By Robert W. Colby, Senior Analyst TraderPlanet.com
The stock market is oversold and downside momentum is slowing.
Still, short-term momentum indicators declined but held above Monday’s lows.
Further upside recovery attempts seem possible, to correct the current oversold condition.
On Thursday, major stock price indices opened moderately lower and spent most of the day deteriorating until a modest recovery in the final half hour. Short-term momentum indicators declined, but only mildly, relative to the major stock price indices themselves. Trading volume on both the NYSE and NASDAQ declined, suggesting less intense emotions and perceived urgency to act quickly.
Breadth ended 56% net Bearish, with more Declining stocks than Advancing stocks on the NYSE.
Up-Down Volume finished the day 65% net Bearish, with greater Down Volume than Up Volume on the NYSE.
New Highs-New Lows on the NYSE ended at 82% net Bearish.
Sentiment/Contrary Opinion: Bullish Opinion Fell to its 5-year median. According to the weekly Investors Intelligence newsletter survey as of 11/14/07, there were 51.1% Bulls and 26.7% Bears. The ratio of Bullish advisors to Bearish advisors fell to 2.25 to 1 (which happens to be its 5-year median), down from 2.46 to 1 the previous week and a peak of 3.21 to 1 as of 10/17/07.
VIX “Fear Index” rose to a 4-year closing high on 11/12/07, when VIX closed at 31.09, which was 3 standard deviations above its 1-year mean. This indicated 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.
VXN “Fear Index” also rose to a 4-year closing high on 11/12/07, when VXN closed at 34.94, which was more than 4 standard deviations above its 1-year mean. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.
CBOE Put/Call Ratio at 0.85 on 11/13/07 showed substantial Bearishness. 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 1.07 showed moderate Bearishness. On 11/15/07, the ISEE Call/Put Ratio was nearly 1 standard deviation below its 1-year mean. It was also below its 5-year median of 1.48. Relatively low numbers indicate that customers opened fewer long call options and more long put options than they normally do.
News: The business and financial news has taken a turn toward the gloomy side in recent weeks, mainly due to worries about housing and credit and a possible downturn in the economy. 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 Art of Contrary Thinking: “Traders see the situation in the financial world getting extensively worse before it gets better…Tomorrow could be another bumpy ride with week-end activity piling on…”, according a one widely circulated report. “We have not seen a nationwide decline in housing like this since the Great Depression,” said John Stumpf, CEO of Wells Fargo. It is getting hard to find a Bullish report anywhere. The media appears to be more than willing to give big play to anything negative. These are the kinds of reports typically seen at market bottoms.
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
6.78% , PETM , PETsMART Inc
1.75% , ABI , Applera Corp-Applied Biosystems Group (ABI)
2.58% , MZZ , Short 200% MidCap 400 PS, MZZ
2.91% , PWER , POWER ONE
1.65% , MCK , MCKESSON CORP
2.94% , GENZ , GENZYME GEN
2.29% , HGSI , Human Genome Sciences Inc
3.42% , AMD , ADV MICRO DEV
1.72% , SWY , SAFEWAY
1.29% , MYY , Short 100% MidCap 400, MYY
1.27% , SVU , SUPERVALU
0.94% , TLT , Bond, 20+ Years Treasury, TLT
0.67% , BBH , Biotech H, BBH
2.01% , DXD , Short 200% Dow 30 PS, DXD
0.50% , TEK , TEKTRONIX
1.44% , PPL , PPL
0.56% , IEF , Bond, 10 Year Treasury, IEF
0.85% , LOW , LOWES
2.16% , AMGN , AMGEN
0.92% , ESRX , EXPRESS SCRIPTS
0.41% , VPU , Utilities VIPERs, VPU
1.08% , MRK , MERCK & CO
2.26% , AVY , AVERY DENNISON
0.90% , XLU , Utilities SPDR, XLU
1.59% , HAS , HASBRO
1.11% , CAG , CONAGRA FOODS
1.01% , STJ , ST JUDE MEDICAL
2.33% , TUP , TUPPERWARE
0.53% , DOG , Short 100% Dow 30, DOG
0.05% , UTH , Utilities H, UTH
0.50% , LLL , L-3 COMMS HLDGS
2.30% , SDS , Short 200% S&P 500 PS, SDS
0.43% , AGG , Bond, Aggregate, AGG
1.19% , ORCL , ORACLE
0.96% , KO , COCA COLA
0.82% , GAS , NICOR
1.92% , QID , Short 200% QQQ PS, QID
0.54% , ETR , ENTERGY
0.94% , GWW , WW GRAINGER
1.85% , TRB , TRIBUNE
1.18% , SO , SOUTHERN
0.88% , ACV , Alberto-Culver Co.
