By Robert W. Colby, Senior Analyst TraderPlanet.com
Buckle your seatbelts. Further choppy price action seems likely.
Stock prices have been choppy but little changed in December.
The 50-day crossed below the 200-day simple moving average for the first time in 17 months.
The Energy Stock Sector Relative Strength rose to new all-time high.
Bond prices broke out above a 5-day downtrend line.
February Gold Futures broke out to a new 7-week high.
The Breadth of the Market remains Bearish. The Cumulative Daily Advance-Decline lines remain relatively weak for the NYSE and especially for the NASDAQ. New Lows have outnumbered New Highs since October.
Stocks turned lower on news that sales of new U.S. homes fell by a worse-than-expected 9% in November. New home sales are at their lowest level since April 1995 and are down more than 53% from their all-time high reached in July 2005. Homebuilders have been at the bottom of my Relative Strength Rankings for many months.
The stock market appears to be reactive to news reports, and that has led to choppy price action. Relatively weak economic reports appear probable for the week ahead. On Monday, the National Association of Realtors will release existing home sales for November. On Tuesday, the market will be closed for New Year’s Day. On Wednesday, there will be reports on construction spending, the ISM Index on the manufacturing sector, and the minutes of the FMOC December meeting. On Thursday, initial unemployment claims, factory orders, and auto and truck sales. On Friday, nonfarm payrolls report for December and ISM Services. Buckle your seatbelts.
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
1.56% , TLT , Bond, 20+ Years Treasury, TLT
2.61% , TDC , Teradata Corporation, TDC
6.23% , PWER , POWER ONE
2.00% , EWI , Italy Index, EWI
2.70% , EWD , Sweden Index, EWD
1.33% , GPS , GAP
2.08% , RHI , ROBERT HALF
1.35% , EWK , Belgium Index, EWK
1.71% , BMS , BEMIS
1.81% , MYL , MYLAN LABS
1.91% , BJS , BJ SERVICES
1.76% , IAU , Gold COMEX iS, IAU
1.97% , MRVL , MARVELL TECHNOLOGY
0.84% , IEV , Europe 350 S&P Index, IEV
1.62% , DOV , DOVER
1.27% , EWG , Germany Index, EWG
1.40% , WPI , WATSON PHARM
1.88% , JCI , JOHNSON CONTROLS
1.28% , ITT , ITT INDS
2.00% , FISV , FISERV
1.01% , PHW , Hardware & Electronics, PHW
0.87% , SLV , Silver Trust iS, SLV
0.94% , PBJ , Food & Beverage, PBJ
1.17% , WMB , WILLIAMS
0.78% , SRE , SEMPRA ENERGY
0.77% , ITF , Japan LargeCap Blend TOPIX 150, ITF
1.34% , JBL , JABIL CIRCUIT
0.69% , SO , SOUTHERN
1.18% , PGR , PROGRESSIVE OHIO
0.98% , CMA , COMERICA
0.69% , NVLS , NOVELLUS SYS
1.25% , CECO , CAREER EDUCATION CORP
0.80% , IEF , Bond, 10 Year Treasury, IEF
0.30% , IXP , Telecommunications Global, IXP
0.78% , EFV , Value EAFE MSCI, EFV
0.81% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
1.45% , EOG , EOG RESOURCES
1.42% , XOM , EXXON MOBIL
0.76% , VPL , Pacific VIPERs, VPL
0.57% , CPWR , COMPUWARE
1.40% , ASH , ASHLAND
0.86% , ADI , ANALOG DEVICES
0.95% , FLR , FLUOR
0.56% , ADRE , Emerging 50 BLDRS, ADRE
0.94% , A , AGILENT TECH
1.37% , BMC , BMC SOFTWARE
0.87% , NOVL , NOVELL
0.67% , TER , TERADYNE
0.44% , MTB , M&T BANK
1.06% , EFG , Growth EAFE MSCI, EFG
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-15.85% , MBI , MBIA
-13.80% , ABK , AMBAC FINL GRP
-1.51% , TIN , TEMPLE INLAND
-0.95% , PTE , Telecommunications & Wireless, PTE
-3.85% , MAT , MATTEL
-4.94% , SOV , SOVEREIGN BANC
