By Robert W. Colby, Senior Analyst TraderPlanet.com
Upside reversal on heavy trading
The day’s price range exceeded the previous day’s high and low. It was a reversal day, an Outside Day with an up close. Heavy volume confirmed the upside reversal.
Short-term technical momentum oscillators are turning upward from oversold conditions. An upside recovery to correct the oversold condition seems likely.
Breadth ended 0% net Bearish, with very slightly more Declining stocks than Advancing stocks on the NYSE.
Up-Down Volume finished the day 6% 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: FRE and FNM both fell by about on news of massive losses for FRE. “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 scarce. 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
0.74% , PKB , Building & Construction, PKB
12.09% , JWN , NORDSTROM
2.46% , EWQ , France Index, EWQ
7.01% , MDT , MEDTRONIC
4.69% , MLNM , Millennium Pharmaceuticals Inc
5.74% , WYNN , Wynn Resorts L
1.31% , HRB , H&R BLOCK
2.31% , EPP , Pacific ex-Japan, EPP
2.55% , VDE , Energy VIPERs, VDE
2.64% , GPS , GAP
2.12% , MWV , MEADWESTVACO
2.63% , XME , Metals & Mining SPDR, XME
1.11% , IXP , Telecommunications Global, IXP
2.36% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
2.49% , DHI , D.R. HORTON, DHI
1.76% , AEP , AM ELEC POWER
2.89% , GLD , Gold Shares S.T., GLD
3.63% , GOOG , Google
2.44% , SYK , STRYKER
0.97% , DGT , Global Titans, DGT
3.90% , DISCA , Discovery Holding Co.
3.04% , ROST , Ross Stores Inc
0.97% , VPU , Utilities VIPERs, VPU
4.41% , XOM , EXXON MOBIL
1.23% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
1.58% , EWD , Sweden Index, EWD
2.91% , IR , INGER RAND
2.92% , CEG , CONSTELL ENERGY
3.22% , XLE , Energy SPDR, XLE
1.55% , EWC , Canada Index, EWC
2.11% , KG , KING PHARM
4.28% , TDC , Teradata Corporation, TDC
4.10% , BHI , BAKER HUGHES
2.87% , EWS , Singapore Index, EWS
2.75% , EEM , Emerging Markets, EEM
0.84% , PUI , Utilities, PUI
1.68% , ILF , Latin Am 40, ILF
4.89% , HES , AMERADA HESS
1.96% , PGN , PROGRESS ENERGY
2.15% , EWI , Italy Index, EWI
3.47% , DLTR , Dollar Tree Stores Inc
1.75% , EZU , EMU Europe Index, EZU
1.22% , XLU , Utilities SPDR, XLU
4.42% , RIG , TRANSOCEAN
3.88% , TUP , TUPPERWARE
3.58% , TIF , TIFFANY
2.46% , KSS , KOHLS
3.84% , SWY , SAFEWAY
3.16% , IXC , Energy Global, IXC
1.24% , RTN , RAYTHEON
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-11.99% , ERIC.O , LM Ericsson Telephone Company
-28.69% , FRE , FREDDIE MAC
-24.83% , FNM , FANNIE MAE
-10.17% , PHM , PULTE HOMES
-19.32% , ETFC.O , E*TRADE FINANCIAL
-6.55% , AMD , ADV MICRO DEV
-6.97% , ODP , OFFICE DEPOT
-4.10% , TGT , TARGET
-6.66% , KBH , KB HOME
-9.39% , LEN , Lennar Corp. (LEN)
-6.41% , RFMD , RF Micro Devices Inc
-8.18% , CIT , CIT GROUP
-3.21% , ISIL , INTERSIL CORP
-1.37% , PXQ , Networking, PXQ
-3.30% , MCHP , Microchip Technology Incorporated
-3.26% , XLNX , XILINX
-3.51% , MU , MICRON TECH
-3.02% , CECO , CAREER EDUCATION CORP
-2.74% , CFC , COUNTRYWIDE FNCL
-3.50% , JNPR , Juniper Networks Inc
-5.65% , NCC , NATIONAL CITY
-0.26% , IGV , Software, IGV
-2.66% , DYN , DYNEGY
-2.59% , IPG , INTERPUBLIC GRP
-1.77% , SUN , SUNOCO
-4.43% , RYAAY , Ryanair Holdings plc
-1.28% , NYT , NY TIMES STK A
-3.18% , PMCS , PMC SIERRA
-2.36% , ZMH , ZIMMER HLDGS
-1.56% , ADI , ANALOG DEVICES
-1.61% , SANM , SANMINA
-3.53% , MNST , MONSTER WORLDWID
-3.29% , OMX , OFFICEMAX INC., OMX
-3.95% , JBL , JABIL CIRCUIT
-2.33% , IYR , Real Estate US DJ, IYR
-2.24% , AZO , AUTOZONE
-5.09% , CTB , COOPER TIRE
-1.45% , RRD , RR DONNELLEY SON
-1.74% , VFH , Financials VIPERs, VFH
-3.93% , ATVI , Activision Inc.
