By Robert W. Colby, Senior Analyst TraderPlanet.com
“Extreme selling pressure” on stocks.
Energy, Financial, and Materials Stock Sectors prices each fell more than 3% on Friday.
U.S. Treasury Bond prices jumped sharply higher in a flight to safety.
On Friday, the S&P 500 fell steeply, losing 37.05 points or 2.71% to close at 1,330.63. It broke down below the lowest lows of the previous 12 trading days, thereby confirming a short-term downtrend. Volume on the NYSE rose 13%, indicating increased selling pressure on stocks. In addition, the volume of declining stocks was 16 times greater than the volume of advancing stocks, indicating extreme selling pressure.
Major stock price indexes fell on news of research from UBS that financial firms could lose more than $600 billion from the subprime mortgage crisis. In addition, the “reported” bailout of Ambac might not materialize, after all. Also, there were “reports” of forced selling of municipal bond to meet margin calls. With all these “reports”, many of which prove to be false, it is impossible to separate fact from fiction, and that might be the real purpose of all these “reports”.
Stock 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
13.91% , NOVL , NOVELL
2.50% , IPG , INTERPUBLIC GRP
3.70% , GPS , GAP
2.99% , MYY , Short 100% MidCap 400, MYY
1.79% , DOG , Short 100% Dow 30, DOG
2.07% , SH , Short 100% S&P 500, SH
1.45% , PSQ , Short 100% QQQ, PSQ
4.22% , MZZ , Short 200% MidCap 400 PS, MZZ
4.09% , GILD , Gilead Sciences Inc
4.76% , SDS , Short 200% S&P 500 PS, SDS
2.71% , AMD , ADV MICRO DEV
2.54% , WYE , WYETH
4.76% , DXD , Short 200% Dow 30 PS, DXD
1.07% , IEF , Bond, 10 Year Treasury, IEF
0.38% , AGG , Bond, Aggregate, AGG
1.05% , TIP , Bond, TIPS, TIP
3.32% , QID , Short 200% QQQ PS, QID
1.53% , TLT , Bond, 20+ Years Treasury, TLT
0.13% , ERTS , ELECTRONIC ARTS
0.14% , HSY , HERSHEY FOODS
0.35% , SHY , Bond, 1-3 Year Treasury, SHY
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-3.94% , RFV , Value MidCap S&P 400, RFV
-2.40% , PIC , Insurance, PIC
-4.59% , RPV , Value S&P 500, RPV
-3.09% , SWH , Software H, SWH
-2.73% , PHJ , Dividend Growth PS, PHJ
-1.76% , IAH , Internet Architecture H, IAH
-3.34% , FDL , Dividend Leaders, FDL
-4.12% , JNS , JANUS CAPITAL
-8.66% , SLM , SLM CORP
-11.06% , FHN , FIRST TENNESSEE
-4.63% , PFM , Dividend Achievers PS, PFM
-2.42% , KLD , LargeCap Blend Socially Responsible iS, KLD
-3.09% , VCR , Consumer D. VIPERs, VCR
-7.31% , IACI , IAC/INTERACTIVCORP
-2.36% , EWP , Spain Index, EWP
-2.74% , PWO , OTC Dynamic PS, PWO
-6.64% , CTSH , Cognizant Technology Solutions
-9.15% , ETFC.O , E*TRADE FINANCIAL
-3.30% , MCHP , Microchip Technology Incorporated
-6.00% , HANS , Hansen Natural, HANS
-3.48% , BF.B , BROWN FORMAN STK B
-6.56% , AIG , AMER INTL GROUP
-3.43% , RX , IMS HEALTH
-4.78% , ADBE , ADOBE SYS
-4.98% , BK , BANK OF NEW YORK
-2.05% , PEJ , Leisure & Entertainment, PEJ
-9.05% , CIT , CIT GROUP
-2.62% , IWB , LargeCap 1000 R, IWB
-4.96% , DDM , Ultra Dow30 Double, DDM
-2.83% , ADRD , Developed 100 BLDRS, ADRD
-4.64% , ILF , Latin Am 40, ILF
-8.56% , ATI , ALLEGHENY TECH
-2.24% , PTE , Telecommunications & Wireless, PTE
-5.06% , AA , ALCOA
-2.93% , MTK , Technology MS sT, MTK
-3.98% , EFX , EQUIFAX
-5.15% , ZION , ZIONS
-4.36% , MAT , MATTEL
-2.67% , PWV , Value LargeCap Dynamic PS, PWV
-2.80% , BHH , Internet B2B H, BHH
-3.56% , BLL , BALL
-2.91% , PGJ , China LargeCap Growth G D H USX PS, PGJ
-3.07% , SIRI , Sirius Satellite
-3.44% , PCG , PG&E
-3.15% , PZJ , SmallCap PS Zacks, PZJ
-6.67% , VC , VISTEON
-2.52% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
-7.75% , MBI , MBIA
-4.61% , AW , ALLIED WASTE IND
-2.05% , HSIC , Henry Schein Inc
Sectors: among the 9 major U.S. sectors, all 9 fell .
