By Robert W. Colby, Senior Analyst TraderPlanet.com
Stocks bounce big
S&P 500 made back more than it lost over the previous 3 trading days.
S&P 500 broke out above the highs of the previous 2 trading days.
S&P 500 short momentum is Bullish and shows Bullish divergence compared to price.
December Gold and Crude Oil Futures both fell again.
Moreover, the long-term trend of the stock market remains upward. And seasonal tendencies remain Bullish. Finally, with the news headlines so dismal day after day, the Art of Contrary Thinking could be useful.
On Tuesday, major stock price indices gapped higher on the open, moved modestly higher by 11:30 a.m., eased mildly during lunch, then lifted off in an orderly and steep uptrend from 1 p.m. to the 4 p.m. close. Stocks closed very strongly, near the highs of the day. Short-term momentum indicators turned Bullish. Trading volume eased mildly lower, suggesting somewhat less intense emotions and perceived urgency to act quickly.
Breadth ended 64% net Bullish, with more Advancing stocks than Declining stocks on the NYSE.
Up-Down Volume finished the day 87% net Bullish, with greater Up Volume than Down Volume on the NYSE.
New Highs-New Lows on the NYSE ended at 76% net Bearish.
VIX “Fear Index” rose to a 4-year closing high on 11/12/07. VIX closed at 31.09, which was 3 standard deviations above its 1-year mean. This indicates that options traders were feeling extremely Bearish. 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.
The similarly calculated VXN “Fear Index”, measuring Nasdaq Volatility, rose to 34.94 on 11/12/07. That was a new 4-year closing high. VXN was more than 4 standard deviations above its 1-year mean.
CBOE Put/Call Ratio at 0.85 showed substantial Bearishness on 11/13/07. The CBOE Equity Put/Call Ratio (http://www.cboe.com/data/PutCallRatio.aspx) was nearly 2 standard deviations above its 1-year mean.
ISEE Call/Put Ratio at 1.18 still showed moderate Bearishness on 11/13/07. The ISEE Call/Put Ratio was moderately below its 5-year median of 1.48, indicating that customers opened fewer long call options and more long put options than normal.
News: The business and financial news has taken a turn toward the gloomy side, mainly due to worries about housing and credit. But keep in mind that the stock market is a leading economic indicator and the news is a lagging indicator. Stock prices typically discount the future many months ahead. Therefore, the current news usually arrives too late to be of much actual use to investors.
The Primary Tide Major Trend remains Bullish, and that is a strong force. The Dow Theory has repeatedly confirmed a Primary Bull Market every time both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed at new all-time highs. Both last made new all-time highs on 7/19/07. The Industrial Average made a new high on 10/9/07, but the Transportation Average failed to confirm. Then on 11/7/07, the Transports closed below their August low, but that weakness alone is not sufficient to change the main trend. As long as the Dow-Jones Industrial Average holds above its 8/16/07 closing price low of 12,845.78, then the Primary Tide is still Bullish.
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
15.03% , MBI , MBIA
2.80% , PXQ , Networking, PXQ
2.70% , KLD , LargeCap Blend Socially Responsible iS, KLD
3.08% , VCR , Consumer D. VIPERs, VCR
3.40% , EWP , Spain Index, EWP
5.53% , RFMD , RF Micro Devices Inc
3.29% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
9.74% , GLW , CORNING
4.41% , IAH , Internet Architecture H, IAH
3.03% , VXF , Extended Mkt VIPERs, VXF
3.12% , XLG , LargeCap Rydex Rus Top 50, XLG
5.87% , FII , FED INVESTORS STK B
