By Robert W. Colby, Senior Analyst TraderPlanet.com
Bear Trend Confirmed…but…
Down 7 of the past 8 trading days, some might say the market is getting oversold. But then again, sentiment never really reached levels associated with extreme pessimism, so the market could get more oversold.
Dow Industrials, S&P 500, and NASDAQ broke down to new 17-month lows, based on closes only, thereby confirming Bearish price downtrends in all significant time frames.
Consumer Staples Stock Sector Relative Strength Ratio rose to a new high. This is a “defensive” sector, relatively immune to recessions.
On Friday, the major stock price indexes opened lower, bounced sharply upward, then chopped irregularly lower most of the day. Prices made a low at 2:37 p.m., recovered fractionally late in the session, but still closed broadly lower.
NYSE volume rose 6%, thereby confirming Bearish price downtrends in all significant time frames. The volume of declining stocks was more than 2 times the volume of advancing stocks, indicating net selling pressure on balance.
In Friday’s news, nonfarm payrolls fell by 63,000, the largest decline in 5 years. The Fed increased its Term Auction Facility (TAF) to $100 billion. Thornburg Mortgage’s margin calls exceeded liquidity by $610 million. Washington Mutual reportedly was seeking a capital from private equity and sovereign-wealth funds. Stocks in the Materials Sector were downgraded by a brokerage firm.
Technically, all trends are down for the broad-based stock price indexes. Most days, the stock market has been quite reactive to the news, rumors, and “reports” of the day. News reports have been contributing to unpredictable volatility in recent months. This makes for a high-risk environment for stock trading, both for longs and for shorts. Be nimble. Be quick.
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
28.03% , ABK , AMBAC FINL GRP
11.47% , CIEN.O , CIENA
11.69% , NSM , NATL SEMICONDUCT
1.61% , DOG , Short 100% Dow 30, DOG
1.35% , SH , Short 100% S&P 500, SH
0.35% , BBH , Biotech H, BBH
1.11% , MYY , Short 100% MidCap 400, MYY
2.39% , DXD , Short 200% Dow 30 PS, DXD
1.91% , KR , KROGER
1.80% , MTB , M&T BANK
1.49% , MZZ , Short 200% MidCap 400 PS, MZZ
1.65% , ZION , ZIONS
1.47% , PCG , PG&E
1.64% , SDS , Short 200% S&P 500 PS, SDS
1.33% , ICF , Realty Cohen & Steers, ICF
2.01% , PNC , PNC FINL SVC
1.75% , XLNX , XILINX
2.42% , CECO , CAREER EDUCATION CORP
1.52% , EP , EL PASO
0.91% , BBT , BB&T
2.58% , LLTC , LINEAR TECH
2.43% , ADI , ANALOG DEVICES
1.53% , KLAC , KLA TENCOR
2.15% , KEY , KEYCORP
1.76% , MAS , MASCO
2.16% , ABC , AMERISOURCEBERGN
1.72% , RWR , REIT Wilshire, RWR
1.29% , FITB , FIFTH THIRD BANC
1.24% , PEY , Dividend High Yield Equity PS, PEY
0.67% , SMH , Semiconductor H, SMH
2.15% , AMZN , Amazoncom Inc
1.90% , SNV , SYNOVUS
0.89% , RKH , Bank Regional H, RKH
2.02% , COF , CAPITAL ONE FNCL
1.01% , WFC , WELLS FARGO
3.10% , CMA , COMERICA
0.74% , MO , ALTRIA GROUP
0.96% , TMK , TORCHMARK
1.36% , EQR , EQUITY RESIDENT BEN INT
0.59% , PIC , Insurance, PIC
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-2.07% , EWI , Italy Index, EWI
-8.93% , WM , WASHINGTON MUT
-2.43% , PWJ , Growth Mid Cap Dynamic PS, PWJ
-5.92% , BRCM , BROADCOM STK A
-1.98% , VDE , Energy VIPERs, VDE
-4.31% , CMI , CUMMINS
-1.34% , EWQ , France Index, EWQ
-1.74% , EWO , Austria Index, EWO
-3.54% , ROH , ROHM & HAAS
-2.71% , DISCA , Discovery Holding Co.
-3.72% , WOR , WORTHINGTON INDS
-0.51% , VDC , Consumer Staples VIPERs, VDC
-1.49% , FPX , IPOs, First Tr IPOX-100, FPX
-3.66% , BA , BOEING
-3.37% , VAW , Materials VIPERs, VAW
-1.72% , EWD , Sweden Index, EWD
-3.27% , VRSN , VeriSign Inc
-3.96% , IYM , Basic Materials DJ US, IYM
-4.19% , XLB , Materials SPDR, XLB
-1.67% , PZI , Micro Cap Zachs, PZI
-6.96% , MON , MONSANTO
-2.79% , SYK , STRYKER
-2.30% , RHI , ROBERT HALF
-0.56% , EWN , Netherlands Index, EWN
-5.27% , DE , DEERE & CO
-0.81% , PHW , Hardware & Electronics, PHW
-1.49% , VIS , Industrials VIPERs, VIS
-4.61% , AA , ALCOA
-3.20% , HOLX , Hologic, Inc., HOLX
-3.48% , AET , AETNA
-0.37% , IGN , Networking, IGN
-3.15% , AVP , AVON
-5.03% , MRVL , MARVELL TECHNOLOGY
-1.03% , FDV , Value 40 Large Low P/E FT DB, FDV
-1.10% , VBK , Growth SmallCap VIPERs, VBK
-1.19% , EWL , Switzerland Index, EWL
-1.29% , EFV , Value EAFE MSCI, EFV
-4.94% , ATI , ALLEGHENY TECH
-3.39% , XME , Metals & Mining SPDR, XME
-3.14% , RSH , RADIOSHACK
Sectors: among the 9 major U.S. sectors, 1 rose, 7 fell, and 1 was unchanged .
