By Robert W. Colby, Senior Analyst TraderPlanet.com
Nevertheless, stocks appear to be losing downside momentum.
Short-term momentum indicators show Bullish divergence.
Sentiment indicators hit levels of extreme pessimism, especially on the part of options traders.
Tangible indications of fear have been evident.
An upside recovery attempt to correct the current oversold condition seems likely.
Short-term technical momentum oscillators are oversold but did not make lower lows. This suggests that stock market downside momentum is slowing.
Trading volume eased slightly lower on the NYSE and was lower on the NASDAQ, suggesting reluctance of buyers to buy on bad news.
Breadth ended 67% net Bearish, with more Declining stocks than Advancing stocks on the NYSE.
Up-Down Volume finished the day 79% net Bearish, with greater Down Volume than Up Volume on the NYSE.
New Highs-New Lows on the NYSE ended at 87% net Bearish.
Bad News: The business and financial news has taken a turn toward the extreme Bearish side in recent weeks, mainly due to worries about housing and credit and the impact on 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 …”, according one typical published interpretation. “We have not seen a nationwide decline in housing like this since the Great Depression,” said John Stumpf, CEO of Wells Fargo. Optimistic reports are nowhere to be found. The media appears to be more than willing to give big play to anything pessimistic. These are the kinds of stories typically seen at or near 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
19.23% , DISH , EchoStar Communications Corporation
7.23% , CTB , COOPER TIRE
1.81% , SO , SOUTHERN
1.43% , ED , CON ED
2.53% , EDS , ELECTR DATA
0.76% , DBC , Commodity Tracking, DBC
1.97% , LH , LAB CRP OF AMER
2.18% , BDX , BECTON DICKINSON
1.64% , XRX , XEROX
1.98% , CMS , CMS ENERGY
1.00% , PBI , PITNEY BOWES
1.58% , IVGN , Invitrogen Corporation
1.12% , QLGC , QLOGIC
0.86% , BMY , BRISTOL MYERS
2.63% , TYC , TYCO INTL
0.58% , RAI , RJR TOBACCO HLDS
0.33% , SHY , Bond, 1-3 Year Treasury, SHY
1.25% , PEP , PEPSICO
3.57% , MZZ , Short 200% MidCap 400 PS, MZZ
0.42% , PEG , PUBL SVC ENTER
0.80% , SVU , SUPERVALU
0.80% , LBTYA , Liberty Global Inc. (LBTYA)
0.72% , DUK , DUKE ENERGY
0.94% , QCOM , QUALCOMM
1.97% , SH , Short 100% S&P 500, SH
0.81% , ESRX , EXPRESS SCRIPTS
0.74% , AMZN , Amazoncom Inc
1.25% , PSQ , Short 100% QQQ, PSQ
0.12% , VIA , VIACOM INC. (New)
0.21% , NWL , NEWELL RUBBER
1.31% , SRE , SEMPRA ENERGY
2.03% , LXK , LEXMARK INTL STK A
0.90% , MO , ALTRIA GROUP
0.59% , HCR , MANOR CARE
0.29% , COH , COACH
0.16% , PPL , PPL
0.82% , TIP , Bond, TIPS, TIP
0.14% , BRCM , BROADCOM STK A
0.24% , UST , UST
0.09% , APA , APACHE
0.77% , LQD , Bond, Corp, LQD
0.65% , TLT , Bond, 20+ Years Treasury, TLT
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-1.26% , RPG , Growth S&P 500, RPG
-1.30% , ELV , Value Large Cap DJ, ELV
-12.43% , CFC , COUNTRYWIDE FNCL
-9.17% , UIS , UNISYS
-2.11% , JKL , Value SmallCap iS M, JKL
-1.80% , JKI , Value MidCap iS M, JKI
-0.85% , BHH , Internet B2B H, BHH
-3.36% , PKB , Building & Construction, PKB
-6.93% , CIEN.O , CIENA
-1.30% , NY , Value LargeCap NYSE 100 iS, NY
-7.56% , LOW , LOWES
-1.57% , JKG , MidCap Blend Core iS M, JKG
-1.95% , IWW , Value LargeCap Russell 3000, IWW
-2.55% , PZI , Micro Cap Zachs, PZI
-6.53% , SLM , SLM CORP
-4.51% , AW , ALLIED WASTE IND
-7.48% , DHI , D.R. HORTON, DHI
-3.94% , PMTC.O , PARAMETRIC
-8.10% , PHM , PULTE HOMES
-7.54% , FCX , FREEPRT MCMORAN STK B
-13.42% , ETFC.O , E*TRADE FINANCIAL
-7.26% , MBI , MBIA
-2.10% , JKF , Value LargeCap iS M, JKF
-4.52% , LTD , LIMITED BRANDS
-1.64% , PHW , Hardware & Electronics, PHW