8.38% , HMA , HEALTH MGMT STK A
10.04% , ABK , AMBAC FINL GRP
4.90% , VFH , Financials VIPERs, VFH
4.55% , FNM , FANNIE MAE
6.54% , SUN , SUNOCO
2.98% , IWV , LargeCap Blend Russell 3000, IWV
7.63% , RSH , RADIOSHACK
3.16% , VIA , VIACOM INC. (New)
4.01% , EWM , Malaysia Index, EWM
6.12% , WMT , WAL MART STORES
2.39% , PIC , Insurance, PIC
7.41% , TBH , Telebras HOLDRS, TBH*
3.24% , VRSN , VeriSign Inc
4.66% , KCE , Capital Markets KWB ST, KCE
1.89% , PBJ , Food & Beverage, PBJ
2.04% , ITF , Japan LargeCap Blend TOPIX 150, ITF
4.50% , IXP , Telecommunications Global, IXP
3.68% , IXN , Technology Global, IXN
6.45% , SIRI , Sirius Satellite
2.71% , EFG , Growth EAFE MSCI, EFG
2.22% , PXE , Energy Exploration & Prod, PXE
3.16% , EWI , Italy Index, EWI
1.20% , IYH , Healthcare DJ, IYH
8.90% , LEH , LEHMAN BROS HLDG
7.13% , ADRE , Emerging 50 BLDRS, ADRE
3.06% , GWW , WW GRAINGER
1.05% , FDV , Value 40 Large Low P/E FT DB, FDV
2.81% , BBY , BEST BUY
4.75% , LIZ , LIZ CLAIRBORNE
3.39% , HHH , Internet H, HHH
9.69% , XMSR , XM Satellite R
2.87% , EWN , Netherlands Index, EWN
10.19% , MTG , MGIC INVESTMENT
6.28% , JPM , J P MORGAN CHASE
1.87% , BEAS , BEA Systems Inc
4.33% , ERTS , ELECTRONIC ARTS
2.14% , DSV , Value Small Cap DJ, DSV
3.22% , NTAP , NETWK APPLIANCE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-4.52% , MYL , MYLAN LABS
-3.15% , ADBE , ADOBE SYS
-1.91% , DBC , Commodity Tracking, DBC
-1.48% , AGN , ALLERGAN
-2.53% , USO , Oil, Crude, U.S. Oil Fund, USO
-0.37% , TLT , Bond, 20+ Years Treasury, TLT
-0.96% , TIP , Bond, TIPS, TIP
-1.49% , FPL , FPL GROUP INC
-0.31% , SHY , Bond, 1-3 Year Treasury, SHY
-0.24% , DYN , DYNEGY
-0.24% , CA , COMPUTER ASSOC
-0.50% , LQD , Bond, Corp, LQD
-0.32% , EIX , EDISON INTL
-1.83% , HSIC , Henry Schein Inc
-0.27% , CI , CIGNA
-1.52% , DD , DU PONT
-0.56% , KG , KING PHARM
-0.87% , RRD , RR DONNELLEY SON
-0.64% , IEF , Bond, 10 Year Treasury, IEF
-0.11% , AMGN , AMGEN
-0.29% , BMY , BRISTOL MYERS
-2.46% , MCD , MCDONALDS
-0.08% , IVGN , Invitrogen Corporation
Sectors: among the 9 major U.S. sectors, all 9 rose.
Major Sectors Ranked for the Day
% Price Change, Sector
4.69% Financial
3.41% Technology
2.95% Energy
2.77% Consumer Discretionary
2.66% Materials
2.55% Industrial
1.51% Consumer Staples
1.31% Health Care
0.85% Utilities
Energy (XLE) Bullish, Overweight. Relative Strength made new all-time high on 11/8/07. XLE made an all-time closing price high on 10/16/07. XLE has been strong compared to the S&P since 3/12/03.
Utilities (XLU) Bullish, Overweight. Relative Strength for this defensive sector made a new 6-year high on 11/9/07. Price made a new 5-month high on 10/31/07. Utilities have improved significantly since their Relative Strength low on 9/28/07.
Materials (XLB) Bullish, Overweight. Relative Strength made new all-time high on 11/8/07. Price made new all-time high on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.
Technology (XLK) Bullish, Overweight. Relative Strength turned upward. XLK hit a new 6-year price high on 11/1/07, and Relative Strength made a new 3-year high on 11/5/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.
Consumer Staples (XLP) Bullish, Overweight. This defensive sector’s Relative Strength has improved since its low on 10/9/07 and made a new 13-month high on 11/12/07.
Industrial (XLI) Neutral, Market Weight. Price made an all-time price high on 10/10/07. Relative Strength made a new 3-month high on 11/8/07.
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. On 11/12/07, price made a new 13-month low. On 11/6/07, the XLY/SPY Relative Strength ratio fell to its lowest level in 6 years. Relative Strength has been trending down since 1/5/05.
