by Robert W. Colby, Senior Analyst, TraderPlanet.com
Stock Market: a rally in a Bear Market.
A long lower shadow implies that extreme low prices were rejected by the market, according to Japanese Candlestick Chart pattern recognition.
S&P 500 fell to new 5-year price lows—but suddenly and mysteriously reversed.
Strongly rising volume confirmed the reversal.
Stocks were oversold by normal standards (even though these do not seem like normal times).
Sentiment has been very Bearish by normal standards.
Sudden and violent reversals are common in Primary Tide Trend Bear Markets, but rallies can end as quickly as they begin.
Bear Market rallies can last weeks, days, hours, or only minutes. It impossible to know which it will be.
Investors focus on capital preservation.
On Thursday, major stock price indexes opened on a firm note but fell to new 2008 lows between 10:25 a.m. and 1:00 p.m. From out of nowhere buy orders drove prices above their morning highs and above the previous day’s high. The rally accelerated in the final hour into a strong close. The Standard & Poor’s 500 cash index (911.29) closed up 58.99 points, or 6.92%. Total NYSE volume rose 34%, indicating stronger demand for stocks.
The stock market reflects future fundamental conditions about 6 months ahead. Economic news has been growing dramatically worse as time goes on, with no visible end to the downward fundamental spiral. Some economists see weakness for another 12 months. If so, then it would be too early for a change in the major trend.
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
4.07% , RFV , Value MidCap S&P 400, RFV
14.67% , TBH , Telebras HOLDRS, TBH*
6.70% , MTK , Technology MS sT, MTK
7.25% , IXG , Financials Global LargeCap Value, IXG
12.87% , EWD , Sweden Index, EWD
5.01% , DGT , Global Titans, DGT
6.32% , TMW , Wilshire 5000 ST TM, TMW
7.50% , UTH , Utilities H, UTH
6.69% , KCE , Capital Markets KWB ST, KCE
26.19% , CIT , CIT GROUP
9.50% , EWI , Italy Index, EWI
6.74% , JKJ , SmallCap Core iS M, JKJ
5.48% , PZJ , SmallCap PS Zacks, PZJ
7.01% , SDY , Dividend SPDR, SDY
6.71% , SWH , Software H, SWH
7.06% , JKG , MidCap Blend Core iS M, JKG
23.97% , PGR , PROGRESSIVE OHIO
2.84% , XRAY , DENTSPLY International Inc
5.51% , ITF , Japan LargeCap Blend TOPIX 150, ITF
10.13% , FEZ , Euro STOXX 50, FEZ
12.38% , AES , AES
5.82% , VIS , Industrials VIPERs, VIS
5.87% , KLD , LargeCap Blend Socially Responsible iS, KLD
11.27% , ECL , ECOLAB
6.74% , PWJ , Growth Mid Cap Dynamic PS, PWJ
6.81% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
9.18% , IXC , Energy Global, IXC
6.83% , IGV , Software, IGV
3.47% , ASH , ASHLAND
7.41% , IXJ , Healthcare Global, IXJ
6.91% , IOO , Global 100, IOO
11.43% , PXE , Energy Exploration & Prod, PXE
16.67% , LVLT , LEVEL 3 COMMUNICATIONS
13.31% , XME , Metals & Mining SPDR, XME
9.33% , SMH , Semiconductor H, SMH
14.96% , FITB , FIFTH THIRD BANC
15.91% , MCO , MOODYS CORP
11.33% , IGE , Natural Resource iS GS, IGE
6.59% , IGW , Semiconductor iS GS, IGW
6.67% , ADRU , Europe 100 BLDRS, ADRU
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-16.16% , MZZ , Short 200% MidCap 400 PS, MZZ
-6.92% , DOG , Short 100% Dow 30, DOG
-7.29% , SH , Short 100% S&P 500, SH
-13.48% , SDS , Short 200% S&P 500 PS, SDS
-8.82% , FNM , FANNIE MAE
-13.40% , DXD , Short 200% Dow 30 PS, DXD
-6.29% , PSQ , Short 100% QQQ, PSQ
-2.19% , DELL , DELL
-4.26% , MBI , MBIA
-3.79% , HUM , HUMANA
-7.96% , MYY , Short 100% MidCap 400, MYY
-10.67% , UIS , UNISYS
-12.43% , QID , Short 200% QQQ PS, QID
9 Major U.S. Stock Sectors
Ranked on Latest One-Day Price Change
% Price Change, Sector ETF, Symbol
11.75% Energy SPDR, XLE
8.14% Materials SPDR, XLB
7.81% Consumer Discretionary SPDR, XLY
7.59% Utilities SPDR, XLU
7.28% Financial SPDR, XLF
6.23% Technology SPDR, XLK
5.36% Industrial SPDR, XLI
5.36% Health Care SPDR, XLV
4.00% 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 11/12/08, XLP/SPY Relative Strength Ratio rose to a new 10-year high, but XLP absolute price was falling toward its 4-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 11/13/08, the XLK absolute price fell to a new 5-year low.
