By Robert W. Colby, Senior Analyst TraderPlanet.com
Stocks: consolidating losses with an Inside Day.
Waning demand for stocks.
CRB commodity price index jumped to a new all-time high, confirming a major uptrend.
Materials Stock Sector Relative Strength Ratio rose to a new all-time high.
Technology Stock Sector Relative Strength fell to a new 7-month low–again.
Foreign stock indexes’ Relative Strength fell to new 13-month lows.
The big news of the day was a sharp rise in the price of crude oil, which helped energy stocks but hurt most other stock sectors. The market seems to be quite reactive to the news of the day. In the longer-term picture, major underlying technical trends remain Bearish for stocks. In addition, underlying fundamental trends appear to be deteriorating. There has been a sense that big problems are already baked into the cake, in the pipeline. Therefore, it appears to be a high-risk environment—especially for longs.
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
1.69% , PHW , Hardware & Electronics, PHW
8.43% , XMSR , XM Satellite R
16.72% , CTSH , Cognizant Technology Solutions
4.23% , PWER , POWER ONE
4.40% , TIF , TIFFANY
2.82% , MBI , MBIA
1.28% , MTK , Technology MS sT, MTK
4.44% , USO , Oil, Crude, U.S. Oil Fund, USO
7.26% , ETFC.O , E*TRADE FINANCIAL
3.77% , STJ , ST JUDE MEDICAL
5.39% , NUE , NUCOR
0.99% , JKH , MidCap Growth iS M, JKH
1.10% , PHJ , Dividend Growth PS, PHJ
6.70% , MRO , MARATHON OIL
5.23% , XTO , XTO ENERGY INC
1.66% , VDE , Energy VIPERs, VDE
1.92% , SIRI , Sirius Satellite
1.83% , VAW , Materials VIPERs, VAW
2.77% , OMX , OFFICEMAX INC., OMX
2.13% , XLB , Materials SPDR, XLB
0.67% , EWT , Taiwan Index, EWT
0.46% , RFG , Growth MidCap S&P 400, RFG
4.70% , URBN , Urban Outfitters Inc.
4.47% , EOG , EOG RESOURCES
2.26% , CMI , CUMMINS
2.99% , DBC , Commodity Tracking, DBC
0.39% , PTE , Telecommunications & Wireless, PTE
1.07% , PWJ , Growth Mid Cap Dynamic PS, PWJ
2.14% , SLV , Silver Trust iS, SLV
2.99% , AA , ALCOA
1.16% , CSX , CSX
1.54% , LPX , LOUISIANA PAC
1.46% , KR , KROGER
1.02% , CVS , CVS
2.23% , STLD , Steel Dynamics, STLD
0.67% , SWY , SAFEWAY
1.42% , EMN , EASTMAN CHEM
2.17% , MCD , MCDONALDS
2.49% , PDCO , Patterson Dental Company
0.97% , CAH , CARDINAL HEALTH
1.07% , MCHP , Microchip Technology Incorporated
1.88% , DVN , DEVON ENERGY
1.64% , PXQ , Networking, PXQ
0.74% , PBI , PITNEY BOWES
0.84% , VIA.B , VIACOM STK B
0.76% , VIA , VIACOM INC. (New)
0.38% , MWV , MEADWESTVACO
0.55% , YHOO , YAHOO
1.18% , EWY , South Korea Index, EWY
3.51% , NE , NOBLE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-5.96% , AGN , ALLERGAN
-6.22% , CEPH , Cephalon Inc
-0.09% , RFV , Value MidCap S&P 400, RFV
-0.87% , DSV , Value Small Cap DJ, DSV
-1.12% , ELV , Value Large Cap DJ, ELV
-3.07% , GWW , WW GRAINGER
-1.41% , PIC , Insurance, PIC
-4.96% , AIV , APT INV MNGMT
-1.18% , JKF , Value LargeCap iS M, JKF
-3.66% , WY , WEYERHAEUSER
-0.89% , PWV , Value LargeCap Dynamic PS, PWV
-0.76% , PWP , Value MidCap Dynamic PS, PWP
-1.10% , NY , Value LargeCap NYSE 100 iS, NY
-3.19% , VNQ , REIT VIPERs, VNQ
-1.20% , PFM , Dividend Achievers PS, PFM
-5.24% , EXPD , Expeditors International WA
-1.72% , PEY , Dividend High Yield Equity PS, PEY
-2.09% , HMA , HEALTH MGMT STK A
-2.15% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-3.00% , CECO , CAREER EDUCATION CORP
-3.10% , IYR , Real Estate US DJ, IYR
-1.82% , FDL , Dividend Leaders, FDL
-0.71% , VCR , Consumer D. VIPERs, VCR
-4.09% , RF , REGIONS FINAN
-0.27% , PEJ , Leisure & Entertainment, PEJ
-0.94% , JKL , Value SmallCap iS M, JKL
-0.96% , IYT , Transportation Av DJ, IYT
-0.49% , ISI , LargeCap Blend S&P 1500 iS, ISI
-0.75% , IJS , Value SmallCap S&P 600 B, IJS
-3.98% , SLM , SLM CORP
-0.53% , KLD , LargeCap Blend Socially Responsible iS, KLD
-0.70% , JKJ , SmallCap Core iS M, JKJ
-0.35% , IYY , LargeCap Blend Total Market DJ, IYY
-1.36% , PPL , PPL
-3.95% , FHN , FIRST TENNESSEE
-5.11% , THC , TENET HEALTHCARE
-0.52% , JKG , MidCap Blend Core iS M, JKG
-3.37% , ICF , Realty Cohen & Steers, ICF
-1.00% , DVY , Dividend DJ Select, DVY
-3.18% , SCHW.O , CHARLES SCHWAB
-0.73% , IWC , Microcap Russell, IWC
-0.23% , JKD , LargeCap Blend Core iS M, JKD
-2.00% , DISCA , Discovery Holding Co.
