By Robert W. Colby, Senior Analyst TraderPlanet.com
Financials drag the whole market down.
The Financial stock sector seemed to drag the whole market down. XLF price hit a new 2.5-year low, and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 7 years. News, stories, and rumors about the subprime credit crunch hitting the financial sector have been and remain considerable risks for the stock market.
The S&P 500 cash index (1,407.22) closed just 0.52 above Potential Support at 1,406.70, which was the closing price low of 8/15/2007. The S&P 500 appears to be at a critical level.
Volume was the lowest of November, except for the extremely light trading pace on the half-day trading session after the Thanksgiving holiday.
Breadth ended 52% net Bearish, with more Declining stocks than Advancing stocks on the NYSE.
New Highs-New Lows on the NYSE ended at 77% net Bearish.
Bullish Price Divergences: Although the Dow Industrials and Transports both closed below their August lows in November, the following indices held above their August closing lows: DJUA, S&P 500, S&P 100, NASDAQ Composite, NASDAQ 100, Russell 3000, Russell 1000, and Wilshire 5000.
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
5.04% , MLNM , Millennium Pharmaceuticals Inc
5.28% , GRMN , GARMIN LTD
2.46% , RIG , TRANSOCEAN
1.97% , TLT , Bond, 20+ Years Treasury, TLT
2.30% , IVGN , Invitrogen Corporation
2.34% , FLR , FLUOR
2.36% , AET , AETNA
3.26% , QID , Short 200% QQQ PS, QID
2.10% , MAT , MATTEL
1.85% , SVU , SUPERVALU
1.40% , NCR , NCR
2.67% , VRSN , VeriSign Inc
1.47% , ITT , ITT INDS
4.76% , SDS , Short 200% S&P 500 PS, SDS
1.88% , HUM , HUMANA
1.20% , SNPS , Synopsys Inc
2.40% , LBTYA , Liberty Global Inc. (LBTYA)
1.26% , AGN , ALLERGAN
2.08% , SH , Short 100% S&P 500, SH
1.14% , NE , NOBLE
1.64% , CBE , COOPER INDS STK A
1.28% , LH , LAB CRP OF AMER
1.66% , LQD , Bond, Corp, LQD
1.16% , SIRI , Sirius Satellite
3.00% , DXD , Short 200% Dow 30 PS, DXD
1.65% , PSQ , Short 100% QQQ, PSQ
1.00% , VC , VISTEON
0.96% , PLL , PALL
1.37% , IEF , Bond, 10 Year Treasury, IEF
1.13% , TIP , Bond, TIPS, TIP
0.76% , THC , TENET HEALTHCARE
1.14% , MDT , MEDTRONIC
0.81% , ROH , ROHM & HAAS
0.91% , AGG , Bond, Aggregate, AGG
0.58% , SRE , SEMPRA ENERGY
0.52% , HAS , HASBRO
1.12% , DHR , DANAHER
1.09% , CAG , CONAGRA FOODS
0.79% , DISH , EchoStar Communications Corporation
1.37% , CCU , CLEAR CHANNEL
0.25% , EWC , Canada Index, EWC
1.16% , DE , DEERE & CO
2.96% , MZZ , Short 200% MidCap 400 PS, MZZ
0.37% , TNB , THOMAS & BETTS
0.45% , ABI , Applera Corp-Applied Biosystems Group (ABI)
0.86% , RHT , Red Hat Inc.
