by Robert W. Colby, Senior Analyst, TraderPlanet.com
Stock Market: a clear preference for defensive stocks implies weak business and market outlooks.
Financial Stock Sector Relative Strength Ratio (XLF/SPY) has been trending down since 2/20/07 and just made a new 10-year low. It has been at the bottom of my Rankings for more than a year.
Utilities Stock Sector Relative Strength Ratio (XLU/SPY) has been trending up since 5/15/08 and just made a new 10-year high.
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.
With the business conditions outlook deteriorating, and the possibility of further financial risks, prudent investors will continue to focus on capital preservation.
On Monday, major stock price indexes opened lower and fell further to a low at about 10:20 a.m., when the market turned choppy to higher. Prices reversed to a plus side peak at about 12:45 p.m., after which they started to erode again. The final 45 minutes of the session was weak, with stocks moving in a determined fashion to their lows of the day and closing there. The Standard & Poor’s 500 cash index (850.75) closed down 22.54 points, or 2.58%. Total NYSE volume fell 8%, indicating weaker demand for stocks.
The stock market reflects future fundamental conditions about 6 months ahead. Economic and business 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. Assuming that, 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
25.53% , VC , VISTEON
4.17% , LOW , LOWES
5.65% , GM , GENERAL MOTORS
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-2.29% , FPX , IPOs, First Tr IPOX-100, FPX
-4.69% , PZJ , SmallCap PS Zacks, PZJ
-3.38% , PEJ , Leisure & Entertainment, PEJ
-1.46% , PHW , Hardware & Electronics, PHW
-1.62% , PXN , Nanotech Lux, PXN
-8.20% , IIH , Internet Infrastructure H, IIH
-13.92% , SSCC , Smurfit-Stone Container Corporation
-4.91% , PTE , Telecommunications & Wireless, PTE
-1.17% , EWK , Belgium Index, EWK
-5.06% , RZV , Value SmallCap S&P 600, RZV
-3.60% , PWO , OTC Dynamic PS, PWO
-1.07% , ADRU , Europe 100 BLDRS, ADRU
-2.78% , BDH , Broadband H, BDH
-4.05% , VOX , Telecom Services VIPERs, VOX
-3.17% , VCR , Consumer D. VIPERs, VCR
-12.55% , SIRI , Sirius Satellite
-17.48% , CAR , Avis Budget Group, Inc. (CAR)
-4.75% , TTH , Telecom H, TTH
-5.61% , IAH , Internet Architecture H, IAH
-1.90% , RPV , Value S&P 500, RPV
-2.99% , RSP , LargeCap Blend S&P=Weight R, RSP
-3.78% , PMR , Retail, PMR
-21.00% , MET , METLIFE
-4.95% , PIC , Insurance, PIC
-8.09% , TROW , T ROWE PRICE GP
-5.19% , WAT , WATERS
-2.39% , JKD , LargeCap Blend Core iS M, JKD
-2.33% , EWN , Netherlands Index, EWN
-2.15% , PHJ , Dividend Growth PS, PHJ
-5.15% , VMC , VULCAN MATERIALS
-2.02% , JKG , MidCap Blend Core iS M, JKG
-6.26% , KCE , Capital Markets KWB ST, KCE
-7.00% , CVG , CONVERGYS
-3.19% , PWV , Value LargeCap Dynamic PS, PWV
-6.51% , VIA , VIACOM INC. (New)
-5.22% , AW , ALLIED WASTE IND
-2.52% , ELG , Growth Large Cap, ELG
-6.31% , RF , REGIONS FINAN
-1.93% , VIS , Industrials VIPERs, VIS
-6.87% , MWV , MEADWESTVACO
9 Major U.S. Stock Sectors
Ranked on Latest One-Day Price Change
% Price Change, Sector ETF, Symbol
-0.17% Utilities SPDR, XLU
-1.32% Consumer Staples SPDR, XLP
-1.72% Health Care SPDR, XLV
-2.01% Industrial SPDR, XLI
-2.07% Materials SPDR, XLB
-2.07% Energy SPDR, XLE
-2.84% Technology SPDR, XLK
-2.87% Consumer Discretionary SPDR, XLY
-6.36% Financial SPDR, XLF
Primary Tide Trends for the 9 major sectors can 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. 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 a new 4-year high.
