Daily Stock Market Commentary – 11/5/2007

On Friday, major stock price indices opened higher but soon fell steeply into the red in reaction to reports about problems for broker dealers, banks, and financial companies relating to subprime loans gone bad. Prices recovered in the afternoon, and most indices closed higher on the day. Trading was very active again.

Friday’s action, coming back from a steep loss, showed resilience. Short-term downside momentum slowed, and the long-term trend of the stock market remains upward. Moreover, seasonal tendencies remain Bullish.

Sentiment/Contrary Opinion: Bullish Opinion Fell Sharply. According to the weekly Investors Intelligence newsletter survey as of 10/31/07, the ratio of Bullish advisors to Bearish advisors fell sharply to 2.33, down from 3.21 to 1 as of 10/17/07. Currently, there were 53.8% Bulls and 23.1% Bears. The Bullish numbers probably will drop further when reported in the week ahead, since many advisors sway with the most recent market direction.

VIX “Fear Index” is nearly 2 standard deviations above its 1-year mean. VIX hit 25.17, intraday on 11/2/07, indicating that options traders were feeling Bearish. VIX (VIX: 23.01) 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.

The similarly calculated VXN “Fear Index” measuring Nasdaq Volatility (VXN: 24.83) also was nearly 2 standard deviations above its 1-year mean.

CBOE Put/Call Ratio at 0.70 showed moderate Bearishness. The CBOE Equity Put/Call Ratio (http://www.cboe.com/data/PutCallRatio.aspx) rose to a level above average in the past two trading days.

ISEE Call/Put Ratio at 1.36 showed a moderate tilt toward Bearishness. The ISEE Call/Put Ratio was below average, indicating that customers opened relatively more long put options and fewer long call options than normal.

News: The business and financial news has taken a turn toward the gloomy side due to concerns about housing and credit problems. 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.

Breadth ended 6% net Bearish, with more Declining stocks than Advancing stocks on the NYSE. The Cumulative Daily Advance-Decline Line for the NYSE broke a short-term uptrend.

Up-Down Volume finished the day 12% net Bearish, with greater Down Volume than Up Volume on the NYSE.

Total volume rose on the NYSE but eased on the NASDAQ.

New Highs-New Lows on the NYSE ended at 47% net Bearish.

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

9.22% , MLNM , Millennium Pharmaceuticals Inc
1.19% , EWI , Italy Index, EWI
3.76% , TE , TECO ENERGY
1.26% , EWQ , France Index, EWQ
2.64% , CNP , CENTERPNT ENERGY
2.41% , AES , AES
3.46% , CA , COMPUTER ASSOC
2.90% , VIA.B , VIACOM STK B
2.22% , EWC , Canada Index, EWC
3.02% , MIL , MILLIPORE
5.29% , F , FORD MOTOR
1.53% , EWN , Netherlands Index, EWN
3.04% , GT , GOODYEAR TIRE
2.01% , PBE , Biotech & Genome, PBE
0.39% , RFG , Growth MidCap S&P 400, RFG
3.99% , RIMM , RESEARCH IN MOTION LTD
3.60% , WFMI , Whole Foods Market Inc
0.69% , IGW , Semiconductor iS GS, IGW
0.52% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
0.33% , IXN , Technology Global, IXN
2.10% , LLL , L-3 COMMS HLDGS
1.98% , CCE , COCA COLA ENTER
2.15% , NSM , NATL SEMICONDUCT
1.36% , ED , CON ED
4.68% , APA , APACHE
2.97% , OXY , OCCIDENTAL
0.99% , SWH , Software H, SWH
0.61% , IWF , Growth 1000 Russell, IWF
1.93% , JNPR , Juniper Networks Inc
1.77% , BF.B , BROWN FORMAN STK B
2.95% , YHOO , YAHOO
2.01% , LBTYA , Liberty Global Inc. (LBTYA)
2.44% , GLD , Gold Shares S.T., GLD
0.91% , EFG , Growth EAFE MSCI, EFG
2.47% , GILD , Gilead Sciences Inc
4.15% , ATI , ALLEGHENY TECH
1.14% , EDS , ELECTR DATA
2.33% , IAU , Gold COMEX iS, IAU
2.30% , SNA , SNAP ON
1.82% , STJ , ST JUDE MEDICAL
4.15% , NBR , NABORS
0.83% , BEN , FRANKLIN RSC
2.33% , EWG , Germany Index, EWG
0.62% , PSI , Semiconductors, PSI
0.58% , GIS , GENERAL MILLS
1.22% , SVU , SUPERVALU
2.07% , FLEX , Flextronics International Ltd
0.75% , CMA , COMERICA
1.66% , ESRX , EXPRESS SCRIPTS
1.88% , XLE , Energy SPDR, XLE

