Daily Stock Market Commentary – 4/22/2008

On Monday, major stock price indexes finished mixed. NYSE volume fell 8%, suggesting buyer hesitation after last weeks’ price markups. On Friday, the S&P 500 appeared to hit resistance near the 1,396.02 intraday high of 2/1/2008, which is the top of a 3-month trading range.

The “reports” of the day also were mixed, some good and some bad. Financial stocks, the worst performers over the past year, fell the most, following news of worse than expected earnings from Bank of America and National City, which also slashed its dividend by a shocking 95%, to $0.01 per share from $0.21. On the positive side, Energy stocks continued to advance in price as Crude Oil rose to yet another new all-time price high in its scary/amazing Major Bullish Trend.

The recent 3-month correction/consolidation phase may be a Secondary Reaction within the context of a Primary Bearish Trend. Preexisting Primary Trends tend to resume after such Secondary Reactions run their course. The main technical trend for the broad-based stock price indexes may still be down. From time to time, serious fundamental worries seem to be temporarily displaced by hopes that the worst of the credit crisis might be over, or hopes for some kind of a rescue, from the Fed, the government, or big investors. The Wall Street pendulum swings from hope to fear–just as it always has.

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, short-term traders need to be nimble, be quick, and control risk. Investors need to be cautious and risk averse.

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 4/21/08, both the XLE price close and the XLE/SPY Relative Strength Ratio rose to new all-time highs, confirming a major uptrend.

Materials (XLB) Neutral, Market Weight. On 4/16/08, both the XLB price and the XLB/SPY Relative Strength Ratio rose to new all-time highs, confirming a major uptrend.

Consumer Staples (XLP) Neutral, Market Weight. On 4/18/08, the XLP/SPY Relative Strength Ratio fell to a new 7-week low, confirming a corrective intermediate-term trend.

Industrial (XLI) Neutral, Market Weight. On 4/17/08, the XLI/SPY Relative Strength Ratio fell to a new 7-week low, confirming a corrective intermediate-term trend.

Utilities (XLU) Neutral, Market Weight. The XLU/SPY Relative Strength Ratio has been in a moderately rising trend since 3/25/08, and so Utilities have improved somewhat in these rankings.

Technology (XLK) Neutral, Market Weight. On 4/21/08, the XLK/SPY Relative Strength Ratio rose to a new 3-month high, signaling an improving intermediate-term trend.

Consumer Discretionary (XLY) Bearish, Underweight. On 4/16/08, the XLY/SPY Relative Strength Ratio fell to a new 13-week low, suggesting renewed weakness. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to a new 6-year low, confirming a major downtrend.

Health Care (XLV) Bearish, Underweight. On 4/21/08, the XLV/SPY Relative Strength Ratio fell to a new 6-year low, confirming the existing Primary Bearish trend.

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 shown better relative strength short-term, since 3/24/08. 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 underperformed since 11/7/07. The minor Ripple trend has improved only slightly since 3/3/08 and appears questionable at best. 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 been in an uptrend for the intermediate term, since 2/1/08. Long term, the Growth/Value ratio (IWF/IWD) has been in an uptrend since 8/8/06.

The Small Cap/Large Cap Relative Strength Ratio broke down to a new 2.5-year low on 1/11/08. It has been trending down since 4/19/06. The main long-term trend is Relatively Bearish for Small Caps.

Crude Oil futures rose to another new high. All trends are obviously Bullish. 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 consolidated following Friday’s sharp drop. The trend since 3/17/08 has been corrective. Long term, the 7-year trend is Bullish.

Silver sharply underperformed Gold since 3/5/08. 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 bounced as banks fell. Bonds were oversold last week, and last week’s low may be a benchmark support. Bond prices benefit from fears of financial crisis, and they correct when financial crisis takes a back seat to some other news of the day. U.S. governments have been strong ,while corporate bonds have been weak.

