Daily Stock Market Commentary – 3/27/2008

On Wednesday, major stock price indexes gapped lower on the open, tried to recover several times, but stayed negative all day. A final hour sell-off broke prices down below the lowest lows of the previous 2 trading days, turning the short-term trend Bearish. NYSE volume fell by 3%, suggesting declining demand for stocks. The volume of declining stocks was 118% greater than the volume of advancing stocks, indicating net selling pressure on balance.

The “reports” of the day were mostly Bearish. Wall Street analysts cut their earnings estimates for banks again, reflecting mortgage and CDO related write-downs. Durable Orders were weaker than expected, down 1.7%. February new home sales declined 1.8%, and there is a 9.8-month supply overhanging the market. Treasury Secretary Paulson hinted that Wall Street investment firms should be subjected to increased regulation. The U.S. dollar fell steeply while the CRB Index, Oil, and Gold rose, suggesting inflation.

The main technical trend is still down for the broad-based stock price indexes. But some days, the fundamental worries are temporarily displaced by hopes for some kind of a rescue, from the Fed, 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 certainly have been plentiful, although not always accurate. These “reports” strike at any unpredictable moment, like bolts 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.

Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):

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 3/19/08, the XLP/SPY Relative Strength Ratio rose to new 5-year high.

Industrial (XLI) Neutral, Market Weight. On 3/18/08, the XLI/SPY Relative Strength Ratio rose to another new all-time 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 3/20/08, 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 since 3/12/08. 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 turned upward since 3/17/18. The minor Ripple trend appears to be improving in recent days. But longer term, 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 futures jumped up sharply above the highs of 3 previous days. The short-term trend turned up. Oil appears to have found support in the 98-100 area. The long-term trend still appears to be up. 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 futures jumped up above the highs of 3 previous days. The short-term trend turned up. Gold appears to have found support above 900. The long-term trend still appears to be up.

Silver sharply 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 since 3/14/08. 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 gave back all of Tuesday’s modest gain. Short-term momentum still looks uncertain. 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.

The U.S. dollar fell sharply below the lows of 3 previous days. The minor and major trends of the dollar are both down.

The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood of late. The business and financial news has flipped from fear to hope and back again many times in recent weeks, creating an extremely choppy trading environment. 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, without warning, risk control becomes more important than aggressive profit seeking. Stay flexible.

Sentiment/Contrary Opinion: There were 36.7% Bulls versus 41.4% Bears as of 3/26/08, according to the weekly Investors Intelligence survey of newsletter advisors. The Bull/Bear ratio rose to 0.89, up from 0.69 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 26.08, 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 29.75, 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 0.78, 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 1.28, which indicates moderately 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 (1,341.13):

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 (1,341.13):

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

Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:

8.57% Internet B2B H, BHH
4.10% Oil, Crude, U.S. Oil Fund, USO
3.12% Oil Services H, OIH
3.00% Commodity Tracking, DBC
2.53% Silver Trust iS, SLV
2.34% Short 200% S&P 500 PS, SDS
2.34% Short 200% MidCap 400 PS, MZZ
2.30% Short 200% Dow 30 PS, DXD
2.22% Energy VIPERs, VDE
2.22% Energy DJ, IYE
2.19% Energy Exploration & Prod, PXE
2.19% Oil & Gas, PXJ
2.17% Energy SPDR, XLE
2.11% Natural Resource iS GS, IGE
2.00% Australia Index, EWA
1.75% Metals & Mining SPDR, XME
1.72% Short 200% QQQ PS, QID
1.58% Energy Global, IXC
1.37% Short 100% S&P 500, SH
1.15% Gold Shares S.T., GLD
1.15% Brazil Index, EWZ
1.12% Netherlands Index, EWN
1.05% Latin Am 40, ILF
0.96% Biotech H, BBH
0.94% Switzerland Index, EWL
0.93% France Index, EWQ
0.89% Short 100% Dow 30, DOG
0.89% Short 100% MidCap 400, MYY
0.83% Sweden Index, EWD
0.77% Basic Materials DJ US, IYM
0.75% Spain Index, EWP
0.73% Belgium Index, EWK
0.64% Euro STOXX 50, FEZ
0.61% Germany Index, EWG
0.60% EMU Europe Index, EZU
0.59% South Africa Index, EZA
0.55% Italy Index, EWI
0.46% Utilities DJ, IDU
0.45% Utilities, PUI
0.43% Malaysia Index, EWM
0.42% Utilities H, UTH
0.39% Global Titans, DGT
0.38% Europe 350 S&P Index, IEV
0.37% Utilities SPDR, XLU
0.31% Utilities VIPERs, VPU
0.30% Bond, TIPS, TIP
0.29% Pacific ex-Japan, EPP
0.24% Biotech SPDR, XBI
0.24% Austria Index, EWO
0.23% Growth SmallCap iS M, JKK
0.21% Bond, 1-3 Year Treasury, SHY
0.20% Canada Index, EWC
0.19% Biotechnology, IBB
0.15% Value LargeCap Euro STOXX 50 DJ, FEU
0.14% Value EAFE MSCI, EFV
0.13% Materials VIPERs, VAW
0.12% Bond, Corp, LQD
0.08% Growth EAFE MSCI, EFG
0.08% Bond, 10 Year Treasury, IEF
0.08% Semiconductor SPDR, XSD
0.00% Growth SmallCap Dynamic PS, PWT
0.00% European VIPERs, VGK
0.00% EAFE Index, EFA
0.00% Biotech & Genome, PBE
-0.02% Microcap Russell, IWC
-0.03% Pacific VIPERs, VPL
-0.04% Value Line Timeliness MidCap Gr, PIV
-0.06% Pharmaceuticals, PJP
-0.08% Short 100% QQQ, PSQ
-0.10% Growth Small Cap DJ, DSG
-0.14% Mexico Index, EWW
-0.14% Growth S&P 500/BARRA, IVW
-0.18% United Kingdom Index, EWU
-0.20% WilderHill Clean Energy PS, PBW
-0.21% Developed 100 BLDRS, ADRD
-0.25% Growth BARRA Small Cap 600, IJT
-0.26% Hardware & Electronics, PHW
-0.29% South Korea Index, EWY
-0.29% Growth LargeCap NASDAQ 100, QQQQ
-0.29% Software, PSJ
-0.29% Bond, Aggregate, AGG
-0.29% Micro Cap Zachs, PZI
-0.31% Emerging 50 BLDRS, ADRE
-0.31% Japan LargeCap Blend TOPIX 150, ITF
-0.31% Growth SmallCap VIPERs, VBK
-0.32% Europe 100 BLDRS, ADRU
-0.35% Nanotech Lux, PXN
-0.35% Global 100, IOO
-0.38% Consumer Staples VIPERs, VDC
-0.39% Growth MidCap 400 B, IJK
-0.39% Telecommunications Global, IXP
-0.39% Healthcare DJ, IYH
-0.40% Aerospace & Defense, PPA
-0.42% Bond, 20+ Years Treasury, TLT
-0.42% Growth S&P 500, RPG
-0.43% Growth Mid Cap Dynamic PS, PWJ
-0.44% Materials SPDR, XLB
-0.44% Growth SmallCap R 2000, IWO
-0.45% MidCap Growth iS M, JKH
-0.47% SmallCap Core iS M, JKJ
-0.48% Value 40 Large Low P/E FT DB, FDV
-0.50% Technology MS sT, MTK
-0.51% Hong Kong Index, EWH
-0.52% OTC Dynamic PS, PWO
-0.54% Software H, SWH
-0.55% Industrial LargeCap Blend DJ US, IYJ
-0.55% LargeCap Blend Dynamic PS, PWC
-0.57% Growth MidCap S&P 400, RFG
-0.57% Health Care VIPERs, VHT
-0.58% Value SmallCap Russell 2000, IWN
-0.58% Growth LargeCap NASDAQ Fidelity, ONEQ
-0.59% IPOs, First Tr IPOX-100, FPX
-0.59% Value SmallCap S&P 600 B, IJS
-0.60% LargeCap VIPERs, VV
-0.62% Growth Large Cap, ELG
-0.62% Pharmaceutical H, PPH
-0.64% Growth VIPERs, VUG
-0.64% LargeCap Blend Core iS M, JKD
-0.65% SmallCap S&P 600, IJR
-0.65% Growth LargeCap iS M, JKE
-0.66% Growth LargeCap Russell 3000, IWZ
