By Robert W. Colby, Senior Analyst TraderPlanet.com
The markets remain very selective.
NASDAQ Composite Relative Strength Ratio fell to a new 9-month low, again confirming a significant downtrend.
Energy, Materials, and Industrial Stock Sectors Relative Strength Ratios rose to new all-time highs, confirming major uptrends.
CRB Commodity price index rose to another new all-time high.
Crude Oil and Gold hit new highs again.
S&P 500 held above its 2/7/08 low of 1,316.75, which might be significant.
On Monday, the major stock price indexes chopped lower most of the day until a late recovery erased most of the losses. Indexes closed mixed.
The S&P 500 broke down below the lowest lows of the previous 13 trading days, thereby again confirming a short-term downtrend. But the S&P 500 held above the 2/7/08 low of 1,316.75 and recovered in the last hour to close slightly higher on the day, possibly suggesting support near that February low and some resilience.
Volume on the NYSE fell 6%, indicating decreased selling pressure on stocks. Still, the volume of declining stocks was 27% greater than the volume of advancing stocks, indicating net selling pressure on balance.
The market remains very selective. The Financial Stock Sector (XLF), my lowest ranked Sector for many months, fared worst, falling 1.36% on a report that Thornburg Mortgage (TMA) had not met $270 million worth of margin calls.
On the other hand, the Materials and Energy Stock Sectors, my highest ranked Sectors for many months, rose again as underlying commodity prices continued to trend higher.
Stock market action, in general, has been choppy and erratic in a narrowing trading range for the past 20 trading days. 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. 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
6.50% , NCR , NCR
7.01% , SVU , SUPERVALU
3.03% , BBH , Biotech H, BBH
5.04% , NOC , NORTHROP GRUMMAN
0.93% , EWK , Belgium Index, EWK
3.73% , CEPH , Cephalon Inc
1.35% , UTH , Utilities H, UTH
0.42% , IYK , Consumer Non-Cyclical, IYK
4.03% , SSCC , Smurfit-Stone Container Corporation
0.34% , IXC , Energy Global, IXC
0.45% , EWD , Sweden Index, EWD
2.36% , PFM , Dividend Achievers PS, PFM
0.44% , JKG , MidCap Blend Core iS M, JKG
0.60% , PMR , Retail, PMR
0.74% , VAW , Materials VIPERs, VAW
0.64% , VIS , Industrials VIPERs, VIS
2.56% , AES , AES
0.17% , EZU , EMU Europe Index, EZU
2.29% , NUE , NUCOR
1.15% , RWR , REIT Wilshire, RWR
0.45% , VDC , Consumer Staples VIPERs, VDC
2.33% , TBH , Telebras HOLDRS, TBH*
0.32% , RPG , Growth S&P 500, RPG
1.64% , VMC , VULCAN MATERIALS
2.30% , XTO , XTO ENERGY INC
1.45% , COH , COACH
1.33% , ROST , Ross Stores Inc
1.08% , IAU , Gold COMEX iS, IAU
0.91% , ICF , Realty Cohen & Steers, ICF
0.75% , ACV , Alberto-Culver Co.
1.34% , SPG , SIMON PROP GRP
1.12% , USO , Oil, Crude, U.S. Oil Fund, USO
3.61% , EXC , EXELON CORP
1.14% , WMB , WILLIAMS
2.84% , EZA , South Africa Index, EZA
2.51% , SLV , Silver Trust iS, SLV
1.82% , SNV , SYNOVUS
2.55% , MON , MONSANTO
0.56% , EPP , Pacific ex-Japan, EPP
2.13% , TJX , TJX
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol , Name
-1.27% , XSD , Semiconductor SPDR, XSD
-10.10% , LEN , Lennar Corp. (LEN)
-7.22% , APOL , APOLLO GROUP
-2.20% , BDH , Broadband H, BDH
-4.22% , DLX , DELUXE
-7.86% , KBH , KB HOME
-2.09% , IGN , Networking, IGN
-4.28% , CIT , CIT GROUP
-7.77% , WM , WASHINGTON MUT
-4.55% , CTX , CENTEX
-0.37% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-0.57% , IYW , Technology DJ US, IYW
-2.34% , MTB , M&T BANK
-0.60% , IGW , Semiconductor iS GS, IGW
-3.52% , RIMM , RESEARCH IN MOTION LTD
-6.24% , AMD , ADV MICRO DEV
-3.71% , HOLX , Hologic, Inc., HOLX
-2.61% , XL , XL CAPITAL STK A
-1.57% , UTX , UNITED TECH
-0.85% , PID , Dividend International, PID
-0.44% , VBK , Growth SmallCap VIPERs, VBK
-2.30% , COF , CAPITAL ONE FNCL
-2.58% , RHT , Red Hat Inc.