Utilities (XLU) Neutral, Market Weight. On 11/17/08, the XLU/SPY Relative Strength Ratio rose to a new 10-year high.
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 Ratio (XLF/SPY) has been trending down since 2/20/07 and fell to a new 10-year low on 11/17/08.
The relative performance measurements of the 9 major sectors have indicated for many months a clear preference for defensive stocks that are insulated to a degree from economic downturns.
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 tested its 2008 low. On 11/13/08, oil fell to a new 22-month low of 54.67, confirming that the intermediate-term trend remains 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 consolidated an Inside Day (lower high and higher low). The trend still 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 rose to another new 3-week high, which is Bullish 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 consolidated an Inside Day (lower high and higher low). Appears uncertain 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 69.15, rose to a new 2 week high. 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 68.60, rose to a new 2 week high. 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 0.87, 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 1.15, 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 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 11/17/08, 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 (850.75):
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 (850.75):
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
4.86% Short 200% S&P 500 PS, SDS
4.68% Short 200% Dow 30 PS, DXD
3.81% Short 200% QQQ PS, QID
2.62% Short 100% S&P 500, SH
2.58% Short 100% Dow 30, DOG
2.34% Short 200% MidCap 400 PS, MZZ
2.06% Austria Index, EWO
1.95% Short 100% QQQ, PSQ
1.20% Short 100% MidCap 400, MYY
0.87% Value SmallCap iS M, JKL
0.72% Bond, Corp, LQD
0.72% Malaysia Index, EWM
0.54% Energy Global, IXC
0.44% Bond, 20+ Years Treasury, TLT
0.44% Utilities DJ, IDU
0.42% Bond, 10 Year Treasury, IEF
0.40% Value MidCap S&P 400, RFV
0.31% Hong Kong Index, EWH
0.27% Bond, Aggregate, AGG
0.18% Bond, 1-3 Year Treasury, SHY
0.09% Bond, TIPS, TIP
0.00% Internet B2B H, BHH
-0.01% MidCap S&P 400 SPDRs, MDY
-0.05% Utilities VIPERs, VPU
-0.07% Pharmaceuticals, PJP
-0.17% Utilities SPDR, XLU
-0.20% China 25 iS, FXI
-0.23% Japan Index, EWJ
-0.31% Singapore Index, EWS
-0.40% Taiwan Index, EWT
-0.41% Value MidCap iS M, JKI
-0.56% Value Small Cap DJ, DSV
-0.57% India Earnings WTree, EPI
-0.60% United Kingdom Index, EWU
-0.61% Utilities, PUI
-0.62% Value SmallCap Russell 2000, IWN
-0.65% Growth SmallCap iS M, JKK
-0.74% Growth SmallCap R 2000, IWO
-0.74% Value MidCap S&P 400 B, IJJ
-0.79% Real Estate US DJ, IYR
-0.85% Micro Cap Zachs, PZI
-0.85% SmallCap Russell 2000, IWM
-0.87% SmallCap S&P 600, IJR
-0.89% Gold Shares S.T., GLD
-0.91% Microcap Russell, IWC
-0.98% Growth SmallCap Dynamic PS, PWT