Major Sectors Ranked for the Day
% Price Change Sector
-1.38% Health Care SPDR, XLV
-1.88% Consumer Staples SPDR, XLP
-2.03% Technology SPDR, XLK
-2.49% Consumer Discretionary SPDR, XLY
-2.74% Industrial SPDR, XLI
-2.94% Utilities SPDR, XLU
-3.22% Materials SPDR, XLB
-3.26% Financial SPDR, XLF
-3.32% Energy SPDR, XLE
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, but since then it has turned sideways/neutral.
Industrial (XLI) Neutral, Market Weight. On 2/13/08, the XLI/SPY Relative Strength Ratio made a new all-time high, but it has eroded somewhat recently.
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.
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.
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 2/25/08, the XLK/SPY Relative Strength Ratio fell to a new 10-month low, confirming a significant downtrend.
Financial (XLF) Bearish, Underweight. On 2/29/08, the XLF/SPY Relative Strength Ratio fell to a new 7-week low. 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) has repeatedly confirmed its uptrend in all time frames. Crude Oil’s price trends remain 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) has repeatedly confirmed its uptrend in all time frames. Gold’s price trends remain 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 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 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 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 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 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 26.54, 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 28.44, 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.
ISEE Call/Put Ratio is 0.75, 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:
1.67% 30Y T-Bond
1.35% Japanese Yen
0.78% GSCI Precious Metals
0.72% Swiss Franc
-0.03% US Dollar Index
-0.12% Euro Index
-0.26% British Pound
-0.60% GSCI Energy
-0.73% Crude Oil
-0.86% GSCI Total Return
-0.94% GSCI Industrial Metals
-0.98% CDNX Composite
-0.98% GSCI Livestock
-1.06% Hang Seng
-1.12% Canadian Dollar
-1.24% Sydney All Ords
-1.36% London FTSE
-1.38% Health Care
-1.39% Euro Top 100
-1.45% Health Care
-1.50% Health Care Products
-1.53% French CAC
-1.59% AMEX Composite
-1.66% Australian Dollar
-1.67% German DAX
-1.88% Consumer Staples
-1.97% Dow World Index
-2.10% Toronto 300
-2.24% Comp. Tech
-2.26% GSCI Agriculture
-2.32% Tokyo Nikkei
-2.36% United Kingdom
-2.49% Consumer Discretionary
-2.51% Dow Industrial
-2.58% Nasdaq Composite
-2.61% S&P 100
-2.61% Wilshire 5000
-2.66% Dow Composite
-2.68% Dow Transports
-2.68% Russell 1000
-2.69% Russell 3000
-2.71% S&P 500
-2.74% Nasdaq 100
-2.77% Russell 2000
-2.81% NYSE Composite
-2.83% Value Line
-2.89% S&P Small Caps
-3.02% S&P Mid Caps
-3.03% Dow Utilities
-3.04% Disk Drives
-3.10% Hong Kong
-3.16% Natural Gas
-3.75% South Korea
-3.98% Oil Services
-5.45% Broker Dealers