-1.81% , GIS , GENERAL MILLS
-1.19% , IYH , Healthcare DJ, IYH
-1.21% , EWN , Netherlands Index, EWN
-0.87% , SDY , Dividend SPDR, SDY
-1.03% , IVE , Value S&P 500 B, IVE
-1.71% , PPH , Pharmaceutical H, PPH
-1.40% , MOT , MOTOROLA
Sectors: among the 9 major U.S. sectors, 2 rose and 7 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.57% Consumer Discretionary
-0.63% Health Care
-1.11% Consumer Staples
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
Materials (XLB) Neutral, Market Weight. Price touched a new 5-month low on 1/23/08. The XLB/SPY Relative Strength Ratio made a new all-time high on 2/8/08. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.
Energy (XLE) Neutral, Market Weight. Price hit a new 5-month low on 1/22/08. On 1/3/08, both XLE Price and Relative Strength made new all-time highs. XLE has been strong compared to the S&P since 3/12/03.
Consumer Staples (XLP) Neutral, Market Weight. Price touched a new 15-month low on 1/22/08. Price made a new all-time high on 12/10/07, and Relative Strength made a new 3-year high on 1/17/08.
Utilities (XLU) Neutral, Market Weight. Price touched a new 12-month low on 1/22/08. Relative Strength made a new all-time high on 1/9/08, and Price made a new all-time high on 12/10/07.
Industrial (XLI) Neutral, Market Weight. Price touched a new 16-month low on 1/22/08. On 2/6/08, Relative Strength made a new all-time high.
Health Care (XLV) Neutral, Market Weight. Price touched a new 18-month low on 1/22/08. Relative Strength moved up to a new 26-month high on 1/17/08.
Consumer Discretionary (XLY) Bearish, Underweight. Price touched a new 4-year low on 1/22/08. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years.
Technology (XLK) Bearish, Underweight. Price touched a new 17-month low on 1/22/08. On 2/8/08, Relative Strength fell to a new 7-month low. XLK/SPY has underperformed since 11/5/07.
Financial (XLF) Bearish, Underweight. Price touched a new 4-year low on 1/22/08. On 1/8/08, Relative Strength fell to a new 7-year low. These confirmed a Bearish major trend.
Foreign stock indexes remain in downtrends. Relative Strength of EFA/SPY fell to a new 13-month low on 2/8/08. EFA price fell to a new 17-month low on 1/23/08. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) underperformed since 11/27/07.
NASDAQ Composite price remains Bearish. On 2/7/08, Relative Strength fell to a new 7-month low. Relative Strength underperformed the S&P since 11/7/07. On 1/23/08, price touched a new 15-month price low.
Growth Stock/Value Stock Relative Strength Ratio made a new 3-month low on 2/1/08 and has underperformed since the peak on 11/7/07. The Growth/Value ratio (IWF/IWD) appears to be in an intermediate-term correction phase.
The Small Cap/Large Cap Relative Strength Ratio broke down to a new 2.5-year low on 1/11/07. It has been trending down since 4/19/06. The main long-term trend is Relatively Bearish for Small Caps.
