By Robert W. Colby, Senior Analyst TraderPlanet.com
Rising confidence in the stock market sustainable?
Standard & Poor’s 500 index (1,485.01) reversed to the upside and is in position to test Potential Resistance at 1,492.14, which was the high of 11/14/2007.
Crude Oil was weak.
Inflation expectations fell steeply.
Financials lag again.
Utilities Sector price and relative strength both moved up to new highs.
The U.S. dollar broke out to a new 4-week high.
NYSE volume rose moderately, reinforcing the perception of rising confidence in the stock market.
The news seemed to be focused on hopes for a cut to the fed funds rate scheduled for 12/11/07, a strong ADP employment estimate, an upward revision in third quarter productivity, and a rise in November factory orders.
Breadth ended 49% net Bullish, with more Advancing stocks than Declining stocks on the NYSE.
Up-Down Volume finished the day 60% net Bullish, with greater Up Volume than Down Volume on the NYSE.
New Highs-New Lows on the NYSE ended at 18% net Bearish.
The Art of Contrary Thinking: The business and financial news took an abrupt turn toward the Bullish side in the past week, mainly due to hopes for a Fed interest rate cut, infusions of new capital for troubled financial institutions impacted by the housing and credit crisis, and better than expected economic numbers. When the news changes so dramatically from one day to the next, risk control becomes more important than aggressive profit seeking. Actual conditions may be neither as bad nor as good as they might seem day to day, so stay flexible and ready to change quickly.
Sentiment/Contrary Opinion: Bullish Opinion rose moderately. According to the weekly Investors Intelligence newsletter survey as of 12/6/07, there were 49.4% Bulls and 27.6 % Bears. The ratio of Bullish advisors to Bearish advisors rose to 1.79 to 1, which is still below its 3-year median of 2.32 to 1 and down from a peak of 3.21 to 1 as of 10/17/07.
VIX “Fear Index” fell to 22.53, the lowest level in a month. VIX rose to a 4-year closing high on 11/12/07, when VIX closed at 31.09, which was 3 standard deviations above its 1-year mean. This indicated that options traders were feeling extremely Bearish. 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” fell to 26.91, the lowest level in a month. VXN rose to a 4-year closing high on 11/12/07, when VXN closed at 34.94, which was more than 4 standard deviations above its 1-year mean. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.
CBOE Put/Call Ratio at 0.63 reverted to its mean.
ISEE Call/Put Ratio now at 1.27 shows below average Bullishness. In contrast, on 11/16/07 at 0.68, the ISEE Call/Put Ratio was more than 3 standard deviations below its 1-year mean. Such low numbers indicate that customers opened many fewer long call options and many more long put options than they normally do.
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
1.93% , IYE , Energy DJ, IYE
2.81% , ADRA , Asia 50 BLDRS, ADRA
2.36% , IGN , Networking, IGN
1.74% , IWC , Microcap Russell, IWC
2.28% , BDH , Broadband H, BDH
1.02% , RPV , Value S&P 500, RPV
1.24% , IXP , Telecommunications Global, IXP
1.96% , IYG , Financial Services DJ, IYG
1.30% , RPG , Growth S&P 500, RPG
4.49% , AIG , AMER INTL GROUP
