Daily Stock Market Commentary – 5/2/2008

Intermarket influences dominated Thursday’s stock market action. The U.S. dollar rose more than 1.0% to its highest level since 3/24/08. Crude oil fell more than 2.0% to its lowest level since 4/14/08. Gold fell 1.67% to its lowest level since 12/31/07. Traders reasoned that if these short-term corrective trends were to continue [which seems uncertain, to put it mildly] these trends could take upward pressure off the general price level. So far, no one seems to be worried about deflation, which could be worse than moderate inflation.

There could be further news-related volatility on Friday in reaction to payrolls/employment and earnings reports. Day to day, the stock market has been quite reactive to the news, rumors, and “reports” of the day. Reports can 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.

The recent 14-week upward tilting stock price correction has been rather persistent, but it still may be nothing more than a Secondary Reaction Continuation Pattern within the context of a Primary Bearish Trend. The conflict between the short-term trend and the longer-term trend seems to be unresolved, in my judgment. More time will tell.

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.

Energy (XLE) Neutral, Market Weight. On 4/22/08, both the XLE price close and the XLE/SPY Relative Strength Ratio rose to new all-time highs, again 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.

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.

Consumer Staples (XLP) Neutral, Market Weight. On 4/30/08, the XLP/SPY Relative Strength Ratio fell to a new 9-week low, confirming a corrective intermediate-term trend.

Technology (XLK) Neutral, Market Weight. On 4/24/08, the XLK/SPY Relative Strength Ratio rose to a new 3-month high, signaling an improving 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.

Consumer Discretionary (XLY) Bearish, Underweight. On 4/30/08, the XLY/SPY Relative Strength Ratio fell to a new 14-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 4/22/08, the XLV/SPY Relative Strength Ratio fell to a new 6-year low, again 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 underperformed short-term, over the past 2 weeks. 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 June futures fell sharply over the past 3 days. The short-term trend is down but the longer-term trends are up. 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 June futures broke down to a new 4-month low, again confirming a serious Secondary Reaction. Gold has been in a downside correction since 3/17/08. Longer term, the 7-year trend is still 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) / Gold Bullion Relative Strength Ratio fell to another new low on 4/29/08. Longer-term, GDX significantly underperformed Gold since 10/31/07. Therefore, GDX trends are Bearish relative to Gold itself.

U.S. Treasury Bond prices reversed to the downside. Bonds still could be in a Secondary Reaction, intermediate-term downside correction phase. Bond prices benefit from fears of financial crisis, and they correct to the downside when financial crisis takes a back seat to some other news of the day.

The U.S. dollar has been rising since its low on 4/22/08. It is at the top end of its trading range. 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 40.9% Bulls versus 31.8% Bears as of 4/30/08, according to the weekly Investors Intelligence survey of newsletter advisors. The Bull/Bear ratio rose to 1.29, up from 1.10 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 18.88, is very 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 22.72, is very 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 0.58, which indicates relatively 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 0.93, which indicates relatively Bearish 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 still may 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.

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 (1,409.34):

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

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 (1,409.34):

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:

6.26% Ultra QQQ Double, QLD
5.76% Consumer Discretionary SPDR, XLY
4.63% Capital Markets KWB ST, KCE
4.52% Financial Services DJ, IYG
4.23% Bank Regional H, RKH
4.20% Technology SPDR, XLK
4.02% Ultra S&P500 Double, SSO
3.98% Homebuilders SPDR, XHB
3.89% Financial DJ US, IYF
3.84% Telecom DJ US, IYZ
3.79% Dividend High Yield Equity PS, PEY
3.75% Semiconductor iS GS, IGW
3.73% Semiconductors, PSI
3.68% Financials VIPERs, VFH
3.66% Value S&P 500, RPV
3.51% Semiconductor SPDR, XSD
3.50% Software, IGV
3.48% Telecommunications & Wireless, PTE
3.47% Semiconductor H, SMH
3.44% Info Tech VIPERs, VGT
3.42% Financial SPDR, XLF
3.39% Transportation Av DJ, IYT
3.32% Dividend SPDR, SDY
3.28% Dividend Leaders, FDL
3.21% Software H, SWH
3.16% Growth LargeCap NASDAQ 100, QQQQ
3.12% Dividend Growth PS, PHJ
3.11% Technology Global, IXN
3.11% Technology GS, IGM
3.05% Ultra Dow30 Double, DDM
3.02% Internet Architecture H, IAH
3.02% Dividend DJ Select, DVY
2.99% Value MidCap S&P 400, RFV
2.97% Consumer D. VIPERs, VCR
2.89% Technology DJ US, IYW
2.88% Growth LargeCap NASDAQ Fidelity, ONEQ
2.88% Hardware & Electronics, PHW
2.87% Networking, PXQ
2.85% Biotech SPDR, XBI
2.84% Telecom Services VIPERs, VOX
2.83% Telecom H, TTH
2.66% Value SmallCap Dynamic PS, PWY
2.63% Value SmallCap S&P 600, RZV
2.62% Software, PSJ
2.62% OTC Dynamic PS, PWO
2.60% Technology MS sT, MTK
2.52% Value S&P 500 B, IVE
2.51% Consumer Cyclical DJ, IYC
2.46% Value SmallCap iS M, JKL
2.42% Ultra MidCap400 Double, MVV
2.41% Value Small Cap DJ, DSV
2.37% Biotech & Genome, PBE
2.36% Lg Cap Growth PSD, PWB
2.35% Real Estate US DJ, IYR
2.32% Value MidCap iS M, JKI
2.27% Realty Cohen & Steers, ICF
2.25% Biotechnology, IBB
2.23% Value LargeCap Dynamic PS, PWV
2.23% Taiwan Index, EWT
2.23% Retail H, RTH
2.21% Leisure & Entertainment, PEJ
2.21% LargeCap Blend S&P=Weight R, RSP
2.19% REIT Wilshire, RWR
2.18% Retail, PMR
2.17% Water Resources, PHO
2.15% REIT VIPERs, VNQ
2.14% SmallCap PS Zacks, PZJ
2.14% Building & Construction, PKB
2.12% Value LargeCap Fundamental RAFI 1000, PRF
2.12% China 25 iS, FXI
2.12% Value SmallCap VIPERS, VBR
2.07% Value SmallCap S&P 600 B, IJS
2.07% S&P 500 SPDRs LargeCap Blend, SPY
2.07% Financials Global LargeCap Value, IXG
2.05% Growth LargeCap iS M, JKE
2.03% SmallCap Core iS M, JKJ
2.02% LargeCap Rydex Rus Top 50, XLG
1.95% Value MidCap Dynamic PS, PWP
1.94% Broadband H, BDH
1.92% LargeCap Blend S&P 1500 iS, ISI
1.92% Growth SmallCap iS M, JKK
1.89% SmallCap Russell 2000, IWM
1.89% Healthcare Global, IXJ
1.87% Growth LargeCap Russell 3000, IWZ
1.87% Value 40 Large Low P/E FT DB, FDV
1.87% Growth Large Cap, ELG
1.85% Small Cap VIPERs, VB
1.83% Value SmallCap Russell 2000, IWN
1.83% S&P 500 iS LargeCap Blend, IVV
1.82% Value MidCap S&P 400 B, IJJ
1.82% IPOs, First Tr IPOX-100, FPX
1.81% Value Large Cap DJ, ELV
1.81% Consumer Staples SPDR, XLP
1.81% Value LargeCap iS M, JKF
1.81% Dividend Achievers PS, PFM
1.80% Hong Kong Index, EWH
1.80% Pharmaceutical H, PPH
1.79% Value LargeCap Russell 3000, IWW
1.79% LargeCap 1000 R, IWB
1.78% Health Care SPDR, XLV
1.78% LargeCap Blend Total Market DJ, IYY
1.76% Growth SmallCap Dynamic PS, PWT
1.76% Blend Total Market VIPERs, VTI
1.75% Value MidCap Russell, IWS
1.74% Value VIPERs, VTV
1.73% Industrial LargeCap Blend DJ US, IYJ
1.72% Aerospace & Defense, PPA
1.72% MidCap Russell, IWR
1.71% LargeCap Blend Russell 3000, IWV
1.71% Health Care VIPERs, VHT
1.71% LargeCap Blend Socially Responsible iS, KLD
1.68% Utilities VIPERs, VPU
1.68% LargeCap Blend S&P 100, OEF
1.66% Brazil Index, EWZ