Industrial (XLI) Bearish, Underweight. On 11/13/08, the XLI absolute price fell to a new 5-year low.
Consumer Discretionary (XLY) Bearish, Underweight. On 11/13/08, XLY absolute price fell to its lowest level in 10 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 11/13/08, 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 has been underperforming the S&P 500 since 8/14/08. On 11/13/08, 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 had a Bullish Key Reversal and Outside Day (lower low, higher high, higher close). On 11/13/08, oil fell to a new 22-month low of 54.67. 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 trend looks 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 had a Bearish Engulfing Line, suggesting trouble for the short term. Bonds still seem uncertain 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 had a Bearish Key Reversal and Outside Day (higher high, lower low, lower close). That might be Bearish for the short-term. The dollar set a new 24-month high on 10/28/08, 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 31.9% Bulls versus 46.1% Bears as of 11/12/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.69, up from 0.63 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 59.83, 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 58.03, 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 0.92, 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 0.67, which indicates very 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 quarters.
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 (911.29):
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 (911.29):
Potential Support
818.69, low of 11/13/2008
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
15.11% Ultra MidCap400 Double, MVV
15.06% Internet B2B H, BHH
14.87% China 25 iS, FXI
14.51% South Africa Index, EZA
13.85% Emerging Markets, EEM
13.47% Latin Am 40, ILF
13.31% Metals & Mining SPDR, XME
13.29% Emerging VIPERs, VWO
13.12% Ultra S&P500 Double, SSO
12.87% Sweden Index, EWD
12.57% REIT Wilshire, RWR
12.48% Ultra Dow30 Double, DDM
12.34% Brazil Index, EWZ
11.75% Energy SPDR, XLE
11.71% Ultra QQQ Double, QLD
11.52% Energy VIPERs, VDE
11.43% Energy Exploration & Prod, PXE
11.33% Natural Resource iS GS, IGE
11.29% France Index, EWQ
11.23% Realty Cohen & Steers, ICF
11.11% Emerging 50 BLDRS, ADRE
11.07% Real Estate US DJ, IYR
10.99% REIT VIPERs, VNQ
10.99% Oil Services H, OIH
10.79% Energy DJ, IYE
10.69% China LargeCap Growth G D H USX PS, PGJ
10.56% Internet Infrastructure H, IIH
10.50% EMU Europe Index, EZU
10.35% Germany Index, EWG
10.25% Spain Index, EWP
10.17% South Korea Index, EWY
10.13% Euro STOXX 50, FEZ
9.58% Oil & Gas, PXJ
9.50% Italy Index, EWI
9.49% Value SmallCap Russell 2000, IWN
9.46% WilderHill Clean Energy PS, PBW
9.33% Semiconductor H, SMH
9.26% MidCap S&P 400 SPDRs, MDY
9.18% Energy Global, IXC
9.12% Water Resources, PHO
9.02% Basic Materials DJ US, IYM
8.91% Internet H, HHH