The U.S. dollar has been consolidating losses since its low on 3/17/08. The minor trend may appear uncertain, but the major trend of the dollar is 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 37.8% Bulls versus 38.9% Bears as of 4/16/08, according to the weekly Investors Intelligence survey of newsletter advisors. The Bull/Bear ratio remained at 0.97, unchanged from 0.97 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 20.50, is relatively low 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 24.09,is 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 0.60, which indicates neutral 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 1.58, which indicates neutral sentiment. The ratio’s 4-year simple moving average is 1.50, 4-year median is 1.47, and 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.

A Secondary Reaction was signaled on 4/18/28, when the Dow-Jones Industrials and Transports both closed at 3-month highs. But the Primary Tide Major Trend may still be Bearish. 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 (1,390.33):

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

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 (1,390.33):

Potential Support
1,324.35, low of 4/15/2008
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:

2.96% Australia Index, EWA
2.07% Semiconductor SPDR, XSD
2.05% Pacific ex-Japan, EPP
1.94% Internet B2B H, BHH
1.88% Brazil Index, EWZ
1.80% Latin Am 40, ILF
1.78% Semiconductor H, SMH
1.73% China LargeCap Growth G D H USX PS, PGJ
1.47% Energy Global, IXC
1.44% Internet Infrastructure H, IIH
1.40% China 25 iS, FXI
1.34% Ultra MidCap400 Double, MVV
1.34% Ultra QQQ Double, QLD
1.29% Asia 50 BLDRS, ADRA
1.27% Emerging 50 BLDRS, ADRE
1.26% South Korea Index, EWY
1.24% WilderHill Clean Energy PS, PBW
1.21% Energy VIPERs, VDE
1.14% Energy SPDR, XLE
1.09% Semiconductor iS GS, IGW
1.08% Networking, PXQ
1.07% Internet Architecture H, IAH
1.02% Technology DJ US, IYW
0.99% Metals & Mining SPDR, XME
0.98% Technology Global, IXN
0.98% Emerging VIPERs, VWO
0.97% Networking, IGN
0.95% Energy Exploration & Prod, PXE
0.90% Italy Index, EWI
0.85% Natural Resource iS GS, IGE
0.85% Growth EAFE MSCI, EFG
0.85% Switzerland Index, EWL
0.81% Pacific VIPERs, VPL
0.81% Info Tech VIPERs, VGT
0.78% Canada Index, EWC
0.78% EAFE Index, EFA
0.77% Belgium Index, EWK
0.72% Technology GS, IGM
0.71% Sweden Index, EWD
0.71% Growth LargeCap NASDAQ 100, QQQQ
0.70% Japan LargeCap Blend TOPIX 150, ITF
0.70% Energy DJ, IYE
0.70% Growth LargeCap iS M, JKE
0.69% Hong Kong Index, EWH
0.67% Germany Index, EWG
0.67% Malaysia Index, EWM
0.66% Oil Services H, OIH
0.63% Technology SPDR, XLK
0.63% Oil, Crude, U.S. Oil Fund, USO
0.63% South Africa Index, EZA
0.62% Biotech & Genome, PBE
0.59% MidCap S&P 400 SPDRs, MDY
0.59% Growth Large Cap, ELG