-1.67% , EK , EASTMAN KODAK
-0.81% , KCE , Capital Markets KWB ST, KCE
-1.45% , BDH , Broadband H, BDH
-1.93% , VNQ , REIT VIPERs, VNQ
-1.41% , INTU , INTUIT
-1.50% , CHKP , Check Point Software Technologies Ltd
-1.22% , SPLS , STAPLES
-0.85% , PTE , Telecommunications & Wireless, PTE
-1.48% , LUV , SOUTHWEST AIRLS
-1.77% , EMC , EMC
Sectors: among the 9 major U.S. sectors, 8 rose and 1 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.81% Consumer Staples
0.20% Health Care
0.09% Consumer Discretionary
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
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. This defensive sector’s Relative Strength made a new 6-year high on 11/20/07. Price made a new 5-month high on 10/31/07. Utilities have improved significantly since their Relative Strength low on 9/28/07.
Consumer Staples (XLP) Bullish, Overweight. This defensive sector’s price made a new all-time high and Relative Strength made a new 2-year high on 11/20/07.
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 11/20/07, price made a new 14-month low. Also on 11/20/07, 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 11/20/07, and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 6 years on 11/20/07. Relative Strength has been trending down since 2/20/07.
Foreign stock indices rebounded sharply higher and 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 Cap Relative Strength fell steeply to new lows. Small Caps substantially underperformed Large Caps since 4/19/06, and so the main long-term trend is Bearish for Small Caps.
January Crude Oil Futures jumped to $98. 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 rebounded sharply higher. Gold showed strong upside momentum.
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 paused after 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 turned down. 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.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
4.67% Gold Mining
3.38% Oil Services
2.54% Commodity Related
2.51% United Kingdom
1.92% Hong Kong
1.44% Dow Utilities
1.05% AMEX Composite
1.00% Euro Index
0.89% Computer Tech
0.88% British Pound
0.88% Swiss Franc
0.82% NYSE Composite
0.81% Consumer Staples
0.72% S&P 100
0.69% Natural Gas
0.51% South Korea
0.45% S&P 500
0.44% Nasdaq 100
0.40% Dow Industrial
0.38% Health Care
0.37% Russell 1000
0.37% Health Care Products
0.33% Russell 3000
0.31% Japanese Yen
0.30% Dow Composite
0.30% Wilshire 5000
0.20% Health Care
0.13% Nasdaq Composite
0.09% Consumer Discretionary
0.09% Australian Dollar
0.00% 30Y T-Bond
-0.01% S&P Small Caps
-0.03% Canadian Dollar
-0.13% Russell 2000
-0.13% S&P Mid Caps
-0.16% Value Line
-0.73% Dow Transports
-0.78% US Dollar Index
-0.80% Broker Dealers
-2.24% Disk Drives