-0.67% Consumer Non-Cyclical, IYK
-0.69% LargeCap Blend Russell 3000, IWV
-0.69% Value LargeCap Dynamic PS, PWV
-0.70% Growth 1000 Russell, IWF
-0.73% LargeCap Blend Total Market DJ, IYY
-0.74% Value SmallCap S&P 600, RZV
-0.75% Dividend International, PID
-0.75% LargeCap 1000 R, IWB
-0.75% Value VIPERs, VTV
-0.76% LargeCap Blend Socially Responsible iS, KLD
-0.79% Food & Beverage, PBJ
-0.80% Industrial SPDR, XLI
-0.80% Japan Index, EWJ
-0.80% Dividend Appreciation Vipers, VIG
-0.81% Small Cap VIPERs, VB
-0.81% Wilshire 5000 ST TM, TMW
-0.81% Emerging Markets, EEM
-0.82% Value SmallCap iS M, JKL
-0.82% Consumer Staples SPDR, XLP
-0.83% SmallCap Russell 2000, IWM
-0.85% Growth MidCap Russell, IWP
-0.86% Technology GS, IGM
-0.88% Technology Global, IXN
-0.89% Retail H, RTH
-0.90% SmallCap PS Zacks, PZJ
-0.90% Value SmallCap Dynamic PS, PWY
-0.93% Telecom Services VIPERs, VOX
-0.93% Value LargeCap Russell 3000, IWW
-0.94% Industrials VIPERs, VIS
-0.94% LargeCap Blend NYSE Composite iS, NYC
-0.95% Value LargeCap NYSE 100 iS, NY
-0.96% Value LargeCap iS M, JKF
-0.97% DIAMONDS (DJIA), DIA
-0.98% LargeCap Rydex Rus Top 50, XLG
-0.98% Health Care SPDR, XLV
-0.99% Value 1000 Russell, IWD
-1.00% MidCap Russell, IWR
-1.00% Dividend Achievers PS, PFM
-1.00% Extended Mkt VIPERs, VXF
-1.02% Semiconductors, PSI
-1.03% Technology DJ US, IYW
-1.05% Telecom H, TTH
-1.05% MidCap Blend Core iS M, JKG
-1.07% Semiconductor iS GS, IGW
-1.09% Info Tech VIPERs, VGT
-1.11% Healthcare Global, IXJ
-1.12% Value Small Cap DJ, DSV
-1.12% Value SmallCap VIPERS, VBR
-1.12% Internet Architecture H, IAH
-1.13% LargeCap Blend S&P 1500 iS, ISI
-1.14% Value MidCap S&P 400 B, IJJ
-1.18% Blend Total Market VIPERs, VTI
-1.18% Telecom DJ US, IYZ
-1.19% MidCap VIPERs, VO
-1.20% Broadband H, BDH
-1.20% MidCap S&P 400 SPDRs, MDY
-1.21% Internet H, HHH
-1.22% S&P 500 SPDRs LargeCap Blend, SPY
-1.22% MidCap S&P 400 iS, IJH
-1.25% Lg Cap Growth PSD, PWB
-1.25% Internet Infrastructure H, IIH
-1.27% Value MidCap Russell, IWS
-1.27% Emerging VIPERs, VWO
-1.29% LargeCap Blend S&P 100, OEF
-1.32% Financials Global LargeCap Value, IXG
-1.32% Insurance, PIC
-1.34% Networking, IGN
-1.36% Value Large Cap DJ, ELV
-1.38% S&P 500 iS LargeCap Blend, IVV
-1.39% Asia 50 BLDRS, ADRA
-1.40% China LargeCap Growth G D H USX PS, PGJ
-1.42% Value S&P 500 B, IVE
-1.51% Semiconductor H, SMH
-1.53% Leisure & Entertainment, PEJ
-1.54% LargeCap Blend S&P=Weight R, RSP
-1.57% Value MidCap Dynamic PS, PWP
-1.68% Consumer Cyclical DJ, IYC
-1.68% Telecommunications & Wireless, PTE
-1.68% Value LargeCap Fundamental RAFI 1000, PRF
-1.69% Value MidCap iS M, JKI
-1.71% Dividend SPDR, SDY
-1.71% Building & Construction, PKB
-1.76% Transportation Av DJ, IYT
-1.76% Networking, PXQ
-1.82% Retail, PMR
-1.87% Ultra Dow30 Double, DDM
-1.87% Consumer Discretionary SPDR, XLY
-1.92% REIT VIPERs, VNQ
-1.92% Dividend DJ Select, DVY
-1.94% Singapore Index, EWS
-1.94% Technology SPDR, XLK
-1.96% Dividend High Yield Equity PS, PEY
-1.97% Ultra QQQ Double, QLD
-1.99% Dividend Leaders, FDL
-1.99% Ultra MidCap400 Double, MVV
-2.06% Water Resources, PHO
-2.11% Value MidCap S&P 400, RFV
-2.11% Software, IGV
-2.12% Dividend Growth PS, PHJ
-2.17% Consumer D. VIPERs, VCR
-2.38% REIT Wilshire, RWR
-2.43% Taiwan Index, EWT
-2.48% China 25 iS, FXI
-2.50% Realty Cohen & Steers, ICF
-2.56% Ultra S&P500 Double, SSO
-2.64% Real Estate US DJ, IYR
-2.81% Value S&P 500, RPV
-3.18% Financial DJ US, IYF
-3.27% Financials VIPERs, VFH
-3.29% Capital Markets KWB ST, KCE
-3.61% Financial SPDR, XLF
-3.76% Bank Regional H, RKH
-3.80% Financial Services DJ, IYG
-5.90% Homebuilders SPDR, XHB