-7.27% , WM , WASHINGTON MUT
-3.39% , IYM , Basic Materials DJ US, IYM
-1.42% , IYK , Consumer Non-Cyclical, IYK
-8.68% , LEN , Lennar Corp. (LEN)
-1.85% , MTK , Technology MS sT, MTK
-5.18% , GCI , GANNETT
-1.83% , PBE , Biotech & Genome, PBE
-1.92% , JKK , Growth SmallCap iS M, JKK
-2.43% , VCR , Consumer D. VIPERs, VCR
-7.03% , ABK , AMBAC FINL GRP
-4.37% , EWY , South Korea Index, EWY
-4.41% , NYT , NY TIMES STK A
-1.63% , RFG , Growth MidCap S&P 400, RFG
-3.41% , THC , TENET HEALTHCARE
-8.47% , GM , GENERAL MOTORS
-2.07% , DVY , Dividend DJ Select, DVY
-1.96% , VO , MidCap VIPERs, VO
-1.91% , PXN , Nanotech Lux, PXN
-2.18% , FEZ , Euro STOXX 50, FEZ
-4.75% , WY , WEYERHAEUSER
-4.05% , HIG , HARTFORD FINL
-2.46% , PMR , Retail, PMR
-3.43% , MOT , MOTOROLA
-5.26% , TIF , TIFFANY
-2.09% , IVE , Value S&P 500 B, IVE
Sectors: among the 9 major U.S. sectors, 1 rose and 8 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.56% Health Care
-0.70% Consumer Staples
-2.21% 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 made a new 14-month high on 11/19/07.
Technology (XLK) Bullish, Overweight. 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.
Health Care (XLV) Neutral, Market Weight. This defensive sector’s Relative Strength moved up to a new 13-month high on 11/19/07.
Industrial (XLI) Neutral, Market Weight. Price and Relative Strength have been chopping sideways over the past 4 months. Longer-term trends appear Bullish.
Materials (XLB) Neutral, Market Weight. The short-term turned down but the long-term trend is still up. 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.
Consumer Discretionary (XLY) Bearish, Underweight. On 11/19/07, price made a new 14-month low. Also on 11/19/07, 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 has been rising since 11/12/07. The ratio made a new high on 11/7/07. The long-term, the main trend for the Growth/Value ratio (IWF/IWD) has been rising since 8/8/06.
Small Caps fell steeply and substantially underperformed Large Caps since 4/19/06, and so the main long-term trend is Bearish for Small Caps.
January Crude Oil Futures appears to be consolidating, short term. Oil has been in a rising main trend since 1/18/07. Support appears at previous lows of 90.13 and 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 again after entering into a correction on 11/7/07. Gold had been extended, so a correction seems normal.
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 have been rising since 1/16/07 and made 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 have been rising since 6/12/07. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) made a new 26-month price high on 11/19/07. 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 appears to be consolidating, short term. The U.S. dollar 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.
0.57% 30Y T-Bond
0.11% Swiss Franc
0.08% Dow Utilities
0.01% Euro Index
-0.08% US Dollar Index
-0.16% British Pound
-0.56% Health Care
-0.70% Consumer Staples
-0.80% Australian Dollar
-0.81% Natural Gas
-0.96% Health Care
-0.97% Canadian Dollar
-1.01% Health Care Products
-1.33% Oil Services
-1.34% Nasdaq 100
-1.46% Dow Composite
-1.46% Computer Tech
-1.66% Nasdaq Composite
-1.66% Dow Industrial
-1.68% S&P 100
-1.75% S&P 500
-1.77% Russell 1000
-1.80% Wilshire 5000
-1.82% Russell 3000
-1.93% S&P Mid Caps
-2.10% NYSE Composite
-2.12% Disk Drives
-2.21% Consumer Discretionary
-2.24% S&P Small Caps
-2.26% Value Line
-2.32% Dow Transports
-2.49% Russell 2000
-2.63% AMEX Composite
-2.98% Hong Kong
-3.02% Commodity Related
-3.61% United Kingdom
-3.99% Broker Dealers
-4.37% South Korea
-4.86% Gold Mining