By Robert W. Colby, Senior Analyst TraderPlanet.com
Every trend has counter-trend corrections.
Oversold bounces have been common but temporary.
Sentiment has been Bearish, so there might be enough fuel for somewhat higher price levels on this bounce–barring fresh bad news.
The U.S. dollar also bounced from new all-time lows.
Gold corrected downward from new all-time highs.
Industrial Stock Sector Relative Strength Ratio rose to another new all-time high, again confirming a Bullish trend relative to the all-sectors index.
But NYSE volume fell by 6%. Still, the volume of advancing stocks was 216% greater than the volume of declining stocks, indicating net buying pressure on balance.
Every trend has counter-trend corrections. The main technical trend is still down for the broad-based stock price indexes. There are still a lot of fundamental problems, such as financial crisis, soaring commodity price inflation, and economic contraction. But some days those problems are pushed aside by hope for some kind of a rescue, from the government or big investors. Day to day, the stock market has been quite reactive to the news, rumors, and “reports” of the day, which have been plentiful but not always accurate. These “reports” strike at any unpredictable moment, like a bolt out of the blue, disrupting trends and making short-term trading risky. In such a shifty market, be nimble, be quick, and control your risk.
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
4.72% , FPX , IPOs, First Tr IPOX-100, FPX
2.58% , RFV , Value MidCap S&P 400, RFV
4.21% , VIS , Industrials VIPERs, VIS
2.89% , XSD , Semiconductor SPDR, XSD
27.06% , FNM , FANNIE MAE
4.53% , PKB , Building & Construction, PKB
4.10% , MTK , Technology MS sT, MTK
2.68% , EZU , EMU Europe Index, EZU
11.20% , IIH , Internet Infrastructure H, IIH
4.69% , PIV , Value Line Timeliness MidCap Gr, PIV
3.98% , RPV , Value S&P 500, RPV
4.45% , JKJ , SmallCap Core iS M, JKJ
8.28% , XHB , Homebuilders SPDR, XHB
3.03% , VOX , Telecom Services VIPERs, VOX
10.79% , PMCS , PMC SIERRA
2.26% , PSJ , Software, PSJ
3.91% , IYY , LargeCap Blend Total Market DJ, IYY
3.72% , FDV , Value 40 Large Low P/E FT DB, FDV
5.90% , HHH , Internet H, HHH
4.05% , IGM , Technology GS, IGM
5.24% , IGN , Networking, IGN
4.31% , JKF , Value LargeCap iS M, JKF
10.56% , SANM , SANMINA
2.49% , IXP , Telecommunications Global, IXP
3.20% , SWH , Software H, SWH
2.88% , PEJ , Leisure & Entertainment, PEJ
3.58% , IVW , Growth S&P 500/BARRA, IVW
10.84% , CCU , CLEAR CHANNEL
3.64% , JKG , MidCap Blend Core iS M, JKG
5.82% , UNP , UNION PACIFIC
11.67% , CECO , CAREER EDUCATION CORP
4.19% , IWW , Value LargeCap Russell 3000, IWW
4.79% , BDH , Broadband H, BDH
6.14% , PLD , PROLOGIS TRUST
4.52% , FDL , Dividend Leaders, FDL
3.93% , PXQ , Networking, PXQ
2.70% , EWG , Germany Index, EWG
3.42% , KLD , LargeCap Blend Socially Responsible iS, KLD
24.94% , CFC , COUNTRYWIDE FNCL
15.53% , ABK , AMBAC FINL GRP
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-2.54% , ADSK , AUTODESK
-8.51% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.13% , DLX , DELUXE
-1.90% , LPX , LOUISIANA PAC
-2.46% , WLP , WELLPOINT HEALTH
-3.64% , PSQ , Short 100% QQQ, PSQ
-4.34% , AMGN , AMGEN
-1.45% , AET , AETNA
-2.78% , BHH , Internet B2B H, BHH
-0.36% , ACV , Alberto-Culver Co.
-3.16% , HUM , HUMANA
-0.50% , MU , MICRON TECH
-1.77% , TIN , TEMPLE INLAND
-0.24% , RRD , RR DONNELLEY SON
-0.40% , FISV , FISERV
-0.39% , TLT , Bond, 20+ Years Treasury, TLT
-8.26% , SDS , Short 200% S&P 500 PS, SDS
Sectors: among the 9 major U.S. sectors, al l 9 rose.