0.32% , AMAT , APPLIED MATERIAL
0.39% , NCR , NCR
0.28% , AYE , ALLEGHENY ENERGY
0.41% , GR , GOODRICH CORP
0.49% , MIL , MILLIPORE
1.11% , NVLS , NOVELLUS SYS
0.05% , GNTX , Gentex Corporation
0.17% , IDU , Utilities DJ, IDU
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-1.75% , XSD , Semiconductor SPDR, XSD
-2.38% , PHJ , Dividend Growth PS, PHJ
-1.94% , EWN , Netherlands Index, EWN
-1.98% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
-2.07% , EFG , Growth EAFE MSCI, EFG
-1.87% , ELV , Value Large Cap DJ, ELV
-2.55% , EWG , Germany Index, EWG
-10.00% , FNM , FANNIE MAE
-4.55% , LXK , LEXMARK INTL STK A
-4.09% , EWC , Canada Index, EWC
-1.56% , EWQ , France Index, EWQ
-4.73% , BEN , FRANKLIN RSC
-1.42% , DSG , Growth Small Cap DJ, DSG
-2.51% , EWD , Sweden Index, EWD
-4.08% , VFC , VF
-0.78% , PBJ , Food & Beverage, PBJ
-0.82% , IWZ , Growth LargeCap Russell 3000, IWZ
-3.55% , XME , Metals & Mining SPDR, XME
-6.42% , ZION , ZIONS
-1.79% , RPV , Value S&P 500, RPV
-2.86% , ZMH , ZIMMER HLDGS
-5.14% , JCP , JC PENNEY
-8.68% , CFC , COUNTRYWIDE FNCL
-0.89% , EWI , Italy Index, EWI
-5.37% , CBE , COOPER INDS STK A
-1.48% , PWV , Value LargeCap Dynamic PS, PWV
-1.98% , SANM , SANMINA
-3.64% , TYC , TYCO INTL
-3.85% , WFC , WELLS FARGO
-4.69% , NEM , NEWMONT MINING
-4.24% , SSCC , Smurfit-Stone Container Corporation
-2.23% , IYE , Energy DJ, IYE
-2.04% , PID , Dividend International, PID
-3.14% , RKH , Bank Regional H, RKH
-3.24% , PHW , Hardware & Electronics, PHW
-2.30% , ADRU , Europe 100 BLDRS, ADRU
-4.68% , KEY , KEYCORP
-0.59% , IGW , Semiconductor iS GS, IGW
-2.00% , RHT , Red Hat Inc.
-3.39% , PTV , PACTIV
-3.28% , VLO , VALERO ENERGY
-1.19% , IWR , MidCap Russell, IWR
-2.14% , PXE , Energy Exploration & Prod, PXE
-2.90% , GLD , Gold Shares S.T., GLD
-1.23% , DSV , Value Small Cap DJ, DSV
-6.31% , RIMM , RESEARCH IN MOTION LTD
-0.23% , VHT , Health Care VIPERs, VHT
-2.58% , PEY , Dividend High Yield Equity PS, PEY
-4.80% , EFX , EQUIFAX
-5.82% , CMI , CUMMINS
Sectors: among the 9 major U.S. sectors, 1 rose and 8 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.07% Consumer Staples
-0.62% Health Care
-0.96% Consumer Discretionary
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.
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 11/15/07.
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.
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 11/14/07, 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 short term, since 11/8/07, but are still strong long term. 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 underperformed since 11/7/07. It appears to be nothing more than a short-term correction. NASDAQ outperformed from 8/8/06 to 11/7/07, 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 underperformed short term, since 11/7/07, but is still strong long term. Relative Strength made a new high on 11/7/07. Before that, Growth stocks outperformed Value stocks from 8/8/06. The long-term, 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 turned down. 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 10-day 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 fell for 3 days, 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 soared to new highs. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) made a new 22-month price high on 11/16/07. 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 turned upward since its low on 11/9/07. This market has been under steady pressure, with all rally attempts 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.
0.87% 30Y T-Bond
0.86% Japanese Yen
0.27% US Dollar Index
0.03% Swiss Franc
-0.02% Dow Utilities
-0.07% Consumer Staples
-0.20% Health Care Products
-0.25% Health Care
-0.28% Disk Drives
-0.36% Euro Index
-0.62% Health Care
-0.63% British Pound
-0.65% Dow Composite
-0.69% Nasdaq 100
-0.70% Dow Transports
-0.81% Computer Tech
-0.91% Dow Industrial
-0.96% Consumer Discretionary
-0.98% Nasdaq Composite
-1.03% S&P Small Caps
-1.05% S&P Mid Caps
-1.10% Natural Gas
-1.16% AMEX Composite
-1.20% Value Line
-1.26% Russell 1000
-1.26% Wilshire 5000
-1.27% Russell 3000
-1.32% S&P 500
-1.34% S&P 100
-1.39% Russell 2000
-1.49% Australian Dollar
-1.60% NYSE Composite
-1.97% Canadian Dollar
-2.11% United Kingdom
-2.23% Broker Dealers
-2.66% South Korea
-2.94% Commodity Related
-3.02% Oil Services
-3.98% Hong Kong
-4.75% Gold Mining