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name

-7.90% , MER , MERRILL LYNCH
-6.66% , NI , NISOURCE
-0.36% , RPV , Value S&P 500, RPV
-20.49% , ABK , AMBAC FINL GRP
-6.90% , OMX , OFFICEMAX INC., OMX
-6.62% , AIV , APT INV MNGMT
-5.64% , MS , MORGAN STANLEY
-4.42% , GS , GOLDMAN SACHS
-5.35% , BSC , BEAR STEARNS
-7.06% , EK , EASTMAN KODAK
-4.02% , LM , LEGG MASON
-7.89% , ETFC.O , E*TRADE FINANCIAL
-3.52% , CI , CIGNA
-1.51% , IYG , Financial Services DJ, IYG
-2.32% , SNV , SYNOVUS
-3.31% , JWN , NORDSTROM
-2.11% , MTB , M&T BANK
-0.99% , DHR , DANAHER
-3.47% , FNM , FANNIE MAE
-0.75% , PHJ , Dividend Growth PS, PHJ
-6.70% , MBI , MBIA
-0.78% , EWK , Belgium Index, EWK
-2.28% , DISH , EchoStar Communications Corporation
-1.98% , MHP , MCGRAW HILL
-2.30% , NTAP , NETWK APPLIANCE
-1.50% , CCL , CARNIVAL STK A
-1.51% , VFH , Financials VIPERs, VFH
-1.21% , CB , CHUBB
-3.69% , FHN , FIRST TENNESSEE
-2.98% , KBH , KB HOME
-1.08% , PZI , Micro Cap Zachs, PZI
-2.30% , MRK , MERCK & CO
-1.85% , PMCS , PMC SIERRA
-4.33% , XL , XL CAPITAL STK A
-0.53% , VBR , Value SmallCap VIPERS, VBR
-3.58% , WYNN , Wynn Resorts L
-1.73% , KG , KING PHARM
-0.80% , IXG , Financials Global LargeCap Value, IXG
-1.89% , PGR , PROGRESSIVE OHIO
-1.15% , JCP , JC PENNEY
-3.18% , TIF , TIFFANY
-0.36% , PEY , Dividend High Yield Equity PS, PEY
-4.50% , PHM , PULTE HOMES
-2.31% , MCO , MOODYS CORP
-0.82% , PMR , Retail, PMR
-2.05% , ICF , Realty Cohen & Steers, ICF
-2.35% , MET , METLIFE
-3.13% , KEY , KEYCORP
-3.16% , ACS , AFFILIATED COMPUTER
-2.20% , SHW , SHERWIN WILLIAMS

Sectors: among the 9 major U.S. sectors, 6 rose and 3 fell.
Major Sectors Ranked for the Day
% Price Change, Sector

1.88% Energy
0.90% Materials
0.90% Industrial
0.82% Utilities
0.65% Consumer Staples
0.21% Technology
-0.06% Consumer Discretionary
-0.28% Health Care
-0.75% Financial

Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):

Energy (XLE) Bullish, Overweight. XLE made an all-time closing price high on 10/16/07, and XLE made an all-time high in Relative Strength on 10/18/07. XLE has been strong compared to the S&P since 3/12/03.

Technology (XLK) Bullish, Overweight. XLK hit another new 6-year price high on 11/1/07, and Relative Strength made a new 3-year high on 11/2/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.

Materials (XLB) Bullish, Overweight. Both Price and Relative Strength made new all-time highs on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.

Utilities (XLU) Bullish, Overweight. Relative Strength for this defensive sector made a new 5-month high on 11/2/07. Price made a new 5-month high on 10/31/07. Utilities have improved significantly since their Relative Strength low on 9/28/07.