1.65% Value 1000 Russell, IWD
1.64% Growth VIPERs, VUG
1.64% Value LargeCap NYSE 100 iS, NY
1.63% LargeCap VIPERs, VV
1.58% Growth 1000 Russell, IWF
1.58% Growth SmallCap R 2000, IWO
1.58% LargeCap Blend Core iS M, JKD
1.58% LargeCap Blend Dynamic PS, PWC
1.57% Pharmaceuticals, PJP
1.57% Growth Mid Cap Dynamic PS, PWJ
1.56% Microcap Russell, IWC
1.56% Networking, IGN
1.55% Micro Cap Zachs, PZI
1.52% Growth SmallCap VIPERs, VBK
1.52% Wilshire 5000 ST TM, TMW
1.51% Malaysia Index, EWM
1.48% Biotech H, BBH
1.48% MidCap VIPERs, VO
1.47% Dividend Appreciation Vipers, VIG
1.47% SmallCap S&P 600, IJR
1.44% Emerging VIPERs, VWO
1.44% Germany Index, EWG
1.43% Extended Mkt VIPERs, VXF
1.43% South Korea Index, EWY
1.42% MidCap S&P 400 iS, IJH
1.42% Insurance, PIC
1.41% Spain Index, EWP
1.40% MidCap S&P 400 SPDRs, MDY
1.40% Healthcare DJ, IYH
1.40% Internet Infrastructure H, IIH
1.39% Growth S&P 500/BARRA, IVW
1.38% DIAMONDS (DJIA), DIA
1.35% Growth MidCap Russell, IWP
1.35% Latin Am 40, ILF
1.34% Global Titans, DGT
1.34% Industrials VIPERs, VIS
1.33% Singapore Index, EWS
1.29% China LargeCap Growth G D H USX PS, PGJ
1.28% Nanotech Lux, PXN
1.21% Utilities, PUI
1.18% Utilities SPDR, XLU
1.15% MidCap Blend Core iS M, JKG
1.14% Belgium Index, EWK
1.13% Growth Small Cap DJ, DSG
1.13% Austria Index, EWO
1.12% Utilities H, UTH
1.09% Netherlands Index, EWN
1.09% Emerging 50 BLDRS, ADRE
1.07% Telecommunications Global, IXP
1.06% Emerging Markets, EEM
1.06% EMU Europe Index, EZU
1.03% Value LargeCap Euro STOXX 50 DJ, FEU
1.02% Pacific ex-Japan, EPP
1.01% Growth S&P 500, RPG
1.00% Utilities DJ, IDU
0.98% Growth BARRA Small Cap 600, IJT
0.96% Value Line Timeliness MidCap Gr, PIV
0.96% Sweden Index, EWD
0.95% Global 100, IOO
0.92% Growth MidCap S&P 400, RFG
0.92% Asia 50 BLDRS, ADRA
0.92% Euro STOXX 50, FEZ
0.91% France Index, EWQ
0.90% Japan Index, EWJ
0.88% MidCap Growth iS M, JKH
0.87% European VIPERs, VGK
0.84% Consumer Staples VIPERs, VDC
0.84% LargeCap Blend NYSE Composite iS, NYC
0.82% Internet H, HHH
0.74% Growth EAFE MSCI, EFG
0.73% Europe 350 S&P Index, IEV
0.72% Pacific VIPERs, VPL
0.72% Dividend International, PID
0.71% Internet B2B H, BHH
0.70% United Kingdom Index, EWU
0.67% Italy Index, EWI
0.66% Switzerland Index, EWL
0.66% Food & Beverage, PBJ
0.65% Industrial SPDR, XLI
0.65% Australia Index, EWA
0.65% Consumer Non-Cyclical, IYK
0.62% Growth MidCap 400 B, IJK
0.61% EAFE Index, EFA
0.53% Value EAFE MSCI, EFV
0.50% Europe 100 BLDRS, ADRU
0.47% Japan LargeCap Blend TOPIX 150, ITF
0.39% Developed 100 BLDRS, ADRD
0.24% WilderHill Clean Energy PS, PBW
0.22% Mexico Index, EWW
0.19% South Africa Index, EZA
0.15% Bond, Corp, LQD
-0.31% Canada Index, EWC
-0.33% Bond, 10 Year Treasury, IEF
-0.36% Bond, 20+ Years Treasury, TLT
-0.37% Bond, 1-3 Year Treasury, SHY
-0.46% Materials VIPERs, VAW
-0.49% Bond, TIPS, TIP
-0.49% Bond, Aggregate, AGG
-0.71% Materials SPDR, XLB
-0.76% Basic Materials DJ US, IYM
-1.18% Short 100% MidCap 400, MYY
-1.35% Short 100% Dow 30, DOG
-1.47% Energy Global, IXC
-1.66% Natural Resource iS GS, IGE
-1.66% Metals & Mining SPDR, XME
-1.79% Short 100% S&P 500, SH
-2.10% Energy Exploration & Prod, PXE
-2.19% Energy SPDR, XLE
-2.21% Energy VIPERs, VDE
-2.23% Short 200% MidCap 400 PS, MZZ
-2.29% Oil, Crude, U.S. Oil Fund, USO
-2.30% Oil Services H, OIH
-2.32% Commodity Tracking, DBC
-2.38% Energy DJ, IYE
-2.61% Oil & Gas, PXJ
-3.07% Gold Shares S.T., GLD
-3.11% Short 200% Dow 30 PS, DXD
-3.14% Short 100% QQQ, PSQ
-3.67% Short 200% S&P 500 PS, SDS
-4.34% Silver Trust iS, SLV
-6.27% Short 200% QQQ PS, QID