0.58% Value EAFE MSCI, EFV
0.57% Oil & Gas, PXJ
0.55% Basic Materials DJ US, IYM
0.54% Developed 100 BLDRS, ADRD
0.51% Singapore Index, EWS
0.51% Healthcare Global, IXJ
0.51% Emerging Markets, EEM
0.46% Lg Cap Growth PSD, PWB
0.45% EMU Europe Index, EZU
0.45% European VIPERs, VGK
0.43% Growth MidCap 400 B, IJK
0.41% Value Line Timeliness MidCap Gr, PIV
0.40% Value LargeCap Euro STOXX 50 DJ, FEU
0.40% Bond, 20+ Years Treasury, TLT
0.39% Growth SmallCap Dynamic PS, PWT
0.38% Growth S&P 500, RPG
0.38% Growth SmallCap VIPERs, VBK
0.36% Growth VIPERs, VUG
0.34% Building & Construction, PKB
0.32% Growth LargeCap NASDAQ Fidelity, ONEQ
0.31% LargeCap Blend Dynamic PS, PWC
0.31% Global 100, IOO
0.31% Growth Small Cap DJ, DSG
0.31% Broadband H, BDH
0.29% Consumer Staples SPDR, XLP
0.28% Growth S&P 500/BARRA, IVW
0.28% Austria Index, EWO
0.27% MidCap Growth iS M, JKH
0.25% Europe 350 S&P Index, IEV
0.25% Materials SPDR, XLB
0.24% MidCap S&P 400 iS, IJH
0.24% Hardware & Electronics, PHW
0.23% Consumer Non-Cyclical, IYK
0.22% LargeCap Blend NYSE Composite iS, NYC
0.22% Euro STOXX 50, FEZ
0.22% France Index, EWQ
0.20% Retail H, RTH
0.20% Short 100% MidCap 400, MYY
0.19% OTC Dynamic PS, PWO
0.18% Growth MidCap S&P 400, RFG
0.17% Software, PSJ
0.17% Value 40 Large Low P/E FT DB, FDV
0.17% Spain Index, EWP
0.17% Small Cap VIPERs, VB
0.17% Growth MidCap Russell, IWP
0.17% Ultra S&P500 Double, SSO
0.15% Materials VIPERs, VAW
0.15% Software H, SWH
0.15% Mexico Index, EWW
0.13% Telecommunications & Wireless, PTE
0.13% DIAMONDS (DJIA), DIA
0.13% Commodity Tracking, DBC
0.13% Telecom Services VIPERs, VOX
0.12% Consumer Staples VIPERs, VDC
0.11% Growth LargeCap Russell 3000, IWZ
0.11% Wilshire 5000 ST TM, TMW
0.10% Telecommunications Global, IXP
0.10% Growth 1000 Russell, IWF
0.10% Netherlands Index, EWN
0.10% MidCap VIPERs, VO
0.09% Growth SmallCap R 2000, IWO
0.09% Growth Mid Cap Dynamic PS, PWJ
0.06% Retail, PMR
0.05% S&P 500 SPDRs LargeCap Blend, SPY
0.04% Telecom DJ US, IYZ
0.04% Bond, TIPS, TIP
0.03% Short 100% S&P 500, SH
0.02% Software, IGV
0.02% LargeCap VIPERs, VV
0.01% SmallCap Russell 2000, IWM
0.01% Bond, Aggregate, AGG
0.01% Bond, 10 Year Treasury, IEF
0.00% Consumer Discretionary SPDR, XLY
0.00% Short 200% Dow 30 PS, DXD
0.00% Technology MS sT, MTK
-0.02% Biotech SPDR, XBI
-0.03% Growth SmallCap iS M, JKK
-0.04% SmallCap PS Zacks, PZJ
-0.08% Extended Mkt VIPERs, VXF
-0.09% LargeCap Blend Socially Responsible iS, KLD
-0.09% Bond, 1-3 Year Treasury, SHY
-0.10% Ultra Dow30 Double, DDM
-0.11% Value LargeCap NYSE 100 iS, NY
-0.12% Consumer D. VIPERs, VCR
-0.13% Short 100% Dow 30, DOG
-0.14% LargeCap Blend S&P 100, OEF
-0.14% Value SmallCap VIPERS, VBR
-0.15% MidCap Russell, IWR
-0.15% LargeCap Blend S&P=Weight R, RSP
-0.16% LargeCap Rydex Rus Top 50, XLG
-0.17% IPOs, First Tr IPOX-100, FPX