8.84% Netherlands Index, EWN
8.83% Telecom DJ US, IYZ
8.76% Australia Index, EWA
8.63% Telecommunications Global, IXP
8.52% EAFE Index, EFA
8.47% Value SmallCap S&P 600 B, IJS
8.46% Hong Kong Index, EWH
8.45% Growth SmallCap R 2000, IWO
8.45% Materials VIPERs, VAW
8.44% Value MidCap S&P 400 B, IJJ
8.36% Value SmallCap VIPERS, VBR
8.35% Singapore Index, EWS
8.32% Telecom H, TTH
8.28% Europe 350 S&P Index, IEV
8.28% Mexico Index, EWW
8.25% European VIPERs, VGK
8.23% SmallCap Russell 2000, IWM
8.14% Materials SPDR, XLB
8.10% Small Cap VIPERs, VB
8.05% Bank Regional H, RKH
7.97% Value SmallCap iS M, JKL
7.97% Value LargeCap Dynamic PS, PWV
7.89% Growth S&P 500/BARRA, IVW
7.89% MidCap S&P 400 iS, IJH
7.81% Consumer Discretionary SPDR, XLY
7.80% Pacific ex-Japan, EPP
7.74% Value 1000 Russell, IWD
7.72% Value EAFE MSCI, EFV
7.69% Value LargeCap Euro STOXX 50 DJ, FEU
7.65% SmallCap S&P 600, IJR
7.64% Value LargeCap Russell 3000, IWW
7.59% Utilities SPDR, XLU
7.56% Canada Index, EWC
7.55% Extended Mkt VIPERs, VXF
7.54% Growth SmallCap VIPERs, VBK
7.50% Utilities H, UTH
7.49% Growth EAFE MSCI, EFG
7.44% LargeCap Blend S&P 1500 iS, ISI
7.43% India Earnings WTree, EPI
7.42% Financials VIPERs, VFH
7.41% Healthcare Global, IXJ
7.40% Dividend DJ Select, DVY
7.36% Growth BARRA Small Cap 600, IJT
7.35% Growth MidCap 400 B, IJK
7.31% Value VIPERs, VTV
7.30% MidCap VIPERs, VO
7.28% Financial SPDR, XLF
7.27% Financial DJ US, IYF
7.26% LargeCap 1000 R, IWB
7.26% MidCap Growth iS M, JKH
7.25% Financials Global LargeCap Value, IXG
7.24% Utilities DJ, IDU
7.24% MidCap Russell, IWR
7.19% LargeCap Blend NYSE Composite iS, NYC
7.16% Building & Construction, PKB
7.15% Belgium Index, EWK
7.10% Oil, Crude, U.S. Oil Fund, USO
7.09% Dividend High Yield Equity PS, PEY
7.09% Value MidCap Russell, IWS
7.07% Growth 1000 Russell, IWF
7.06% MidCap Blend Core iS M, JKG
7.06% LargeCap Blend Russell 3000, IWV
7.01% Dividend SPDR, SDY
6.99% Utilities VIPERs, VPU
6.97% Dividend Appreciation Vipers, VIG
6.95% Value 40 Large Low P/E FT DB, FDV
6.93% Retail H, RTH
6.92% Growth S&P 500, RPG
6.91% LargeCap Blend Total Market DJ, IYY
6.91% Global 100, IOO
6.90% Lg Cap Growth PSD, PWB
6.90% Asia 50 BLDRS, ADRA
6.88% Growth LargeCap iS M, JKE
6.87% Dividend International, PID
6.86% LargeCap Blend S&P=Weight R, RSP
6.84% Growth MidCap Russell, IWP
6.84% LargeCap Blend Dynamic PS, PWC
6.83% Software, IGV
6.82% S&P 500 iS LargeCap Blend, IVV
6.82% Value S&P 500 B, IVE
6.82% Japan Index, EWJ
6.81% Value LargeCap Fundamental RAFI 1000, PRF
6.80% LargeCap Rydex Rus Top 50, XLG
6.77% Switzerland Index, EWL
6.75% DIAMONDS (DJIA), DIA
6.74% SmallCap Core iS M, JKJ
6.74% Growth Mid Cap Dynamic PS, PWJ
6.71% Software H, SWH
6.70% LargeCap VIPERs, VV
6.70% Biotech & Genome, PBE
6.70% Technology MS sT, MTK
6.69% Capital Markets KWB ST, KCE
6.68% Biotech SPDR, XBI
6.67% Europe 100 BLDRS, ADRU
6.67% Malaysia Index, EWM
6.66% Growth Large Cap, ELG
6.64% Pharmaceutical H, PPH