-0.75% , PJP , Pharmaceuticals, PJP
-2.06% , GR , GOODRICH CORP
-0.43% , FPX , IPOs, First Tr IPOX-100, FPX
-0.92% , PHJ , Dividend Growth PS, PHJ
-1.68% , LSI , LSI LOGIC
-0.84% , PZI , Micro Cap Zachs, PZI
-1.06% , NKE , NIKE STK B
-1.68% , HMA , HEALTH MGMT STK A
-1.45% , VMC , VULCAN MATERIALS
-1.16% , PETM , PETsMART Inc
-2.92% , CTX , CENTEX
-1.09% , SRCL , Stericycle, SRCL
-0.85% , WHR , WHIRLPOOL
-1.40% , AIV , APT INV MNGMT
-0.88% , FDL , Dividend Leaders, FDL
-1.55% , WEN , WENDYS INTL
-0.09% , PWO , OTC Dynamic PS, PWO
-1.94% , NSM , NATL SEMICONDUCT
-0.29% , IJJ , Value MidCap S&P 400 B, IJJ
-4.57% , KBH , KB HOME
-1.08% , ICF , Realty Cohen & Steers, ICF
-0.65% , IJS , Value SmallCap S&P 600 B, IJS
-3.21% , CFC , COUNTRYWIDE FNCL
-1.80% , FMCN , Focus Media, FMCN
-2.84% , LIZ , LIZ CLAIRBORNE
-0.58% , XBI , Biotech SPDR, XBI
-2.79% , AMD , ADV MICRO DEV
-0.12% , ELV , Value Large Cap DJ, ELV
-1.22% , MU , MICRON TECH
-0.72% , AOC , AON
-1.61% , SBUX , STARBUCKS
-0.72% , DLTR , Dollar Tree Stores Inc
-0.13% , IJK , Growth MidCap 400 B, IJK
-1.59% , CTB , COOPER TIRE
-1.82% , EK , EASTMAN KODAK
-0.61% , PZJ , SmallCap PS Zacks, PZJ
-1.19% , AZO , AUTOZONE
-0.34% , TE , TECO ENERGY
-0.97% , NBR , NABORS
-0.18% , SDY , Dividend SPDR, SDY
-0.94% , CA , COMPUTER ASSOC
-1.76% , VNQ , REIT VIPERs, VNQ
-0.32% , IGN , Networking, IGN
-0.87% , LMT , LOCKHEED MARTIN
Sectors: among the 9 major U.S. sectors, 4 rose and 5 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.38% Consumer Staples
-0.39% Health Care
-0.45% Consumer Discretionary
Energy (XLE) Bullish, Overweight. Relative Strength made a new all-time high on 12/28/07. XLE made an all-time price high on 12/26/07. 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 12/5/07, and price made a new all-time high on 12/10/07.
Materials (XLB) Bullish, Overweight. The XLB/SPY Relative Strength Ratio made a 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 Staples (XLP) Bullish, Overweight. This defensive sector’s price made a new all-time high on 12/10/07, and Relative Strength made a new 6-year high on 11/26/07.
Technology (XLK) Neutral, Market Weight. Relative Strength turned up from a low on 11/30/07. And, long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.
Industrial (XLI) Neutral, Market Weight. Price and Relative Strength have been chopping sideways since 8/3/07. Longer-term trends appear Bullish.
Health Care (XLV) Neutral, Market Weight. XLV price moved up to a new 6-month high on 12/3/07. Relative Strength moved up to a new 13-month high on 11/27/07.
Consumer Discretionary (XLY) Bearish, Underweight. On 12/21/07, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years. Relative Strength has been trending down since 1/5/05. XLY price made a new 14-month low on 11/27/07.
Financial (XLF) Bearish, Underweight. On 12/27/07, the XLF/SPY Relative Strength Ratio fell to its lowest level in 7 years. Relative Strength has been trending down since 2/20/07. XLF price hit a new 2.5-year low on 11/26/07.
Foreign stock indices have underperformed U.S. stock indices short term, since 11/27/07. 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 11/27/07. 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 the S&P since 12/17/07. 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 in a moderately rising trend since 11/30/07. The long-term, the main trend for the Growth/Value ratio (IWF/IWD) has been rising since 8/8/06.