-0.17% S&P 500 iS LargeCap Blend, IVV
-0.19% LargeCap Blend Russell 3000, IWV
-0.19% LargeCap Blend Total Market DJ, IYY
-0.21% Blend Total Market VIPERs, VTI
-0.21% LargeCap 1000 R, IWB
-0.22% MidCap Blend Core iS M, JKG
-0.22% Industrials VIPERs, VIS
-0.23% Growth BARRA Small Cap 600, IJT
-0.23% LargeCap Blend S&P 1500 iS, ISI
-0.24% Health Care VIPERs, VHT
-0.25% LargeCap Blend Core iS M, JKD
-0.25% Telecom H, TTH
-0.26% Biotechnology, IBB
-0.26% SmallCap Core iS M, JKJ
-0.27% Dividend Achievers PS, PFM
-0.29% Dividend Appreciation Vipers, VIG
-0.31% Japan Index, EWJ
-0.32% Health Care SPDR, XLV
-0.32% Bond, Corp, LQD
-0.33% Europe 100 BLDRS, ADRU
-0.33% Value SmallCap Russell 2000, IWN
-0.34% SmallCap S&P 600, IJR
-0.34% Industrial SPDR, XLI
-0.36% Microcap Russell, IWC
-0.36% Value MidCap S&P 400 B, IJJ
-0.36% Short 200% S&P 500 PS, SDS
-0.39% Value LargeCap Russell 3000, IWW
-0.41% Gold Shares S.T., GLD
-0.44% Value MidCap Russell, IWS
-0.44% Healthcare DJ, IYH
-0.44% Realty Cohen & Steers, ICF
-0.48% Industrial LargeCap Blend DJ US, IYJ
-0.48% Nanotech Lux, PXN
-0.48% Water Resources, PHO
-0.49% Consumer Cyclical DJ, IYC
-0.49% Value LargeCap Fundamental RAFI 1000, PRF
-0.49% Utilities H, UTH
-0.51% Micro Cap Zachs, PZI
-0.52% Value LargeCap Dynamic PS, PWV
-0.52% Capital Markets KWB ST, KCE
-0.52% Biotech H, BBH
-0.56% Utilities DJ, IDU
-0.58% Value Small Cap DJ, DSV
-0.60% Utilities VIPERs, VPU
-0.60% Financials Global LargeCap Value, IXG
-0.61% Homebuilders SPDR, XHB
-0.63% Aerospace & Defense, PPA
-0.63% Value MidCap S&P 400, RFV
-0.64% Value VIPERs, VTV
-0.64% Value Large Cap DJ, ELV
-0.64% Value SmallCap iS M, JKL
-0.65% Value S&P 500 B, IVE
-0.69% Value SmallCap S&P 600 B, IJS
-0.69% Short 100% QQQ, PSQ
-0.74% REIT VIPERs, VNQ
-0.75% Dividend Growth PS, PHJ
-0.76% Global Titans, DGT
-0.77% Value MidCap iS M, JKI
-0.81% Leisure & Entertainment, PEJ
-0.82% Value LargeCap iS M, JKF
-0.83% Internet H, HHH
-0.83% Food & Beverage, PBJ
-0.83% Utilities, PUI
-0.83% Value 1000 Russell, IWD
-0.84% REIT Wilshire, RWR
-0.87% United Kingdom Index, EWU
-0.91% Utilities SPDR, XLU
-0.93% Taiwan Index, EWT
-0.97% Semiconductors, PSI
-0.99% Real Estate US DJ, IYR
-1.04% Short 200% MidCap 400 PS, MZZ
-1.05% Value MidCap Dynamic PS, PWP
-1.08% Pharmaceutical H, PPH
-1.09% Transportation Av DJ, IYT
-1.17% Insurance, PIC
-1.18% Financials VIPERs, VFH
-1.27% Short 200% QQQ PS, QID
-1.28% Value S&P 500, RPV
-1.31% Dividend SPDR, SDY
-1.49% Financial DJ US, IYF
-1.54% Pharmaceuticals, PJP
-1.55% Financial SPDR, XLF
-1.58% Financial Services DJ, IYG
-1.66% Dividend DJ Select, DVY
-1.71% Dividend International, PID
-1.98% Dividend Leaders, FDL
-2.02% Value SmallCap S&P 600, RZV
-2.29% Silver Trust iS, SLV
-2.44% Dividend High Yield Equity PS, PEY
-2.46% Bank Regional H, RKH
-4.84% Value SmallCap Dynamic PS, PWY