6.63% Consumer D. VIPERs, VCR
6.61% Taiwan Index, EWT
6.60% Blend Total Market VIPERs, VTI
6.59% Semiconductor iS GS, IGW
6.54% Microcap Russell, IWC
6.53% Growth VIPERs, VUG
6.50% Telecom Services VIPERs, VOX
6.49% Value SmallCap S&P 600, RZV
6.49% Hardware & Electronics, PHW
6.44% United Kingdom Index, EWU
6.42% LargeCap Blend S&P 100, OEF
6.42% Value Large Cap DJ, ELV
6.32% Wilshire 5000 ST TM, TMW
6.30% Value MidCap iS M, JKI
6.23% S&P 500 SPDRs LargeCap Blend, SPY
6.23% Technology SPDR, XLK
6.19% Utilities, PUI
6.17% Insurance, PIC
6.15% Pacific VIPERs, VPL
6.13% Financial Services DJ, IYG
6.11% Transportation Av DJ, IYT
6.10% Growth LargeCap NASDAQ 100, QQQQ
6.06% Industrial LargeCap Blend DJ US, IYJ
6.02% Networking, IGN
6.01% Growth LargeCap NASDAQ Fidelity, ONEQ
5.91% Value Line Timeliness MidCap Gr, PIV
5.87% LargeCap Blend Socially Responsible iS, KLD
5.87% Value SmallCap Dynamic PS, PWY
5.86% Info Tech VIPERs, VGT
5.82% Industrials VIPERs, VIS
5.81% Growth SmallCap Dynamic PS, PWT
5.76% Healthcare DJ, IYH
5.73% Value LargeCap iS M, JKF
5.72% Health Care VIPERs, VHT
5.72% Consumer Cyclical DJ, IYC
5.70% Developed 100 BLDRS, ADRD
5.66% Growth LargeCap Russell 3000, IWZ
5.60% Technology DJ US, IYW
5.52% Value Small Cap DJ, DSV
5.51% Japan LargeCap Blend TOPIX 150, ITF
5.48% SmallCap PS Zacks, PZJ
5.36% Industrial SPDR, XLI
5.36% Health Care SPDR, XLV
5.35% Technology Global, IXN
5.34% Dividend Achievers PS, PFM
5.31% Consumer Non-Cyclical, IYK
5.04% Aerospace & Defense, PPA
5.01% Global Titans, DGT
4.91% Homebuilders SPDR, XHB
4.89% Growth Small Cap DJ, DSG
4.84% Dividend Leaders, FDL
4.83% Value MidCap Dynamic PS, PWP
4.76% Consumer Staples VIPERs, VDC
4.65% Austria Index, EWO
4.65% Biotech H, BBH
4.38% Growth SmallCap iS M, JKK
4.30% Retail, PMR
4.20% Food & Beverage, PBJ
4.12% Pharmaceuticals, PJP
4.08% Micro Cap Zachs, PZI
4.07% Value MidCap S&P 400, RFV
4.00% Consumer Staples SPDR, XLP
3.96% LargeCap Blend Core iS M, JKD
3.54% Dividend Growth PS, PHJ
3.44% Leisure & Entertainment, PEJ
3.07% Gold Shares S.T., GLD
3.06% Software, PSJ
2.88% Semiconductors, PSI
2.70% Broadband H, BDH
2.68% Internet Architecture H, IAH
2.52% Telecommunications & Wireless, PTE
2.30% Technology GS, IGM
1.88% Commodity Tracking, DBC
1.81% Semiconductor SPDR, XSD
1.45% Nanotech Lux, PXN
1.42% Silver Trust iS, SLV
1.28% IPOs, First Tr IPOX-100, FPX
1.11% Value LargeCap NYSE 100 iS, NY
1.08% Growth MidCap S&P 400, RFG
0.91% Networking, PXQ
0.87% Value S&P 500, RPV
0.64% OTC Dynamic PS, PWO
0.34% Bond, Aggregate, AGG
-0.25% Bond, 1-3 Year Treasury, SHY
-0.62% Bond, TIPS, TIP
-0.68% Bond, Corp, LQD
-0.73% Bond, 10 Year Treasury, IEF
-2.40% Bond, 20+ Years Treasury, TLT
-6.29% Short 100% QQQ, PSQ
-6.92% Short 100% Dow 30, DOG
-7.29% Short 100% S&P 500, SH
-7.96% Short 100% MidCap 400, MYY
-12.43% Short 200% QQQ PS, QID
-13.40% Short 200% Dow 30 PS, DXD
-13.48% Short 200% S&P 500 PS, SDS
-16.16% Short 200% MidCap 400 PS, MZZ
