By Robert W. Colby, Senior Analyst TraderPlanet.com
Disappointing action, relative to the news.
Market action seemed disappointing relative to the news of the day.
The rally quickly stalled out, and eventually stocks gave up all their gain.
The U.S. dollar dropped to another new low.
On Wednesday, major stock price indexes rose on news that the Office of Federal Housing Enterprise Oversight (OFHEO) will remove the portfolio growth caps for both Fannie Mae and Freddie Mac, effective March 1st, in an effort to boost capital availability in the secondary mortgage market. The rally quickly stalled out, and eventually stocks gave up all the gain. Volume on the NYSE fell 5%, suggesting waning demand for stocks.
Market action seemed disappointing relative to the news of the day, which seemed aimed at helping alleviate some of the ongoing financial crisis. Most days, the stock market has been quite reactive to the news, rumors, and “reports” of the day. Many of these “reports” never pan out, but they do contribute to unpredictable volatility. 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 already are baked into the cake, in the pipeline, and it is too late to do much about them. On the other hand, on some days at least, there still seems to be hope that somebody 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
1.44% , XSD , Semiconductor SPDR, XSD
10.26% , DLTR , Dollar Tree Stores Inc
0.71% , EWQ , France Index, EWQ
1.42% , EWL , Switzerland Index, EWL
3.41% , ISIL , INTERSIL CORP
1.38% , BEAS , BEA Systems Inc
0.77% , IGM , Technology GS, IGM
1.11% , FNM , FANNIE MAE
0.79% , EWI , Italy Index, EWI
1.74% , ILF , Latin Am 40, ILF
0.96% , EWP , Spain Index, EWP
0.64% , ADRA , Asia 50 BLDRS, ADRA
4.18% , TBH , Telebras HOLDRS, TBH*
6.47% , JNPR , Juniper Networks Inc
1.63% , NOC , NORTHROP GRUMMAN
4.69% , GS , GOLDMAN SACHS
1.50% , PGJ , China LargeCap Growth G D H USX PS, PGJ
3.66% , CSCO , CISCO SYSTEMS
2.45% , LBTYA , Liberty Global Inc. (LBTYA)
3.29% , FXI , China 25 iS, FXI
3.09% , BIG , BIG LOTS
2.15% , HUM , HUMANA
2.87% , SLV , Silver Trust iS, SLV
1.60% , PH , PARKER HANNIFIN
2.24% , ZION , ZIONS
3.29% , FCX , FREEPRT MCMORAN STK B
0.57% , EWD , Sweden Index, EWD
0.72% , CFC , COUNTRYWIDE FNCL
2.66% , PRU , PRUDENTIAL FINL
2.59% , WHR , WHIRLPOOL
2.43% , IFF , INTL FLAV & FRAG
1.81% , MU , MICRON TECH
0.34% , DGT , Global Titans, DGT
1.58% , JPM , J P MORGAN CHASE
1.80% , MI , MARSHAL & ILSLEY
2.53% , LLTC , LINEAR TECH
1.53% , GNTX , Gentex Corporation
4.08% , DHI , D.R. HORTON, DHI
5.31% , LVLT , LEVEL 3 COMMUNICATIONS
1.74% , MRO , MARATHON OIL
1.31% , LSI , LSI LOGIC
3.48% , RIMM , RESEARCH IN MOTION LTD
1.86% , NEM , NEWMONT MINING
1.97% , EWZ , Brazil Index, EWZ
1.42% , EWW , Mexico Index, EWW
1.53% , EWH , Hong Kong Index, EWH
0.46% , ECL , ECOLAB
1.13% , IAU , Gold COMEX iS, IAU
0.98% , CVG , CONVERGYS
1.72% , BC , BRUNSWICK
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-5.35% , NIHD , NII Holdings, Inc.