2.40% , EMN , EASTMAN CHEM
7.49% , EDS , ELECTR DATA
4.78% , JBL , JABIL CIRCUIT
1.17% , IYH , Healthcare DJ, IYH
2.43% , PXQ , Networking, PXQ
2.35% , VDE , Energy VIPERs, VDE
4.34% , CTAS , CINTAS
1.46% , PXN , Nanotech Lux, PXN
2.23% , IXN , Technology Global, IXN
5.19% , NVDA , NVIDIA
5.94% , ORCL , ORACLE
2.23% , MVV , Ultra MidCap400 Double, MVV
3.75% , EWY , South Korea Index, EWY
4.06% , FAST , Fastenal Company
2.31% , AVY , AVERY DENNISON
5.92% , FXI , China 25 iS, FXI
1.61% , IYZ , Telecom DJ US, IYZ
7.87% , CC , CIRCUIT CITY STR
1.80% , XBI , Biotech SPDR, XBI
3.73% , OMX , OFFICEMAX INC., OMX
2.47% , CSX , CSX
1.35% , PUI , Utilities, PUI
2.93% , JNPR , Juniper Networks Inc
0.79% , DSG , Growth Small Cap DJ, DSG
3.68% , PLL , PALL
1.71% , ITF , Japan LargeCap Blend TOPIX 150, ITF
1.91% , IYF , Financial DJ US, IYF
1.88% , IGV , Software, IGV
1.19% , ADRD , Developed 100 BLDRS, ADRD
1.42% , IWS , Value MidCap Russell, IWS
2.57% , SWH , Software H, SWH
4.21% , MSFT , MICROSOFT
2.55% , IYW , Technology DJ US, IYW
2.31% , XLK , Technology SPDR, XLK
7.79% , PCAR , PACCAR
1.25% , EWA , Australia Index, EWA
1.58% , EFV , Value EAFE MSCI, EFV
1.36% , PWT , Growth SmallCap Dynamic PS, PWT
3.23% , NUE , NUCOR
3.80% , MAS , MASCO
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-15.97% , MBI , MBIA
-12.30% , CMCSA , COMCAST HOLDINGS STK A
-8.91% , ABK , AMBAC FINL GRP
-1.21% , MYY , Short 100% MidCap 400, MYY
-3.68% , AMD , ADV MICRO DEV
-3.11% , PBG , PEPSI BOTTLING
-2.45% , BBH , Biotech H, BBH
-1.45% , DOG , Short 100% Dow 30, DOG
-1.29% , IPG , INTERPUBLIC GRP
-3.61% , XL , XL CAPITAL STK A
-2.36% , MIL , MILLIPORE
-2.68% , DXD , Short 200% Dow 30 PS, DXD
-1.61% , SH , Short 100% S&P 500, SH
-2.32% , PSQ , Short 100% QQQ, PSQ
-1.08% , NTRS , NORTHERN TRUST
-2.64% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.02% , USO , Oil, Crude, U.S. Oil Fund, USO
-3.81% , ETFC.O , E*TRADE FINANCIAL
-2.16% , RIG , TRANSOCEAN
-1.46% , JCI , JOHNSON CONTROLS
-1.67% , YHOO , YAHOO
-0.78% , SUN , SUNOCO
-1.40% , DRI , DARDEN REST
-0.61% , IFF , INTL FLAV & FRAG
-0.68% , IAU , Gold COMEX iS, IAU
-0.70% , HAS , HASBRO
-1.42% , NOVL , NOVELL
-0.38% , LQD , Bond, Corp, LQD
-0.54% , SLV , Silver Trust iS, SLV
-2.55% , GPS , GAP
-0.50% , PEP , PEPSICO
-0.45% , CCL , CARNIVAL STK A
-0.34% , DHR , DANAHER
-1.14% , LTD , LIMITED BRANDS
-0.42% , SPLS , STAPLES
-0.99% , CVG , CONVERGYS
-3.83% , QID , Short 200% QQQ PS, QID
-0.24% , TWX , TIME WARNER INC
-0.49% , CHKP , Check Point Software Technologies Ltd
-1.06% , TIP , Bond, TIPS, TIP
-0.04% , EWP , Spain Index, EWP
-0.38% , IEF , Bond, 10 Year Treasury, IEF
-0.17% , BJS , BJ SERVICES
-0.45% , NCR , NCR
-0.65% , WMI , WASTE MANAGEMENT
-1.19% , TLT , Bond, 20+ Years Treasury, TLT
-0.37% , TAP , ADOLPH COORS STK B, TAP
-0.37% , IP , INTL PAPER
-1.18% , MYL , MYLAN LABS
-0.33% , FLEX , Flextronics International Ltd
Sectors: among the 9 major U.S. sectors, 8 rose, and 1 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
2.31% Technology
2.21% Energy
1.85% Materials
1.73% Utilities
1.64% Industrial
1.49% Financial
0.80% Health Care
0.41% Consumer Staples
-0.15% Consumer Discretionary
Energy (XLE) Bullish, Overweight. Relative Strength made a 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.