Financial (XLF) Bearish, Underweight. XLF price hit another new 2-year low on 11/8/07, and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 6 years on 11/7/07. Relative Strength has been trending down since 2/20/07.
Foreign stock indices underperformed over the past 3 trading days, after Relative Strength made a new high on 11/8/07. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made a new price high on 10/31/07 and a new relative strength high on 11/8/07. 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 have been nearly all Foreign for many months.
NASDAQ Composite and NASDAQ 100 outperformed, after underperforming for 4 days. Longer term, NASDAQ has outperformed since 8/8/06, including a new 6-year Relative strength high on 11/7/07 and a new price high on 10/31/07.
Growth Stock/Value Stock Relative Strength ratio outperformed, after underperforming for 3 days. Relative Strength made a new high on 11/7/07. Before that, Growth stocks outperformed Value stocks from 8/8/06. The main trend for the Growth/Value ratio (IWF/IWD) has been confirmed Bullish again and again.
Small Caps substantially underperformed Large Caps since 4/19/06, and so the main long-term trend is Bearish for Small Caps.
December Crude Oil Futures fell below previous 8-days lows. Oil has been extended, so a correction seems normal. Support appears at the 10/31/07 low of 88.92, at previous resistance at 84.10, and at previous minor lows in the 78.25-78.35 zone. The U.S. OIL FUND ETF (AMEX: USO), which is not a pure play on Crude Oil, confirmed the action of oil futures.
The Energy stock sector has been lagging oil the commodity over the past 5 months. XLE has underperformed the USO since 5/30/07.
December Gold Futures fell below previous 6-days lows. Gold has been extended, so a correction seems normal. Still, major trends remain Bullish for Gold and the Gold Trust ETF (NYSE: GLD).
Silver’s main trend is 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 Gold Futures since 10/31/07.
Inflation expectations reversed to the downside, a day after rising to a new 14-month high on 11/12/07. The main trend is still up, based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bonds prices closed below Monday’s low. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) made a new 21-month price high on 11/12/07. 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.
The U.S. dollar gave back some. This market has been under stedy pressure. The dollar’s rally attempts have been confined to only one day over the past 6 weeks. The main trend has been confirmed Bearish—again and again. Longer term, the dollar fell 19% from its high of 92.53 on 11/16/05, and the main tidal force remains very Bearish.
6.43% Hong Kong
6.19% South Korea
5.80% Broker Dealers
5.66% Mexico
5.58% Hardware
5.51% Taiwan
5.16% Airlines
4.94% Singapore
4.83% Banks
4.81% Australia
4.69% Financial
4.31% Internet
4.23% Nasdaq 100
4.07% Computer Tech
4.01% Malaysia
3.85% Retailers
3.80% REITs
3.72% United Kingdom
3.66% Belgium
3.46% Nasdaq Composite
3.41% Technology
3.40% Spain
3.16% Italy
3.05% DOT
3.04% NYSE Composite
3.04% S&P 100
3.04% Network
2.95% Energy
2.91% S&P 500
2.88% Russell 2000
2.87% Netherlands
2.86% Sweden
2.86% Switzerland
2.83% S&P Small Caps
2.83% Russell 1000
2.83% Russell 3000
2.81% Wilshire 5000
2.77% Consumer Discretionary
2.72% Oil Services
2.66% Materials
2.63% Commodity Related
2.62% France
2.57% Value Line
2.55% Industrial
2.46% Dow Industrial
2.44% Dow Transports
2.42% Canada
2.40% Gold Mining
2.38% Paper
2.37% Disk Drives
2.32% Insurance
2.28% Semiconductors
2.19% S&P Mid Caps
2.19% Austria
2.02% Natural Gas
2.00% Dow Composite
2.00% Drugs
1.99% Oil
1.90% Germany
1.89% Chemicals
1.72% Japan
1.51% Consumer Staples
1.47% AMEX Composite
1.44% Health Care
1.41% Health Care Products
1.37% Hospitals
1.31% Health Care
0.89% Biotechs
0.89% Australian Dollar
0.85% Utilities
0.44% Dow Utilities
0.38% British Pound
0.21% Euro Index
0.17% Swiss Franc
0.02% Canadian Dollar
-0.22% 30Y T-Bond
-0.28% US Dollar Index
-0.52% Japanese Yen
