By Robert W. Colby, Senior Analyst TraderPlanet.com
Dow theory sell signal
Both the DJIA and DJTA closed below their August lows to confirm a Dow Theory Sell Signal.
Lighter volume reflected early departures for the Thanksgiving holiday.
Short-term technical momentum oscillators turned downward to deeper levels of oversold. They still show Bullish divergences compared to their previous extremes on 11/12/07, which were lower. These oscillators include RSI 14, Stochastic 14, Minus Directional Movement, MACD Histogram, and CCI, among others.
There are other Bullish divergences. The following indices held above their August closing lows: DJUA, S&P 500, S&P 100, S&P 1500, NASDAQ Composite, NASDAQ 100, Russell 3000, and Russell 1000.
Breadth ended 46% net Bearish, with more Declining stocks than Advancing stocks on the NYSE. The A-D Line broke its August low.
New Highs-New Lows on the NYSE ended at 90% 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 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
4.87% , DE , DEERE & CO
4.76% , X , US STEEL CORP
0.70% , LQD , Bond, Corp, LQD
3.48% , JNY , JONES APPAREL
3.56% , EDS , ELECTR DATA
2.81% , FLEX , Flextronics International Ltd
2.25% , SH , Short 100% S&P 500, SH
0.32% , SHY , Bond, 1-3 Year Treasury, SHY
1.57% , Q , QWEST COMMUNICAT
0.96% , HOT , STARWOOD HOTELS
3.23% , FHN , FIRST TENNESSEE
3.13% , BIG , BIG LOTS
1.07% , CHRW.O , CH Robinson Worldwide Inc, CHRWD
0.38% , GM , GENERAL MOTORS
0.48% , HMA , HEALTH MGMT STK A
1.91% , DOG , Short 100% Dow 30, DOG
0.12% , RZV , Value SmallCap S&P 600, RZV
1.01% , NVLS , NOVELLUS SYS
1.44% , SSCC , Smurfit-Stone Container Corporation
1.22% , HBAN , HUNTINGTON
0.76% , AGG , Bond, Aggregate, AGG
0.84% , SNDK , SanDisk Corporation
0.71% , HSP , HOSPIRA
0.62% , AOC , AON
0.13% , DBC , Commodity Tracking, DBC
0.32% , TNB , THOMAS & BETTS
0.07% , PEY , Dividend High Yield Equity PS, PEY
0.21% , PGN , PROGRESS ENERGY
1.57% , NOVL , NOVELL
0.21% , ED , CON ED
2.49% , MAR , MARRIOTT INTL STK A
0.13% , AN , AUTONATION
0.08% , NUE , NUCOR
0.02% , AEE , AMEREN
% Price Change, Symbol, Name
-22.70% , PDCO , Patterson Dental Company
-1.64% , FDV , Value 40 Large Low P/E FT DB, FDV
-3.01% , HSIC , Henry Schein Inc
-1.76% , XLG , LargeCap Rydex Rus Top 50, XLG
-1.61% , PIV , Value Line Timeliness MidCap Gr, PIV
-1.40% , PWP , Value MidCap Dynamic PS, PWP
-2.81% , EWK , Belgium Index, EWK
-6.12% , TROW , T ROWE PRICE GP
-4.69% , ADRE , Emerging 50 BLDRS, ADRE
-5.30% , PGJ , China LargeCap Growth G D H USX PS, PGJ
-1.66% , NY , Value LargeCap NYSE 100 iS, NY
-2.74% , HCR , MANOR CARE
-5.71% , AIG , AMER INTL GROUP
-2.66% , TBH , Telebras HOLDRS, TBH*
-3.85% , EWA , Australia Index, EWA
-4.69% , VWO , Emerging VIPERs, VWO
-1.75% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-2.72% , IXG , Financials Global LargeCap Value, IXG
-0.89% , SWH , Software H, SWH
-3.21% , EWW , Mexico Index, EWW
-1.64% , KLD , LargeCap Blend Socially Responsible iS, KLD
-1.69% , IXN , Technology Global, IXN
-1.52% , IVW , Growth S&P 500/BARRA, IVW
-5.80% , MAS , MASCO
-1.54% , RPV , Value S&P 500, RPV
-5.81% , EWZ , Brazil Index, EWZ
-3.96% , MCHP , Microchip Technology Incorporated
-1.74% , PIC , Insurance, PIC
-1.48% , VV , LargeCap VIPERs, VV
-3.36% , PTEN , Patterson-UTI Energy Inc
-0.43% , BHH , Internet B2B H, BHH
-1.46% , FEZ , Euro STOXX 50, FEZ
-1.43% , IWZ , Growth LargeCap Russell 3000, IWZ
-1.27% , PFM , Dividend Achievers PS, PFM
-6.13% , JNS , JANUS CAPITAL
-2.29% , GE , GENERAL ELECTRIC
-1.51% , IYJ , Industrial LargeCap Blend DJ US, IYJ