The Small Cap/Large Cap Relative Strength Ratio fell sharply since 11/26/07. Year end and early January often has been good for Small Caps. But the main long-term trend is Relatively Bearish for Small Caps. The ratio fell to a new 2.5-year low on 12/17/07. Small Caps substantially underperformed Large Caps since 4/19/06.
Crude Oil Futures rose to their highest prices in more than a month but reversed to close moderately lower. Crude held above its uptrend line and still appears to be in position to test its 11/21/07 high of 98.12. Oil found support at the 12/6/07 low of 85.60. The U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil, although it generally moves in the same direction.
The Energy stock sector outperformed the USO since 11/26/07. Previously, over the 6 months from 5/30/07 to 11/26/07, XLE lagged oil the commodity.
February Gold Futures broke out to a new 7-week high. Gold has ended a Triangle Consolidation Pattern with an upside breakout on 12/21/07. The 8-week price range is between 855.00 set on 11/7/07 and 780.40 set on 11/20/07. The main trend is 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. Price made a new 13-week low on 12/18/07.
Inflation expectations turned down since 12/26/07. The short-term trend appears down, based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bond prices broke out above a 5-day downtrend line. Bonds could be ending their intermediate-term correction phase since their price top on 11/26/07. 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 sharply every day for 5 trading days. It broke lows over the previous 8 trading days. The short-term price trend still appears corrective to the downside. Support is at the oversold low at 74.65 on 11/23/07. There could be overhead resistance at the 77.86 high of 12/20/07. The main trend remains Bearish.
Fundamentals: The 2003-2007 Bull Market was fed by abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises. The unfolding fallout from the subprime credit market crisis appears to have derailed that engine. Economic statistics are weakening and at the same time inflation is rising.
The Art of Contrary Thinking: The business and financial news has flipped from Bullish to Bearish and back again. Investors’ moods and stock volatility have jumped up and down abruptly with the news. When everything shifts so dramatically from one day to the next, risk control becomes more important than aggressive profit seeking. Stay flexible.
Sentiment/Contrary Opinion: Bullish opinion is slightly above normal. According to the weekly Investors Intelligence newsletter survey as of 12/26/07, there were 54.9% Bulls and 23.1% Bears. The ratio of Bullish advisors to Bearish advisors fell to 2.38 to 1, which is slightly above its 3-year median of 2.32 to 1 and up from a low of 1.63 to 1 as of 11/28/07.
VIX “Fear Index” has fallen to 20.74 from 31.09 on 11/12/07. VIX remains below its 50-day simple moving average. VIX 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.
VXN “Fear Index” has fallen to 23.63 from 34.94 on 11/12/07. VXN remains below its 50-day simple moving average. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.
CBOE Put/Call Ratio fell to 0.56, indicating moderately optimistic sentiment. It is below its 1-year simple moving average (now at 0.65) and its 4-year median of 0.62. Its 4-year range is 0.35 to 1.28.
ISEE Call/Put Ratio rose to 1.68, indicating moderately optimistic sentiment. It is above its 5-year median of 1.47, and that means that customers opened more long call options and fewer long put options than normal.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
3.07% Gold Mining
1.65% 30Y T-Bond
1.20% Commodity Related
0.95% Swiss Franc
0.82% South Korea
0.79% Dow Utilities
0.78% Natural Gas
0.75% Japanese Yen
0.54% Euro Index
0.53% Oil Services
0.38% Consumer Staples
0.25% NYSE Composite
0.23% Dow Composite
0.17% S&P 100
0.16% United Kingdom
0.15% S&P 500
0.13% Dow Transports
0.12% Russell 1000
0.11% AMEX Composite
0.11% Wilshire 5000
0.10% Russell 3000
0.06% Health Care Products
0.05% Dow Industrial
0.05% Nasdaq 100
0.05% Hong Kong
0.04% Health Care
0.00% Computer Tech
-0.05% S&P Small Caps
-0.06% S&P Mid Caps
-0.06% Broker Dealers
-0.09% Nasdaq Composite
-0.12% Value Line
-0.14% British Pound
-0.17% Canadian Dollar
-0.23% Russell 2000
-0.39% Health Care
-0.45% Consumer Discretionary
-0.58% Australian Dollar
-0.61% US Dollar Index
-0.90% Disk Drives