-1.05% China LargeCap Growth G D H USX PS, PGJ
-1.05% Asia 50 BLDRS, ADRA
-1.06% Growth BARRA Small Cap 600, IJT
-1.07% Europe 100 BLDRS, ADRU
-1.13% Pacific VIPERs, VPL
-1.17% Emerging 50 BLDRS, ADRE
-1.17% Belgium Index, EWK
-1.21% Value SmallCap S&P 600 B, IJS
-1.23% Value SmallCap VIPERS, VBR
-1.23% MidCap S&P 400 iS, IJH
-1.23% Semiconductor SPDR, XSD
-1.28% Energy Exploration & Prod, PXE
-1.29% Utilities H, UTH
-1.32% Consumer Staples SPDR, XLP
-1.33% S&P 500 SPDRs LargeCap Blend, SPY
-1.35% Value EAFE MSCI, EFV
-1.37% Growth MidCap S&P 400, RFG
-1.37% Growth SmallCap VIPERs, VBK
-1.39% Consumer Staples VIPERs, VDC
-1.41% Sweden Index, EWD
-1.41% Food & Beverage, PBJ
-1.41% Extended Mkt VIPERs, VXF
-1.42% Value 40 Large Low P/E FT DB, FDV
-1.45% Small Cap VIPERs, VB
-1.46% Hardware & Electronics, PHW
-1.46% Growth S&P 500, RPG
-1.49% Telecommunications Global, IXP
-1.51% DIAMONDS (DJIA), DIA
-1.52% Energy VIPERs, VDE
-1.56% Emerging VIPERs, VWO
-1.57% Networking, IGN
-1.57% Dividend High Yield Equity PS, PEY
-1.60% Dividend SPDR, SDY
-1.60% Growth 1000 Russell, IWF
-1.62% Pacific ex-Japan, EPP
-1.62% Nanotech Lux, PXN
-1.64% Latin Am 40, ILF
-1.64% Biotech & Genome, PBE
-1.67% Emerging Markets, EEM
-1.67% Healthcare DJ, IYH
-1.68% Aerospace & Defense, PPA
-1.71% LargeCap Rydex Rus Top 50, XLG
-1.72% WilderHill Clean Energy PS, PBW
-1.72% Health Care SPDR, XLV
-1.76% Consumer Non-Cyclical, IYK
-1.78% Technology Global, IXN
-1.78% Health Care VIPERs, VHT
-1.81% Telecom DJ US, IYZ
-1.82% Biotech H, BBH
-1.82% EAFE Index, EFA
-1.87% Water Resources, PHO
-1.88% Biotech SPDR, XBI
-1.88% Materials VIPERs, VAW
-1.88% Growth MidCap 400 B, IJK
-1.89% Value SmallCap Dynamic PS, PWY
-1.89% Value MidCap Russell, IWS
-1.90% Value S&P 500, RPV
-1.92% Italy Index, EWI
-1.92% Silver Trust iS, SLV
-1.93% Industrials VIPERs, VIS
-1.94% Pharmaceutical H, PPH
-1.95% Growth Mid Cap Dynamic PS, PWJ
-1.98% Growth LargeCap Russell 3000, IWZ
-2.01% Industrial SPDR, XLI
-2.02% Industrial LargeCap Blend DJ US, IYJ
-2.02% MidCap Blend Core iS M, JKG
-2.02% Growth VIPERs, VUG
-2.02% European VIPERs, VGK
-2.03% LargeCap Blend S&P 1500 iS, ISI
-2.05% Semiconductor H, SMH
-2.05% Transportation Av DJ, IYT
-2.06% LargeCap Blend Dynamic PS, PWC
-2.07% Oil & Gas, PXJ
-2.07% Dividend Appreciation Vipers, VIG
-2.07% Materials SPDR, XLB
-2.07% Energy SPDR, XLE
-2.08% Energy DJ, IYE
-2.09% Healthcare Global, IXJ
-2.10% Growth LargeCap NASDAQ 100, QQQQ
-2.11% Growth S&P 500/BARRA, IVW
-2.12% Technology GS, IGM
-2.12% MidCap Growth iS M, JKH
-2.14% Value Line Timeliness MidCap Gr, PIV
-2.15% Dividend Growth PS, PHJ
-2.15% Germany Index, EWG
-2.15% South Korea Index, EWY
-2.17% Value LargeCap Euro STOXX 50 DJ, FEU
-2.17% Canada Index, EWC
-2.17% Brazil Index, EWZ
-2.18% Dividend DJ Select, DVY
-2.19% Networking, PXQ
-2.19% Internet H, HHH
-2.21% Oil, Crude, U.S. Oil Fund, USO
-2.22% LargeCap VIPERs, VV
-2.23% MidCap VIPERs, VO
-2.24% Technology DJ US, IYW