Major Sectors Ranked for the Day
% Price Change Sector
0.21% Financial SPDR, XLF
0.00% Technology SPDR, XLK
-0.48% Consumer Staples SPDR, XLP
-0.63% Utilities SPDR, XLU
-0.95% Consumer Discretionary SPDR, XLY
-1.15% Health Care SPDR, XLV
-1.44% Industrial SPDR, XLI
-2.76% Energy SPDR, XLE
-4.19% Materials SPDR, XLB
Energy (XLE) Neutral, Market Weight. On 3/6/08, the XLE/SPY Relative Strength Ratio rose to new all-time high, confirming a major uptrend.
Materials (XLB) Neutral, Market Weight. On 3/6/08, the XLB/SPY Relative Strength Ratio rose to a new all-time high, confirming a major uptrend.
Consumer Staples (XLP) Neutral, Market Weight. On 3/7/08, the XLP/SPY Relative Strength Ratio rose to new 4-year high.
Utilities (XLU) Neutral, Market Weight. The XLU/SPY Relative Strength Ratio has eroded significantly since its all-time high on 1/9/08, and so Utilities have been slipping in these rankings.
Industrial (XLI) Neutral, Market Weight. On 3/6/08, the XLI/SPY Relative Strength Ratio made a new all-time high.
Health Care (XLV) Neutral, Market Weight. The XLV/SPY Relative Strength Ratio has eroded significantly since its 2-year high on 1/17/08, and so XLV has been slipping in these rankings.
Technology (XLK) Bearish, Underweight. On 2/25/08, the XLK/SPY Relative Strength Ratio fell to a new 10-month low, confirming a significant downtrend.
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.
Financial (XLF) Bearish, Underweight. On 3/6/08, the XLF/SPY Relative Strength Ratio fell to a new 7-year low, and price fell to a new 5-year low.
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 3/3/08, Relative Strength fell to a new 9-month low, confirming a significant downtrend.
Growth Stock/Value Stock Relative Strength Ratio has recovered significantly from a low on 2/1/08 but still has underperformed since the peak on 11/7/07. The Growth/Value ratio (IWF/IWD) appears to be in an intermediate-term uncertain 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) pulled back slightly but the trends are Bullish. 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) pulled back slightly but the trends are Bullish.
Silver outperformed Gold since 12/14/07, and recently that uptrend has been accelerating. Although Silver has been strong over this intermediate term, iShares Silver Trust (AMEX: SLV) has been relatively weak compared to Gold longer term, 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 recovered moderately over the past 2 days. Bonds’ price trends seem uncertain. One thing seems clear: U.S. governments are stronger than corporates. 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 has repeatedly confirmed its downtrend in all time frames. All trends are Bearish.
The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood of late. Beyond the day-to-day swings, sentiment never really reached levels associated with extreme pessimism. So, crowd psychology could get more Bearish before it is over. The business and financial news has flipped from fear to hope and back again every few days. Investors’ moods and stock volatility have jumped up and down abruptly with the latest “reports”. When mass psychology shifts so dramatically and unpredictably from hope to fear 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 3/5/08, there were 41.9% Bulls and 36.6% Bears. The ratio of Bullish advisors to Bearish advisors fell to 1.14, up from 1.15 to 1 the previous week. 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 27.49, 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 29.25, 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 1.12, 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 0.78, 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.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
1.54% REITs
0.56% Banks
0.40% 30Y T-Bond
0.29% Comp. Tech
0.20% Broker Dealers
-0.06% Taiwan
-0.15% Internet
-0.17% Telecoms
-0.17% Malaysia
-0.26% Dow World Index
-0.27% Belgium
-0.29% Nasdaq 100
-0.31% Mexico
-0.33% DOT
-0.36% Nasdaq Composite
-0.36% Dow Utilities
-0.39% Transport
-0.40% Russell 2000
-0.40% Utilities
-0.51% S&P Small Caps
-0.56% Netherlands
-0.58% Retailers
-0.59% Toronto 300
-0.60% United Kingdom
-0.64% Spain
-0.74% Drugs
-0.75% Natural Gas
-0.78% S&P 100
-0.84% Dow Transports
-0.84% Russell 3000
-0.84% Singapore
-0.88% Russell 1000
-0.93% Dow Composite
-0.97% Disk Drives
-0.99% Hardware
-1.02% NYSE Composite
-1.04% Euro Top 100
-1.08% Canada
-1.10% Health Care
-1.15% London FTSE
-1.17% German DAX
-1.19% Switzerland
-1.26% Hospitals
-1.26% French CAC
-1.34% AMEX Composite
-1.34% France
-1.48% Oil
-1.48% Japan
-1.50% Germany
-1.51% CDNX Composite
-1.72% Sweden
-1.73% South Korea
-1.74% Austria
-1.86% Brazil
-1.96% Hong Kong
-2.07% Italy
-2.29% Australia
-2.34% Commodities
-2.37% Paper
-2.95% Sydney All Ords
-3.08% Gold
-3.27% Tokyo Nikkei
-3.60% Hang Seng
-4.15% Chemicals
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
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
