By Robert W. Colby, Senior Analyst TraderPlanet.com
Will falling interest rates alone save the stock market?
Crude Oil, Gold, and the CRB commodity price index all jumped up to new all-time price highs, again confirming major uptrends.
Energy and Materials Stock Sectors Relative Strength Ratios rose to new all-time highs.
Technology Stock Sector Relative Strength Ratio fell to another new 8-month low.
On Wednesday, major stock price indexes gapped lower on the open on news of rising inflation (a worse-than-expected January CPI report ) and more problems in the troubled financial sector (KKR Financial Holdings delayed repayment of its asset-backed commercial paper debt and is in restructuring talks with creditors). Stock prices turned up both before and after the much anticipated release of the 1/29/08 FOMC Minutes, which were interpreted as leaning toward further interest rate cuts. Volume on the NYSE rose 7%, reflecting stronger demand for stocks.
The market certainly 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, most of the data seems to indicate that underlying fundamental trends may be deteriorating. There has been a sense that big problems are already baked into the cake, in the pipeline, and it is to late to do much about them. On the other hand, on some days at least, there still seems to be hope that the government or somebody (PLEASE!) might come up with an effective solution to the ongoing financial crisis. The markets vacillate back and forth between these opposing points of view day to day, depending on the news and rumors of the day, which leak out bit by bit, seemingly at random. This makes for a high-risk environment for stock trading, both for longs and for shorts. You don’t know what will hit next.
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
0.70% , FDV , Value 40 Large Low P/E FT DB, FDV
1.03% , IXG , Financials Global LargeCap Value, IXG
5.10% , OMX , OFFICEMAX INC., OMX
5.94% , NYT , NY TIMES STK A
5.67% , UIS , UNISYS
1.85% , ADRA , Asia 50 BLDRS, ADRA
1.72% , IXC , Energy Global, IXC
4.45% , WYE , WYETH
5.47% , MU , MICRON TECH
4.27% , PHM , PULTE HOMES
3.61% , TAP , ADOLPH COORS STK B, TAP
4.54% , KG , KING PHARM
3.42% , PXE , Energy Exploration & Prod, PXE
0.63% , PUI , Utilities, PUI
3.40% , DHI , D.R. HORTON, DHI
1.35% , EZU , EMU Europe Index, EZU
2.95% , HSY , HERSHEY FOODS
2.50% , SIAL , SIGMA ALDRICH
1.30% , EWU , United Kingdom Index, EWU
4.75% , GRMN , GARMIN LTD
4.92% , MHS , MEDCO HEALTH
1.24% , ADRU , Europe 100 BLDRS, ADRU
1.48% , ACV , Alberto-Culver Co.
2.79% , ADM , ARCHER DANIELS
5.22% , PTEN , Patterson-UTI Energy Inc
2.27% , EZA , South Africa Index, EZA
2.66% , X , US STEEL CORP
2.51% , ILF , Latin Am 40, ILF
5.52% , SANM , SANMINA
1.39% , ADRE , Emerging 50 BLDRS, ADRE
1.53% , EWG , Germany Index, EWG
1.91% , SNPS , Synopsys Inc
3.42% , NOV , NATIONAL OILWELL VARC0
2.32% , FRX , FOREST LABS STK A
6.38% , STLD , Steel Dynamics, STLD
2.73% , GLD , Gold Shares S.T., GLD
4.10% , FMCN , Focus Media, FMCN
3.06% , ESRX , EXPRESS SCRIPTS
0.90% , PKB , Building & Construction, PKB
3.22% , DVN , DEVON ENERGY
2.39% , ASH , ASHLAND
0.91% , ACS , AFFILIATED COMPUTER
4.16% , BHI , BAKER HUGHES
2.37% , EWN , Netherlands Index, EWN
