By Robert W. Colby, Senior Analyst TraderPlanet.com
Inflation and Recession are reflected in the stock action.
Energy and Materials Stock Sectors’ Relative Strength both rose to new highs, thereby confirming existing uptrends.
Financial, Consumer Discretionary, Technology, and Health Care remain relatively weak.
Oil, Gold, and the CRB commodity price index made a new all-time price highs.
The U.S. dollar dropped to another new low.
On Thursday, major stock price indexes fell on news that Fed Chairman Ben Bernanke told the Senate Banking Committee that smaller U.S banks may fail. In addition, Moody’s downgraded ratings on regional banks, citing risky exposure to commercial real estate. Volume on the NYSE fell 1%, suggesting waning demand for stocks.
Market action has been choppy and erratic in recent weeks. 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
18.03% , EOG , EOG RESOURCES
7.57% , HSP , HOSPIRA
7.88% , FLR , FLUOR
5.15% , APA , APACHE
3.81% , GILD , Gilead Sciences Inc
4.02% , HAL , HALLIBURTON
1.69% , LXK , LEXMARK INTL STK A
3.36% , FMCN , Focus Media, FMCN
5.34% , DVN , DEVON ENERGY
4.91% , SANM , SANMINA
1.36% , TTH , Telecom H, TTH
2.49% , NBR , NABORS
2.17% , VZ , VERIZON COMMS
1.94% , CTB , COOPER TIRE
1.16% , MYY , Short 100% MidCap 400, MYY
2.74% , ADM , ARCHER DANIELS
2.16% , T , AT&T Corp., T
0.92% , MIL , MILLIPORE
3.05% , NE , NOBLE
2.52% , APC , ANADARKO PETRO
1.81% , EP , EL PASO
2.79% , SLV , Silver Trust iS, SLV
1.42% , PXJ , Oil & Gas, PXJ
1.78% , TLT , Bond, 20+ Years Treasury, TLT
5.65% , AAPL , APPLE COMPUTER
1.17% , IEF , Bond, 10 Year Treasury, IEF
1.46% , KG , KING PHARM
1.66% , BJS , BJ SERVICES
0.52% , VMC , VULCAN MATERIALS
0.44% , EWK , Belgium Index, EWK
3.21% , PTEN , Patterson-UTI Energy Inc
0.38% , CEPH , Cephalon Inc
0.58% , WFMI , Whole Foods Market Inc
1.59% , TAP , ADOLPH COORS STK B, TAP
1.19% , WMB , WILLIAMS
1.01% , BA , BOEING
1.00% , IAU , Gold COMEX iS, IAU
0.48% , DELL , DELL
2.56% , STLD , Steel Dynamics, STLD
1.45% , BUD , ANHEUSER BUSCH
2.82% , NEM , NEWMONT MINING
1.63% , SLB , SCHLUMBERGER
1.28% , GLD , Gold Shares S.T., GLD
0.89% , ITW , ILLINOIS TOOL
0.96% , DBC , Commodity Tracking, DBC
0.76% , GENZ , GENZYME GEN
1.15% , ORCL , ORACLE
0.49% , DTE , DTE ENERGY
0.54% , BHI , BAKER HUGHES
2.49% , X , US STEEL CORP
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-9.61% , S , SPRINT NEXTEL
-8.52% , MYL , MYLAN LABS
-11.06% , LTD , LIMITED BRANDS
-7.75% , JBL , JABIL CIRCUIT
-6.98% , CC , CIRCUIT CITY STR
-0.57% , TMW , Wilshire 5000 ST TM, TMW
-6.98% , DDS , DILLARD STK A
-4.41% , MOT , MOTOROLA
-1.59% , RFG , Growth MidCap S&P 400, RFG
-5.71% , RFMD , RF Micro Devices Inc
-4.18% , VLO , VALERO ENERGY
-0.75% , FPX , IPOs, First Tr IPOX-100, FPX
-2.42% , IGN , Networking, IGN
-1.82% , PXQ , Networking, PXQ
-1.41% , VB , Small Cap VIPERs, VB
-1.10% , DSV , Value Small Cap DJ, DSV
-6.01% , TIN , TEMPLE INLAND
-6.31% , WM , WASHINGTON MUT
-5.02% , CAR , Avis Budget Group, Inc. (CAR)
-3.63% , MV , METAVANTE TECHNOLOGIES, MV
