iS GS, IGW
-2.13% Biotech H, BBH
-2.14% Extended Mkt VIPERs, VXF
-2.14% LargeCap Blend S&P 100, OEF
-2.14% Technology DJ US, IYW
-2.16% Technology SPDR, XLK
-2.16% SmallCap Russell 2000, IWM
-2.18% Growth LargeCap NASDAQ 100, QQQQ
-2.18% Value LargeCap Fundamental RAFI 1000, PRF
-2.19% MidCap S&P 400 iS, IJH
-2.20% SmallCap S&P 600, IJR
-2.22% LargeCap Blend S&P 1500 iS, ISI
-2.22% Industrial SPDR, XLI
-2.22% LargeCap Blend NYSE Composite iS, NYC
-2.24% Info Tech VIPERs, VGT
-2.25% Wilshire 5000 ST TM, TMW
-2.26% Value VIPERs, VTV
-2.26% Consumer Staples SPDR, XLP
-2.28% Blend Total Market VIPERs, VTI
-2.28% Growth LargeCap iS M, JKE
-2.29% Growth Mid Cap Dynamic PS, PWJ
-2.29% Value S&P 500 B, IVE
-2.31% Value 1000 Russell, IWD
-2.32% Malaysia Index, EWM
-2.34% Value MidCap Russell, IWS
-2.35% LargeCap VIPERs, VV
-2.35% Growth BARRA Small Cap 600, IJT
-2.37% Software, IGV
-2.37% Technology MS sT, MTK
-2.38% REIT Wilshire, RWR
-2.39% LargeCap 1000 R, IWB
-2.43% MidCap Blend Core iS M, JKG
-2.44% Switzerland Index, EWL
-2.45% DIAMONDS (DJIA), DIA
-2.46% Aerospace & Defense, PPA
-2.47% S&P 500 iS LargeCap Blend, IVV
-2.47% Industrials VIPERs, VIS
-2.48% Networking, IGN
-2.49% Growth SmallCap VIPERs, VBK
-2.51% Growth S&P 500/BARRA, IVW
-2.52% European VIPERs, VGK
-2.53% Europe 350 S&P Index, IEV
-2.53% Software H, SWH
-2.53% Growth Small Cap DJ, DSG
-2.54% Technology GS, IGM
-2.54% Water Resources, PHO
-2.56% Telecom Services VIPERs, VOX
-2.58% Growth LargeCap Russell 3000, IWZ
-2.59% Value S&P 500, RPV
-2.62% Utilities, PUI
-2.62% Industrial LargeCap Blend DJ US, IYJ
-2.64% Value 40 Large Low P/E FT DB, FDV
-2.72% Biotech & Genome, PBE
-2.73% Leisure & Entertainment, PEJ
-2.73% Austria Index, EWO
-2.74% Consumer D. VIPERs, VCR
-2.75% Growth MidCap 400 B, IJK
-2.78% Growth Large Cap, ELG
-2.78% Growth VIPERs, VUG
-2.78% MidCap Growth iS M, JKH
-2.78% Telecommunications & Wireless, PTE
-2.79% Europe 100 BLDRS, ADRU
-2.81% MidCap VIPERs, VO
-2.81% Global 100, IOO
-2.82% MidCap Russell, IWR
-2.83% Building & Construction, PKB
-2.84% Growth EAFE MSCI, EFG
-2.88% Energy SPDR, XLE
-2.94% Lg Cap Growth PSD, PWB
-2.94% Consumer Cyclical DJ, IYC
-3.05% LargeCap Blend S&P=Weight R, RSP
-3.07% Ultra S&P500 Double, SSO
-3.09% S&P 500 SPDRs LargeCap Blend, SPY
-3.10% Energy Exploration & Prod, PXE
-3.13% Internet B2B H, BHH
-3.16% EMU Europe Index, EZU
-3.17% Growth 1000 Russell, IWF
-3.17% Growth MidCap Russell, IWP
-3.29% EAFE Index, EFA
-3.30% Value MidCap Dynamic PS, PWP
-3.33% WilderHill Clean Energy PS, PBW
-3.37% Internet H, HHH
-3.38% Spain Index, EWP
-3.40% Value EAFE MSCI, EFV
-3.43% Brazil Index, EWZ
-3.48% Financial SPDR, XLF
-3.49% Consumer Discretionary SPDR, XLY
-3.58% France Index, EWQ
-3.62% Energy DJ, IYE
-3.66% Developed 100 BLDRS, ADRD
-3.66% MidCap S&P 400 SPDRs, MDY
-3.67% Nanotech Lux, PXN
-3.67% Canada Index, EWC
-3.71% Australia Index, EWA
-3.73% Energy VIPERs, VDE
-3.73% Networking, PXQ
-3.90% Value Line Timeliness MidCap Gr, PIV
-3.91% Latin Am 40, ILF
-3.94% Technology Global, IXN
-3.96% Ultra QQQ Double, QLD
-3.96% Dividend International, PID
-3.98% Materials SPDR, XLB
-4.00% Telecom DJ US, IYZ
-4.11% Natural Resource iS GS, IGE
-4.12% Value LargeCap Euro STOXX 50 DJ, FEU
-4.16% Japan Index, EWJ
-4.18% Silver Trust iS, SLV
-4.18% Energy Global, IXC
-4.19% Euro STOXX 50, FEZ
-4.19% Growth S&P 500, RPG
-4.24% Germany Index, EWG
-4.30% Asia 50 BLDRS, ADRA
-4.31% Pacific ex-Japan, EPP
-4.33% South Korea Index, EWY
-4.35% Japan LargeCap Blend TOPIX 150, ITF
-4.38% Hardware & Electronics, PHW
-4.45% Taiwan Index, EWT
-4.57% Financials Global LargeCap Value, IXG
-4.58% Materials VIPERs, VAW
-4.60% South Africa Index, EZA
-4.68% Basic Materials DJ US, IYM
-4.79% Ultra MidCap400 Double, MVV
-4.81% Pacific VIPERs, VPL
-5.02% Ultra Dow30 Double, DDM
-5.25% Emerging VIPERs, VWO
-5.25% Oil & Gas, PXJ
-5.30% Oil Services H, OIH
-5.59% Italy Index, EWI
-5.79% Singapore Index, EWS
-5.82% Sweden Index, EWD
-5.86% China 25 iS, FXI
-5.96% Metals & Mining SPDR, XME
-6.09% Oil, Crude, U.S. Oil Fund, USO
-6.23% Emerging Markets, EEM
-6.33% Emerging 50 BLDRS, ADRE
-6.42% Hong Kong Index, EWH
-6.49% China LargeCap Growth G D H USX PS, PGJ
-6.75% India Earnings WTree, EPI
-7.80% Internet Infrastructure H, IIH