Crude Oil broke out to the upside. Crude closed above the highest highs of the previous 4 days and broke a 5-week downtrend line. Oil appears to have support near December’s low at 85.37. Resistance is evident at recent highs at 92.71 and 99.77. 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 has underperformed Crude Oil since 12/10/07.
Gold closed above the highest highs of the previous 4 days. Gold may have just completed a temporary minor correction within a major uptrend.
Silver’s main trend is Bearish compared to Gold. The iShares Silver Trust (AMEX: SLV) has outperformed slightly since 12/14/07. But that is nothing compared to the long-term trend. Silver has been relatively weak compared to Gold since 12/7/06. In addition, for the past 27 years, since 1/2/80, Silver has underperformed Gold.
The Gold Miners ETF (GDX) has underperformed Gold futures significantly since 10/31/07. GDX is Bearish relative to Gold itself.
Inflation expectations have been trending down since 1/30/08, based on the behavior of the ratio of two ETFs, TIP/IEF.
U.S. Treasury Bond prices recovered fractionally. On Thursday, prices fell below the lowest lows of the previous 5-weeks, signaling a downtrend for the short term. The major long-term trend may still be up. 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 consolidated with an inside day. On 2/7/08, the dollar broke out above the highs of the previous 11 trading-days, thereby confirming the preexisting short-term uptrend. On 1/30/08, the dollar reversed to the upside at a price of 74.66, which could be a critical support level. The main long-term trend remains Bearish.
The Art of Contrary Thinking: The mood has been moving away from optimism as stock prices move lower. Sentiment is far from a level associated with extreme pessimism. So, crowd psychology could get more Bearish before it is over. The business and financial news has flipped from Bearish to Bullish and back again. Investors’ moods and stock volatility have jumped up and down abruptly with the latest 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 moderately below normal. According to the weekly Investors Intelligence newsletter survey as of 2/8/08, there were 41.6% Bulls and 32.6% Bears. The ratio of Bullish advisors to Bearish advisors rose to 1.28 to 1, up from 1.25 to 1. This is below its 38-year median at 1.47 to 1. The ratio’s 38-year range is 0.28 to 17.51.
VIX “Fear Index”, now at 28.01 and rising, is relatively normal by Bear Market standards (around 20 to 40) but relatively high by Bull Market standards (around 10 to 20). Longer term, VIX has been in a rising trend since it hit a 13-year low of 9.89 on 1/24/07. The all-time high was 45.74 on 10/8/98. 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”, now at 30.08 and falling, is relatively low by Bear Market standards (around 35 to 80) but relatively high by Bull Market standards (around 12 to 26). Longer term, VXN has been in a rising trend since it hit its all-time low of 12.61 on 7/29/05. The all-time high was 114.23 on 10/8/98. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.
ISEE Call/Put Ratio is 0.94, which indicates Bearish sentiment. It is below its 4-year simple moving average at 1.50 and its 4-year median at 1.47. That means customers opened fewer long call options and more long put options than normal. Its 4-year range is 0.51 to 3.04.
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 has derailed that engine. Economic statistics and corporate earnings have been weakening.
The Primary Tide Major Trend turned Bearish, and that is a strong force. The Dow Theory confirmed a Primary Bear Market on 11/21/07 when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their respective closing price lows of August, 2007. On 11/7/07, the Transports closed below their 8/16/07 closing price low of 4,671.88. Then on 11/21/07, the Dow-Jones Industrial Average closed below its 8/16/07 closing price low of 12,845.78, thereby turning the Primary Tide Bearish.
3.64% Gold Mining
3.07% Natural Gas
1.72% Commodity Related
1.36% Computer Tech
1.32% Oil Services
1.18% South Korea
1.17% Nasdaq 100
1.02% AMEX Composite
0.97% Canadian Dollar
0.77% 30Y T-Bond
0.61% Disk Drives
0.52% Nasdaq Composite
0.34% Euro Index
0.28% British Pound
0.27% Swiss Franc
0.21% Australian Dollar
0.18% S&P Mid Caps
0.17% Japanese Yen
0.14% United Kingdom
-0.32% Wilshire 5000
-0.34% Russell 1000
-0.34% US Dollar Index
-0.36% S&P Small Caps
-0.36% Russell 3000
-0.38% Value Line
-0.41% NYSE Composite
-0.42% S&P 500
-0.48% Hong Kong
-0.52% Dow Utilities
-0.53% Dow Industrial
-0.55% Russell 2000
-0.57% Consumer Discretionary
-0.59% S&P 100
-0.63% Health Care
-0.66% Dow Composite
-0.83% Health Care Products
-0.89% Broker Dealers
-0.95% Dow Transports
-1.10% Health Care
-1.11% Consumer Staples