-5.51% , RF , REGIONS FINAN
-1.57% , IJS , Value SmallCap S&P 600 B, IJS
-4.45% , PFG , PRINCIPAL FINL
-4.79% , GCI , GANNETT
-1.11% , PFM , Dividend Achievers PS, PFM
-1.27% , PWT , Growth SmallCap Dynamic PS, PWT
-3.47% , GNW , GENWORTH FINANCIAL (NYSE:GNW)
-4.44% , NTAP , NETWK APPLIANCE
-2.70% , CI , CIGNA
-4.26% , AMZN , Amazoncom Inc
-1.74% , VBR , Value SmallCap VIPERS, VBR
-2.26% , SYY , SYSCO
-0.58% , UTH , Utilities H, UTH
-2.88% , BMC , BMC SOFTWARE
-3.46% , SSCC , Smurfit-Stone Container Corporation
-4.11% , HOT , STARWOOD HOTELS
-0.56% , PXN , Nanotech Lux, PXN
-1.92% , APD , AIR PRODS & CHEM
-4.87% , CVG , CONVERGYS
-1.90% , IYC , Consumer Cyclical DJ, IYC
-2.38% , PTV , PACTIV
-3.40% , CB , CHUBB
-1.75% , DUK , DUKE ENERGY
-4.47% , CMA , COMERICA
-2.11% , SNPS , Synopsys Inc
-3.33% , KCE , Capital Markets KWB ST, KCE
-1.80% , RFV , Value MidCap S&P 400, RFV
-2.41% , ROK , ROCKWELL AUTOMAT
-2.22% , JKL , Value SmallCap iS M, JKL
-3.86% , CIT , CIT GROUP
Sectors: among the 9 major U.S. sectors, 2 rose and 7 fell .
Major Sectors Ranked for the Day
% Price Change Sector
1.72% Energy SPDR, XLE
0.18% Consumer Staples SPDR, XLP
-0.54% Materials SPDR, XLB
-0.67% Utilities SPDR, XLU
-0.72% Industrial SPDR, XLI
-1.16% Health Care SPDR, XLV
-1.27% Technology SPDR, XLK
-2.37% Consumer Discretionary SPDR, XLY
-3.12% Financial SPDR, XLF
Energy (XLE) Neutral, Market Weight. On 2/28/08, the XLE/SPY Relative Strength Ratio rose to new all-time high, confirming a major uptrend.
Materials (XLB) Neutral, Market Weight. On 2/28/08, 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 (April futures contract) rose to another new all-time high, thereby confirming once again that Crude Oil’s price trends remain Bullish 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, and that uptrend is accelerating. 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.
The Gold Miners ETF (GDX) has outperformed Gold futures somewhat short-term, since 2/7/08, but still significantly underperformed Gold since 10/31/07. Therefore, longer-term, GDX is Bearish relative to Gold itself.
U.S. Treasury Bond prices jumped sharply higher, turning the short-term trend Bullish. This trend looks like it has room to run up. 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 to another new low, thereby confirming its downtrend in all time frames. 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 23.53, 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 26.60, 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 0.97, which indicates 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 0.97, 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 (1,367.68):
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
1,396.02, high of 2/1/2008
1,388.34, high of 2/27/2008
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 (1,367.68):
Potential Support
1,327.04, low of 2/22/2008
1,316.75, low of 2/7/2008
1,270.05, low of 1/23/2008
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