3.03% , NUE , NUCOR
5.41% , NEM , NEWMONT MINING
3.29% , XLE , Energy SPDR, XLE
5.11% , FCX , FREEPRT MCMORAN STK B
2.98% , SUN , SUNOCO
3.79% , USO , Oil, Crude, U.S. Oil Fund, USO
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-4.89% , TTH , Telecom H, TTH
-6.58% , VZ , VERIZON COMMS
-8.66% , DDS , DILLARD STK A
-1.03% , TBH , Telebras HOLDRS, TBH*
-5.25% , T , AT&T Corp., T
-2.41% , IXP , Telecommunications Global, IXP
-3.54% , IYZ , Telecom DJ US, IYZ
-3.75% , GPC , GENUINE PARTS
-0.53% , IIH , Internet Infrastructure H, IIH
-3.08% , LPX , LOUISIANA PAC
-6.30% , APOL , APOLLO GROUP
-3.74% , HMA , HEALTH MGMT STK A
-5.20% , BRCM , BROADCOM STK A
-2.53% , GNTX , Gentex Corporation
-1.83% , JNS , JANUS CAPITAL
-4.44% , SOV , SOVEREIGN BANC
-3.55% , S , SPRINT NEXTEL
-2.72% , MAS , MASCO
-4.72% , SCHW.O , CHARLES SCHWAB
-2.67% , KEY , KEYCORP
-3.71% , EMC , EMC
-2.38% , NCC , NATIONAL CITY
-1.17% , IAH , Internet Architecture H, IAH
-2.94% , AMAT , APPLIED MATERIAL
-2.48% , AIV , APT INV MNGMT
-3.94% , JWN , NORDSTROM
-1.33% , PGN , PROGRESS ENERGY
-3.91% , GOOG , Google
-0.86% , PEY , Dividend High Yield Equity PS, PEY
-0.78% , VFH , Financials VIPERs, VFH
-1.09% , DGX , QUEST DIAG
-0.62% , TNB , THOMAS & BETTS
-0.42% , IGV , Software, IGV
-2.03% , KLAC , KLA TENCOR
-1.64% , UNP , UNION PACIFIC
-1.25% , AOC , AON
-1.35% , NSC , NORFOLK SOUTHERN
-1.79% , CSCO , CISCO SYSTEMS
-0.89% , IYW , Technology DJ US, IYW
-0.38% , BDH , Broadband H, BDH
-3.94% , FITB , FIFTH THIRD BANC
-2.42% , RIMM , RESEARCH IN MOTION LTD
-2.61% , COH , COACH
-2.39% , HAS , HASBRO
-0.63% , HSP , HOSPIRA
-1.20% , SYMC , SYMANTEC
-1.66% , MCHP , Microchip Technology Incorporated
-2.65% , TIF , TIFFANY
-2.46% , BIIB , BIOGEN IDEC
-0.43% , IYC , Consumer Cyclical DJ, IYC
Sectors: among the 9 major U.S. sectors, 7 rose and 2 fell.
Major Sectors Ranked for the Day
% Price Change Sector
1.50% Financial
1.38% Consumer Discretionary
1.20% Energy
0.58% Materials
0.32% Industrial
0.20% Utilities
0.18% Technology
-0.30% Health Care
-2.12% Consumer Staples
Energy (XLE) Neutral, Market Weight. On 2/20/08, the XLE/SPY Relative Strength Ratio rose to new all-time high, confirming a major uptrend.
Materials (XLB) Neutral, Market Weight. On 2/20/08, the XLB/SPY Relative Strength Ratio rose to a new all-time high, confirming a major uptrend.
Consumer Staples (XLP) Neutral, Market Weight. On 1/17/08, the XLP/SPY Relative Strength Ratio rose to new 3-year high, confirming a major uptrend.
Utilities (XLU) Neutral, Market Weight. On 1/9/08, the XLU/SPY Relative Strength Ratio rose to new all-time high, confirming a major uptrend.
Industrial (XLI) Neutral, Market Weight. On 2/13/08, the XLI/SPY Relative Strength Ratio made a new all-time high, confirming a major uptrend.
Health Care (XLV) Neutral, Market Weight. On 1/17/08, the XLV/SPY Relative Strength Ratio rose to new 2-year high, confirming a significant uptrend.
Consumer Discretionary (XLY) Bearish, Underweight. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to a new 6-year low, confirming a major downtrend.
Technology (XLK) Bearish, Underweight. On 2/20/08, the XLK/SPY Relative Strength Ratio fell to a new 8-month low, confirming a significant downtrend.