Materials (XLB) Bullish, Overweight. 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 Staples (XLP) Bullish, Overweight. This defensive sector’s price made a new all-time high on 12/5/07, and Relative Strength made a new 6-year high on 11/26/07.
Technology (XLK) Neutral, Market Weight. Relative Strength made a new 7-week low on 11/30/07. Still, 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. 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.
Industrial (XLI) Neutral, Market Weight. Price and Relative Strength have been chopping sideways since 8/3/07. Longer-term trends appear Bullish.
Consumer Discretionary (XLY) Bearish, Underweight. On 11/27/07, price made a new 14-month low. On 11/21/07, the XLY/SPY Relative Strength ratio fell to its lowest level in 6 years. Relative Strength has been trending down since 1/5/05.
Financial (XLF) Bearish, Underweight. XLF underperformed substantially on Tuesday and Wednesday. The oversold bounce in late November is history. 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 were mostly higher in price but underperformed U.S. stock indices for the day. 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 underperformed the S&P since 11/7/07. But trends in different time frames conflict. 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 neutral trend since 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 to new lows on 12/4/07 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 fell to a new 6-week low. It broke below Monday’s low, so the short-term trend is still down. The next Potential Support levels might be 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) 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.
December Gold Futures appear to have entered a correction since their top at 848.00 on 11/7/07.
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 fell steeply again and have been moving steadily down since 11/23/07. A new 3-month low suggests that a downside correction is underway, based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bonds prices turned down without making new highs. Some kind of a correction or consolidation might be possible. Bonds 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 broke out to a new 4-week high and above a 4-month downtrend line. This could be the long awaited oversold rally. 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, moving it into “oversold”.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
4.41% Brazil
4.37% Hong Kong
3.77% Disk Drives
3.75% South Korea
3.45% Taiwan
3.16% REITs
2.70% Computer Tech
2.66% Mexico
2.45% Semiconductors
2.44% Singapore
2.31% Technology
2.25% Hardware
2.21% Energy
2.12% Network
1.96% Natural Gas
1.95% Nasdaq 100
1.94% United Kingdom
1.89% Malaysia
1.87% Japan
1.85% Materials
1.81% Russell 2000
1.78% Nasdaq Composite
1.73% Utilities
1.71% Chemicals
1.64% Industrial
1.62% Oil
1.56% S&P 100
1.53% DOT
1.52% S&P 500
1.50% Banks
1.49% Financial
1.48% Dow Industrial
1.48% Russell 3000
1.48% Sweden
1.46% S&P Mid Caps
1.45% Dow Composite
1.45% Russell 1000
1.44% Dow Utilities
1.43% NYSE Composite
1.43% Wilshire 5000
1.42% Value Line
1.41% Dow Transports
1.39% Commodity Related
1.39% Internet
1.35% S&P Small Caps
1.34% Austria
1.31% Canada
1.29% Broker Dealers
1.25% Australia
1.22% Health Care
1.20% Netherlands
1.09% US Dollar Index
1.05% Paper
0.98% Drugs
0.96% France
0.85% Health Care Products
0.83% Insurance
0.81% Biotechs
0.80% AMEX Composite
0.80% Health Care
0.71% Italy
0.65% Retailers
0.62% Germany
0.59% Belgium
0.50% Oil Services
0.41% Consumer Staples
0.37% Switzerland
0.35% Hospitals
0.32% Gold Mining
-0.04% Spain
-0.15% Consumer Discretionary
-0.15% Canadian Dollar
-0.32% 30Y T-Bond
-0.34% Australian Dollar
-0.59% Japanese Yen
-0.86% Swiss Franc
-0.93% Euro Index
-1.30% Airlines
-1.43% British Pound