-2.28% , BIIB , BIOGEN IDEC
-0.31% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-5.26% , XMSR , XM Satellite R
-0.34% , IEV , Europe 350 S&P Index, IEV
-0.86% , EWS , Singapore Index, EWS
-2.80% , BCR , C R BARD
-2.40% , XLU , Utilities SPDR, XLU
-2.96% , COST , COSTCO WHOLESAL
-0.97% , WLP , WELLPOINT HEALTH
-2.05% , MRK , MERCK & CO
-1.29% , IYT , Transportation Av DJ, IYT
-3.05% , IGT , INTL GAME TECH
-1.85% , SYK , STRYKER
-3.66% , S , SPRINT NEXTEL
-1.98% , MCD , MCDONALDS
-3.10% , HES , AMERADA HESS
-0.54% , EWJ , Japan Index, EWJ
-2.38% , PEG , PUBL SVC ENTER
-2.55% , AMGN , AMGEN
-2.28% , SWY , SAFEWAY
-0.48% , FRE , FREDDIE MAC
-2.40% , AYE , ALLEGHENY ENERGY
-1.70% , AGN , ALLERGAN
-2.01% , DHR , DANAHER
-1.22% , VOX , Telecom Services VIPERs, VOX
-1.66% , MRVL , MARVELL TECHNOLOGY
-1.02% , PKB , Building & Construction, PKB
-0.85% , SOV , SOVEREIGN BANC
-2.55% , CEG , CONSTELL ENERGY
-2.02% , SUN , SUNOCO
-2.02% , DTE , DTE ENERGY
-2.67% , ETR , ENTERGY
-1.85% , ABT , ABBOTT LABS
-3.91% , AN , AUTONATION
-2.50% , EIX , EDISON INTL
-6.80% , ODP , OFFICE DEPOT
-0.21% , EFV , Value EAFE MSCI, EFV
-1.65% , HSIC , Henry Schein Inc
-0.90% , MYL , MYLAN LABS
-0.42% , IXC , Energy Global, IXC
-0.19% , RPG , Growth S&P 500, RPG
-0.26% , IWB , LargeCap 1000 R, IWB
-1.23% , VIA.B , VIACOM STK B
-2.46% , WYNN , Wynn Resorts L
-3.19% , CBS , CBS CORP.
-0.53% , EWU , United Kingdom Index, EWU
Sectors: among the 9 major U.S. sectors, 4 rose and 5 fell .
Major Sectors Ranked for the Day
% Price Change Sector
0.45% Health Care SPDR, XLV
0.44% Financial SPDR, XLF
0.19% Industrial SPDR, XLI
0.09% Technology SPDR, XLK
-0.02% Materials SPDR, XLB
-0.21% Consumer Discretionary SPDR, XLY
-1.30% Energy SPDR, XLE
-1.36% Consumer Staples SPDR, XLP
-2.40% Utilities SPDR, XLU
Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):
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.
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.
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.
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 2/21/08, the XLY/SPY Relative Strength Ratio fell to a new 3-week low, suggesting short-term weakness. 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 have been relatively strong since 2/11/08, when Relative Strength of EFA/SPY turned up after making a new 13-month low. Despite this upturn, the EFA (the EAFE, international developed country stock markets (ex the U.S. and Canada) still has 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 eased moderately lower in normal profit taking. Crude Oil has confirmed its major uptrend repeatedly, and in all time frames. 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) rose to another new all-time high, thereby confirming once again that Gold’s price trends remain Bullish in all time frames.
Silver outperformed Gold since 12/14/07. But still iShares Silver Trust (AMEX: SLV) 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 relative to Gold.
The Gold Miners ETF (GDX) has underperformed Gold futures significantly since 10/31/07. GDX is Bearish relative to Gold itself.
U.S. Treasury Bond prices stabilized within their downtrend. 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 dropped sharply to a new low, thereby confirming its downtrend in all time frames. It broke November and January price lows at 74.50 and 74.66. All trends are Bearish.
The Art of Contrary Thinking: The mass mood naturally has been lifting somewhat as stock prices inch higher. Sentiment never reached 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 22.69, 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 25.06, 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 0.74, 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 0.98, 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.
To discover the next Resistance, traders probably will be watching how the market acts at the following levels for the Standard & Poor’s 500 cash index (1,380.02):
Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,403.45, low of 1/7/2008
1,385.62, high of 2/1/2008
To discover the next Support, traders probably will be watching how the market acts at the following levels for the S&P 500 cash index (1,380.02):
Potential Support
1,270.05, low of 1/23/2008
1,261.30, low of 8/10/2006
1,224.54, low of 7/18/2006
1,219.29, low of 6/14/2006
1,214.45, low of 11/4/2005
1,201.07, low of 11/2/2005
1,168.20, low of 10/13/2005
1,163.23, high of 3/5/2004
1,159.86, low of 5/17/2005
1,153.64, low of 5/16/2005
1,146.18, low of 5/13/2005
1,139.14, low of 4/29/2005
1,136.37, low of 4/20/2005