Financial (XLF) Bearish, Underweight. On 1/8/08, the XLF/SPY Relative Strength Ratio fell to a new 7-year low, confirming a major downtrend.
Foreign stock indexes turned up in recent days but 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 2/19/08, Relative Strength fell to a new 8-month low, confirming a significant downtrend.
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 may be finding resistance just above 100. The April futures contract price hit 100.86 intraday but closed at 99.70. Although the major trend is up, big round numbers such as 100 sometimes function as resistance. 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 (April futures contract) jumped up to a new all-time high, thereby confirming once again that Gold’s main trend remains Bullish.
Silver’s main trend is Bearish compared to Gold. The iShares Silver Trust (AMEX: SLV) has outperformed Gold 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 28 years, since 1/2/80, Silver has underperformed Gold. So long term, Silver is tarnished.
The Gold Miners ETF (GDX) has underperformed Gold futures significantly since 10/31/07. GDX is Bearish relative to Gold itself.
Inflation expectations rose sharply over the past 3 trading days. Previously, expectations had been trending down since 11/12/07, based on the behavior of the ratio of two ETFs, TIP/IEF. Clearly, this seems odd in light of rising commodity prices.
U.S. Treasury Bond prices rose moderately, after falling to a new 7-week low within their ongoing downtrend on 2/19/08. Bonds generally have been 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 attempted to rally but gave up most of its gain to close only slightly higher. The intermediate-term trend since late November appears choppy and sideways. November and January price lows at 74.50 and 74.66 might be watched for potential support. The main long-term trend remains Bearish.
The Art of Contrary Thinking: The mood has been moving toward pessimism as stock prices moved lower. But sentiment is not yet at 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 rose last week. According to the weekly Investors Intelligence newsletter survey as of 2/22/08, there were 41.6% Bulls and 33.7% Bears. The ratio of Bullish advisors to Bearish advisors rose to 1.23, up from 1.03 to 1 the previous week. Still, 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 24.40, 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 27.09, 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.
CBOE Put/Call Ratio is 0.70, which indicates moderately Bearish sentiment. Its 4-year simple moving average and median are 0.62, and its 4- year range is 0.35 to 1.28.
ISEE Call/Put Ratio is 1.01, 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.
2.74% Semiconductors
2.46% Hardware
2.42% Disk Drives
2.33% Broker Dealers
2.15% Oil Services
2.06% Retailers
1.86% Gold Mining
1.78% Natural Gas
1.72% Computer Tech
1.70% REITs
1.61% Banks
1.50% Financial
1.50% Canada
1.46% Commodity Related
1.42% Mexico
1.38% Consumer Discretionary
1.37% S&P Mid Caps
1.28% Nasdaq 100
1.22% DOT
1.20% S&P Small Caps
1.20% Energy
1.12% Austria
1.09% Russell 2000
1.06% Internet
1.04% Value Line
1.00% Belgium
0.91% Nasdaq Composite
0.89% Chemicals
0.87% Dow Transports
0.87% Russell 3000
0.85% Russell 1000
0.85% Airlines
0.84% Insurance
0.83% S&P 500
0.83% Wilshire 5000
0.77% AMEX Composite
0.77% Oil
0.73% Dow Industrial
0.63% S&P 100
0.63% Dow Composite
0.58% Materials
0.56% NYSE Composite
0.42% Taiwan
0.42% Canadian Dollar
0.39% Sweden
0.32% Industrial
0.30% Italy
0.20% Utilities
0.18% Technology
0.15% France
0.14% US Dollar Index
0.11% Netherlands
0.03% Hospitals
0.02% Dow Utilities
-0.05% Hong Kong
-0.06% Health Care
-0.12% Spain
-0.13% 30Y T-Bond
-0.18% Euro Index
-0.22% Health Care Products
-0.22% Germany
-0.23% United Kingdom
-0.27% Biotechs
-0.29% British Pound
-0.30% Health Care
-0.30% Malaysia
-0.31% Australian Dollar
-0.33% Paper
-0.33% Switzerland
-0.41% Drugs
-0.47% Japanese Yen
-0.49% Swiss Franc
-0.56% Singapore
-0.64% Network
-0.82% South Korea
-1.19% Australia
-2.07% Japan
-2.12% Consumer Staples