Major Sectors Ranked for the Day
% Price Change Sector
8.40% Financial SPDR, XLF
5.26% Industrial SPDR, XLI
4.49% Technology SPDR, XLK
4.37% Energy SPDR, XLE
3.95% Consumer Discretionary SPDR, XLY
3.50% Materials SPDR, XLB
3.13% Health Care SPDR, XLV
1.83% Consumer Staples SPDR, XLP
1.77% Utilities SPDR, XLU
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.
Industrial (XLI) Neutral, Market Weight. On 3/18/08, the XLI/SPY Relative Strength Ratio rose to another new all-time high.
Consumer Staples (XLP) Neutral, Market Weight. On 3/10/08, 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.
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.
Health Care (XLV) Bearish, Underweight. On 3/11/08, the XLV/SPY Relative Strength Ratio made a new 4-month low.
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 3/17/08, both absolute price and the XLF/SPY Relative Strength Ratio fell to their lowest levels in nearly 5-years, again confirming a major Bearish trend.
Foreign stock indexes have turned relatively weak in recent days. In addition, intermediate term, the EFA (the EAFE, international developed country stock markets,(ex the U.S. and Canada) 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 turned down since 3/6/08 and 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) recovered most of Monday’s steep loss. Although the short-term trend now may seem questionable, the long-term trend is still 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) broke down below previous 3-day lows, as hopes for easing monetary policy pushed aside fears of financial crisis. Although the short-term trend now may seem questionable, the long-term trend is still Bullish.
Silver underperformed Gold since 3/5/07. In addition, iShares Silver Trust (AMEX: SLV) has been relatively weak compared to Gold longer term, since 12/7/06. Finally, for the past 28 years, since 1/2/80, Silver has underperformed Gold.
The Gold Miners ETF (GDX) fell hard this week. Longer-term, GDX significantly underperformed Gold since 10/31/07. Therefore, GDX trends have been Bearish relative to Gold itself.
U.S. Treasury Bond prices corrected to the downside a day after hitting a new 6-week price high. Bond prices benefit from fears of financial crisis, and they correct when crisis takes a back seat to some other news of the day. U.S. governments have been strong ,while corporate have been weak. U.S. Treasury Bond prices 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 recovered most of what it lost over the previous 2 trading days. No trend is a straight line, but the counter-trend corrections are hard to catch, and they pale in comparison to the major trend movements.
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: There are more Bears than Bulls for the first time in years. According to the weekly Investors Intelligence newsletter survey as of 3/12/08, there were 31.1% Bulls and 43.6% Bears. The ratio of Bullish advisors to Bearish advisors fell to 0.71, the lowest level in more than 5 years, and down from 1.14 the previous week. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47.
VIX “Fear Index”, now at 25.79, 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 28.45, 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 0.79, 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 0.76, 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.
7.24% Banks
6.39% Airlines
5.62% Transport
5.58% Singapore
5.55% Retailers
5.31% Dow Transports
5.01% Internet
5.01% Brazil
4.99% Network
4.83% Russell 2000
4.82% DOT
4.77% REITs
4.77% Mexico
4.68% Oil Services
4.63% Hong Kong
4.53% S&P Small Caps
4.46% South Korea
4.39% Chemicals
4.38% Nasdaq 100
4.24% S&P 500
4.24% S&P 100
4.19% Nasdaq Composite
4.11% Comp. Tech
3.97% NYSE Composite
3.95% United Kingdom
3.82% Semis
3.72% Euro Top 100
3.70% Hardware
3.68% Natural Gas
3.59% Telecoms
3.54% London FTSE
3.51% Dow Industrial
3.44% Biotechs
3.44% Oil
3.42% French CAC
3.41% German DAX
3.36% Taiwan
3.14% France
3.12% Insurance
3.11% Sweden
2.93% Belgium
2.91% Dow World Index
2.87% Japan
2.75% Disk Drives
2.70% Germany
2.65% Malaysia
2.63% Australia
2.62% Italy
2.54% Health Care Products
2.34% Health Care
2.30% Drugs
2.25% Hospitals
2.25% Spain
1.98% Switzerland
1.95% Commodities
1.93% Netherlands
1.91% Austria
1.86% Canada
1.82% AMEX Composite
1.79% Dow Utilities
1.71% Utilities
1.50% Tokyo Nikkei
1.42% Hang Seng
1.42% Toronto 300
-0.18% Sydney All Ords
-0.33% CDNX Composite
-1.13% Paper
-1.71% 30Y T-Bond
-3.63% Gold
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 (1,330.74 ):
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
1,333.26, high of 3/12/2008
Potential Support
1,256.98, low of 3/17/2008
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