-2.25% Value LargeCap NYSE 100 iS, NY
-2.27% Retail H, RTH
-2.27% Value VIPERs, VTV
-2.27% Commodity Tracking, DBC
-2.28% Growth MidCap Russell, IWP
-2.29% IPOs, First Tr IPOX-100, FPX
-2.29% Growth Small Cap DJ, DSG
-2.29% Growth EAFE MSCI, EFG
-2.31% Euro STOXX 50, FEZ
-2.32% Dividend International, PID
-2.32% Value LargeCap Fundamental RAFI 1000, PRF
-2.33% Netherlands Index, EWN
-2.35% MidCap Russell, IWR
-2.36% Value Large Cap DJ, ELV
-2.38% SmallCap Core iS M, JKJ
-2.39% LargeCap Blend Core iS M, JKD
-2.40% Consumer Cyclical DJ, IYC
-2.40% Info Tech VIPERs, VGT
-2.41% LargeCap Blend Total Market DJ, IYY
-2.45% Growth LargeCap iS M, JKE
-2.46% LargeCap 1000 R, IWB
-2.47% Software, PSJ
-2.48% Lg Cap Growth PSD, PWB
-2.50% Value LargeCap Russell 3000, IWW
-2.51% Global 100, IOO
-2.51% LargeCap Blend NYSE Composite iS, NYC
-2.52% South Africa Index, EZA
-2.52% Oil Services H, OIH
-2.52% LargeCap Blend Russell 3000, IWV
-2.52% Growth Large Cap, ELG
-2.53% LargeCap Blend S&P 100, OEF
-2.54% Basic Materials DJ US, IYM
-2.56% Value MidCap Dynamic PS, PWP
-2.59% S&P 500 iS LargeCap Blend, IVV
-2.60% Ultra MidCap400 Double, MVV
-2.60% Semiconductor iS GS, IGW
-2.61% Natural Resource iS GS, IGE
-2.62% Blend Total Market VIPERs, VTI
-2.70% France Index, EWQ
-2.72% Homebuilders SPDR, XHB
-2.73% Japan LargeCap Blend TOPIX 150, ITF
-2.78% Broadband H, BDH
-2.80% Dividend Achievers PS, PFM
-2.84% Technology SPDR, XLK
-2.85% Mexico Index, EWW
-2.87% Consumer Discretionary SPDR, XLY
-2.88% EMU Europe Index, EZU
-2.99% LargeCap Blend S&P=Weight R, RSP
-2.99% Value 1000 Russell, IWD
-3.13% Global Titans, DGT
-3.13% Dividend Leaders, FDL
-3.13% Value S&P 500 B, IVE
-3.17% Consumer D. VIPERs, VCR
-3.19% Value LargeCap Dynamic PS, PWV
-3.25% Growth LargeCap NASDAQ Fidelity, ONEQ
-3.27% Europe 350 S&P Index, IEV
-3.38% Leisure & Entertainment, PEJ
-3.39% Spain Index, EWP
-3.45% LargeCap Blend Socially Responsible iS, KLD
-3.52% Australia Index, EWA
-3.60% OTC Dynamic PS, PWO
-3.62% REIT VIPERs, VNQ
-3.75% Semiconductors, PSI
-3.78% Retail, PMR
-3.84% Value LargeCap iS M, JKF
-3.85% Metals & Mining SPDR, XME
-3.85% Ultra S&P500 Double, SSO
-3.88% Ultra QQQ Double, QLD
-3.97% Financials Global LargeCap Value, IXG
-4.05% Telecom Services VIPERs, VOX
-4.15% Switzerland Index, EWL
-4.28% Software, IGV
-4.30% Bank Regional H, RKH
-4.53% Realty Cohen & Steers, ICF
-4.55% REIT Wilshire, RWR
-4.62% Software H, SWH
-4.69% SmallCap PS Zacks, PZJ
-4.70% Financial DJ US, IYF
-4.75% Wilshire 5000 ST TM, TMW
-4.75% Telecom H, TTH
-4.79% Technology MS sT, MTK
-4.85% Developed 100 BLDRS, ADRD
-4.88% Ultra Dow30 Double, DDM
-4.91% Telecommunications & Wireless, PTE
-4.95% Insurance, PIC
-5.03% Financial Services DJ, IYG
-5.06% Value SmallCap S&P 600, RZV
-5.18% Financials VIPERs, VFH
-5.28% Building & Construction, PKB
-5.61% Internet Architecture H, IAH
-6.26% Capital Markets KWB ST, KCE
-6.36% Financial SPDR, XLF
-8.20% Internet Infrastructure H, IIH