-4.67% , LEH , LEHMAN BROS HLDG
-4.65% , MU , MICRON TECH
-1.96% , MNST , MONSTER WORLDWID
-0.91% , JKL , Value SmallCap iS M, JKL
-0.72% , PXJ , Oil & Gas, PXJ
-3.10% , CECO , CAREER EDUCATION CORP
-3.54% , JNPR , Juniper Networks Inc
-4.10% , RFMD , RF Micro Devices Inc
-2.06% , PEY , Dividend High Yield Equity PS, PEY
-0.42% , LQD , Bond, Corp, LQD
-2.63% , AAPL , APPLE COMPUTER
-3.27% , CPWR , COMPUWARE
-2.56% , BA , BOEING
-2.49% , CC , CIRCUIT CITY STR
-0.31% , VBR , Value SmallCap VIPERS, VBR
-3.20% , GRMN , GARMIN LTD
-3.16% , AMZN , Amazoncom Inc
Sectors: among the 9 major U.S. sectors, 5 rose and 4 fell .
Major Sectors Ranked for the Day
% Price Change Sector
1.66% Materials SPDR, XLB
1.52% Utilities SPDR, XLU
1.46% Industrial SPDR, XLI
1.25% Energy SPDR, XLE
1.00% Consumer Staples SPDR, XLP
-0.03% Health Care SPDR, XLV
-0.05% Technology SPDR, XLK
-0.22% Consumer Discretionary SPDR, XLY
-1.36% Financial SPDR, XLF
Energy (XLE) Neutral, Market Weight. On 3/3/08, the XLE/SPY Relative Strength Ratio rose to new all-time high, confirming a major uptrend.
Materials (XLB) Neutral, Market Weight. On 3/3/08, 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 3/3/08, the XLI/SPY Relative Strength Ratio made a new all-time high, but it has eroded somewhat recently.
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.
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 3/3/08, 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 3/3/08, Relative Strength fell to a new 9-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) hit a new high and 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) made a new high and has repeatedly confirmed its uptrend in all time frames.
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 gave back a normal fraction of Friday’s sharp gain, and the short-term trend remains Bullish. 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 26.28, 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 29.47, 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 0.82, 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.
1.88% Natural Gas
1.11% Dow Utilities
1.00% Consumer Staples
0.80% Hong Kong
0.78% Dow Transports
0.64% Crude Oil
0.45% CDNX Composite
0.43% Dow Composite
0.17% S&P Mid Caps
0.09% NYSE Composite
0.07% Health Care Products
0.06% Health Care
0.05% S&P 500
0.05% Russell 1000
0.03% Russell 3000
-0.03% Health Care
-0.04% Wilshire 5000
-0.04% Oil Services
-0.05% S&P Small Caps
-0.06% Dow Industrial
-0.06% S&P 100
-0.11% South Korea
-0.19% AMEX Composite
-0.22% Consumer Discretionary
-0.24% Value Line
-0.28% Toronto 300
-0.29% Russell 2000
-0.50% United Kingdom
-0.57% Nasdaq Composite
-0.65% Comp. Tech
-0.69% Nasdaq 100
-0.86% German DAX
-0.94% 30Y T-Bond
-1.00% French CAC
-1.01% Dow World Index
-1.12% London FTSE
-1.15% Broker Dealers
-1.31% Euro Top 100
-1.48% Disk Drives
-2.89% Sydney All Ords
-3.07% Hang Seng
-4.49% Tokyo Nikkei
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 (1,331.34):
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
1,316.75, low of 2/7/2008
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