-0.58% , IDU , Utilities DJ, IDU
-2.54% , XRAY , DENTSPLY International Inc
-2.10% , EWM , Malaysia Index, EWM
-1.60% , PXJ , Oil & Gas, PXJ
-2.27% , PBW , WilderHill Clean Energy PS, PBW
-3.21% , ETR , ENTERGY
-1.94% , WFMI , Whole Foods Market Inc
-1.36% , FDL , Dividend Leaders, FDL
-8.32% , XL , XL CAPITAL STK A
-0.71% , VCR , Consumer D. VIPERs, VCR
-0.85% , IYK , Consumer Non-Cyclical, IYK
-2.40% , ADSK , AUTODESK
-1.66% , IXC , Energy Global, IXC
Sectors: among the 9 major U.S. sectors, all 9 fell.
% Price Change, Sector
-0.96% Consumer Discretionary
-1.22% Consumer Staples
-2.23% Health Care
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 11/21/07. 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 on 11/20/07, and Relative Strength made a new 2-year high on 11/21/07.
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.
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.
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.
Consumer Discretionary (XLY) Bearish, Underweight. On 11/20/07, price made a new 14-month low. Also on 11/21/07, the XLY/SPY Relative Strength ratio fell to its lowest level in 6 years on 11/20/07. Relative Strength has been trending down since 1/5/05.
Financial (XLF) Bearish, Underweight. XLF price hit another new 2-year low on 11/21/07, 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 followed U.S. stocks lower but are still relatively 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 outperformed since 11/12/07. Longer term, 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 on 11/20/07 and price broke August low on 11/21/07. 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 up on news of low inventories but closed lower. This reversal suggests toppy action for the short term at least. 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 rose to recover nearly half of their November loss. Gold showed diminishing upside momentum, however, raising a question about the power of this recovery.
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 made a new 26-month price high on 11/19/07. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) has been rising since 6/12/07. 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 fell again, but with less momentum. The U.S. dollar appears to have lost some downside momentum over the past 2 weeks, so some kind of relief rally could be possible. All rally attempts have been confined to only one day at a time over the past 7 weeks, indicating persistent selling pressure. Longer term, the dollar fell 19% from its high of 92.53 on 11/16/05. There can be no doubt that the main trend has been Bearish.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
0.89% Japanese Yen
0.28% Swiss Franc
0.19% 30Y T-Bond
0.19% Euro Index
-0.19% British Pound
-0.29% US Dollar Index
-0.57% Canadian Dollar
-0.96% Consumer Discretionary
-1.15% Dow Utilities
-1.16% Nasdaq 100
-1.21% Russell 2000
-1.21% Disk Drives
-1.22% AMEX Composite
-1.22% Consumer Staples
-1.26% S&P Small Caps
-1.32% S&P Mid Caps
-1.33% Nasdaq Composite
-1.33% Dow Transports
-1.33% Australian Dollar
-1.35% Computer Tech
-1.36% Value Line
-1.40% Natural Gas
-1.44% Dow Composite
-1.50% Russell 3000
-1.50% Wilshire 5000
-1.53% Russell 1000
-1.58% Health Care Products
-1.59% S&P 500
-1.62% Dow Industrial
-1.62% Gold Mining
-1.65% S&P 100
-1.67% Health Care
-1.72% Oil Services
-1.78% NYSE Composite
-1.80% Broker Dealers
-1.83% Commodity Related
-2.21% United Kingdom
-2.23% Health Care
-4.70% Hong Kong
-5.65% South Korea