Industrial (XLI) Neutral, Market Weight. Industrial stock sector price made an all-time price high on 10/10/07, but Relative Strength has been lagging.

Consumer Staples (XLP) Neutral, Market Weight. This defensive sector’s Relative Strength has improved since its low on 10/9/07.

Health Care (XLV) Bearish, Underweight. Relative Strength has been trending down since 10/9/02, and it made a new 5-year low on 7/19/07, thereby confirming a major downtrend.

Consumer Discretionary (XLY) Bearish, Underweight. On 11/2/07, 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. On 11/2/07, XLF price hit a new 2-year low and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 6 years. Relative Strength has been trending down since 2/20/07.

Foreign stock Relative Strength made another new high. 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 11/1/07. 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 both made new 6-year Relative strength highs. Price confirmed the Bullish trend on 10/31/07. Longer term, NASDAQ has outperformed since 8/8/06.

Growth Stock/Value Stock Relative Strength ratio rose to a new 20-month high. Growth price made a new 6-year high on 10/11/07. Growth stocks outperformed Value stocks since 8/8/06. The main trend for the Growth/Value ratio (IWF/IWD) is confirmed Bullish.

Small Caps substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.

December Crude Oil Futures hit a new closing price high of $95.93. All trends are still Bullish. Support appears at the low of 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, finally made a new high.

The Energy stock sector broke down to another new 1-year low relative to oil the commodity. XLE has underperformed the USO since 5/30/07.

December Gold Futures hit another new 28-year high of $806.50. Major trends remain Bullish for Gold and the Gold Trust ETF (NYSE: GLD).

Silver’s main trend is relatively Bearish. Compared to Gold, the iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.

The Gold Miners ETF (GDX) made a new 2007 closing price high.

Inflation expectations rose last week, but they have been choppy and erratic most of the time since 6/22/07. This is based on the behavior of the ratio of two ETFs, TIP/IEF.

U.S. Treasury Bonds prices rose again on a continuing flight to safety. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) touched a new 11-month high but was unable to hold new high territory into the close. 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 hit another new low. The main trend has been confirmed Bearish—again and again. Longer term, the dollar fell 17% 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:

3.66% Gold Mining
2.63% Oil Services
2.47% Disk Drives
2.33% Germany
2.22% Canada
2.05% Hardware
1.88% Energy
1.67% Commodity Related
1.67% Malaysia
1.61% Canadian Dollar
1.53% Netherlands
1.43% Spain
1.29% Oil
1.26% Natural Gas
1.26% France
1.20% Network
1.19% Italy
1.08% Australia
0.94% United Kingdom
0.90% Materials
0.90% Industrial
0.83% Computer Tech
0.82% Utilities
0.79% AMEX Composite
0.76% Nasdaq 100
0.72% Internet
0.69% Chemicals
0.69% Australian Dollar
0.65% Consumer Staples
0.62% DOT
0.60% Semiconductors
0.59% Dow Transports
0.58% Austria
0.58% 30Y T-Bond
0.56% Nasdaq Composite
0.55% Biotechs
0.52% Dow Utilities
0.40% Singapore
0.39% Euro Index
0.38% Dow Composite
0.34% Swiss Franc
0.33% Russell 2000
0.33% Switzerland
0.33% British Pound
0.30% NYSE Composite
0.23% Sweden
0.21% Technology
0.20% Dow Industrial
0.20% Health Care Products
0.16% Insurance
0.15% S&P Small Caps
0.09% Hong Kong
0.08% S&P 500
0.08% Russell 3000
0.08% South Korea
0.07% Japanese Yen
0.05% Russell 1000
0.05% Wilshire 5000
0.04% Value Line
0.02% Brazil
-0.06% Consumer Discretionary
-0.07% S&P 100
-0.15% S&P Mid Caps
-0.20% Drugs
-0.22% Health Care
-0.28% Health Care
-0.28% Japan
-0.53% US Dollar Index
-0.60% Retailers
-0.75% Financial
-0.78% Belgium
-0.78% Mexico
-1.10% Airlines
-1.19% Hospitals
-1.29% Banks
-1.34% Paper
-1.39% Taiwan
-2.00% REITs
-2.52% Broker Dealers