0.73% , JNJ , JOHNSON&JOHNSON
0.39% , D , DOMINION RSCS
0.58% , AAPL , APPLE COMPUTER
0.40% , GIS , GENERAL MILLS
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-11.80% , ISIL , INTERSIL CORP
-1.78% , RPG , Growth S&P 500, RPG
-2.50% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
-7.49% , NWL , NEWELL RUBBER
-0.86% , BHH , Internet B2B H, BHH
-2.07% , IXC , Energy Global, IXC
-6.01% , XHB , Homebuilders SPDR, XHB
-5.85% , EMC , EMC
-2.16% , EWI , Italy Index, EWI
-1.77% , PSJ , Software, PSJ
-7.93% , TBH , Telebras HOLDRS, TBH*
-0.98% , IYK , Consumer Non-Cyclical, IYK
-2.24% , IWB , LargeCap 1000 R, IWB
-2.55% , PWO , OTC Dynamic PS, PWO
-0.92% , XBI , Biotech SPDR, XBI
-7.92% , CTX , CENTEX
-2.80% , JKF , Value LargeCap iS M, JKF
-7.61% , CAR , Avis Budget Group, Inc. (CAR)
-9.41% , KBH , KB HOME
-1.63% , PHW , Hardware & Electronics, PHW
-16.58% , CIT , CIT GROUP
-1.65% , FDV , Value 40 Large Low P/E FT DB, FDV
-3.71% , FISV , FISERV
-2.00% , HHH , Internet H, HHH
-5.74% , AIV , APT INV MNGMT
-1.45% , ANDW , ANDREW
-7.21% , HBAN , HUNTINGTON
-2.25% , IYY , LargeCap Blend Total Market DJ, IYY
-4.42% , MNST , MONSTER WORLDWID
-3.03% , PZJ , SmallCap PS Zacks, PZJ
-10.47% , CFC , COUNTRYWIDE FNCL
-2.72% , HES , AMERADA HESS
-5.81% , DLX , DELUXE
-4.06% , FII , FED INVESTORS STK B
-2.30% , IGN , Networking, IGN
-2.18% , RFV , Value MidCap S&P 400, RFV
-4.70% , PRU , PRUDENTIAL FINL
-4.46% , CVG , CONVERGYS
-2.10% , XLB , Materials SPDR, XLB
-4.21% , CINF , CINCINNATI FIN
-7.03% , DHI , D.R. HORTON, DHI
-3.82% , BEN , FRANKLIN RSC
-6.50% , AMP , Ameriprise Financial Inc.
-1.96% , IWZ , Growth LargeCap Russell 3000, IWZ
-3.77% , TYC , TYCO INTL
-3.43% , MV , METAVANTE TECHNOLOGIES, MV
-6.58% , EQR , EQUITY RESIDENT BEN INT
-2.64% , PMR , Retail, PMR
-3.62% , CTB , COOPER TIRE
-1.40% , EFG , Growth EAFE MSCI, EFG
Sectors: among the 9 major U.S. sectors, all 9 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.77% Health Care
-1.02% Consumer Staples
-2.59% 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.
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 6-year high on 11/26/07.
Health Care (XLV) Bullish, Overweight. This defensive sector’s Relative Strength moved up to a new 13-month high on 11/26/07.
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.
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 2.5-year low on 11/26/07, and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 7 years on 11/26/07. Relative Strength has been trending down since 2/20/07.
Foreign stock indices sharply outperformed Monday and Friday and 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 11/26/07 and price broke its 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 rose to 99.11 intraday but reversed to close lower. Oil has been in a rising main trend since 1/18/07 but now seems overbought and due a correction. 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, confirms oil’s major uptrend.
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 again to recover nearly 3/4 of their November loss. Gold’s main trend remains Bullish.
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 28-month price high on 11/26/07. 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 eased lower. The U.S. dollar appears to be losing downside momentum over the past 4 trading days, but the main trend is still down. Some kind of relief rally could be possible. Previously, 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 to its low of 74.65 on 11/23/07. There can be no doubt that the main trend has been Bearish.
0.58% British Pound
0.19% Swiss Franc
0.16% Euro Index
0.16% Japanese Yen
-0.12% Canadian Dollar
-0.15% Australian Dollar
-0.28% US Dollar Index
-0.32% South Korea
-0.69% Dow Utilities
-0.77% Health Care
-1.02% Consumer Staples
-1.09% Health Care
-1.13% Oil Services
-1.22% Disk Drives
-1.42% Health Care Products
-1.47% Natural Gas
-1.49% Dow Composite
-1.50% Dow Transports
-1.58% S&P Mid Caps
-1.83% Dow Industrial
-1.92% Hong Kong
-1.95% Nasdaq 100
-2.02% NYSE Composite
-2.11% Value Line
-2.13% Wilshire 5000
-2.14% Nasdaq Composite
-2.19% Russell 1000
-2.21% AMEX Composite
-2.23% Russell 3000
-2.24% United Kingdom
-2.32% S&P 500
-2.36% S&P 100
-2.43% Commodity Related
-2.45% S&P Small Caps
-2.45% Computer Tech
-2.59% Consumer Discretionary
-2.64% Russell 2000
-3.73% Gold Mining
-4.28% Broker Dealers