By Robert W. Colby, Senior Analyst TraderPlanet.com
Stocks Show Resilience
Bulls take back control.
Some short-term momentum oscillators now show a rising trend.
U.S. dollar rising.
Japanese yen falling.
Foreign stocks lagging.
Inflation expectations rising.
Trading volume rose slightly, on both on the NYSE and NASDAQ, suggesting a shift in power to the Bulls.
The Advance-Decline balance snapped back vigorously on the NYSE, but breadth was substantially less impressive on the NASDAQ. On 6/12/07, the Cumulative Daily Advance-Decline Lines broke down to the lowest level in two months for the NYSE and to the lowest level in three months for the NASDAQ. Wednesday’s rally did not break these A-D downtrends, which now we should watch closely.
Some short-term momentum oscillators now show a rising trend. For example, the standard RSI 14 rose above its high of 6/11/07, breaking out of an upward tilting W pattern. It may be significant that these oscillators did not make new lows this week.
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
6.85% , PWER , POWER ONE
1.08% , MKH , Market 2000 H, MKH
1.47% , PZJ , SmallCap PS Zacks, PZJ
1.66% , FEZ , Euro STOXX 50, FEZ
1.33% , RPV , Value S&P 500, RPV
2.14% , EWQ , France Index, EWQ
1.32% , ELV , Value Large Cap DJ, ELV
1.16% , PIV , Value Line Timeliness MidCap Gr, PIV
1.28% , TMW , Wilshire 5000 ST TM, TMW
2.01% , EWI , Italy Index, EWI
1.37% , PSI , Semiconductors, PSI
4.71% , MEL , MELLON FINANCIAL
1.66% , VIS , Industrials VIPERs, VIS
1.16% , RZG , Growth SmallCap S&P 600, RZG
4.73% , ITW , ILLINOIS TOOL
1.33% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
1.37% , EFG , Growth EAFE MSCI, EFG
4.54% , CTSH , Cognizant Technology Solutions
1.97% , PXE , Energy Exploration & Prod, PXE
2.24% , RWR , REIT Wilshire, RWR
1.27% , DBC , Commodity Tracking, DBC
0.91% , VOX , Telecom Services VIPERs, VOX
2.81% , GWW , WW GRAINGER
1.60% , SWH , Software H, SWH
1.99% , HAS , HASBRO
1.21% , VXF , Extended Mkt VIPERs, VXF
4.54% , BK , BANK OF NEW YORK
5.34% , IR , INGER RAND
1.62% , IGW , Semiconductor iS GS, IGW
3.59% , LBTYA , Liberty Global Inc. (LBTYA)
1.38% , PPA , Aerospace & Defense, PPA
1.27% , VB , Small Cap VIPERs, VB
2.05% , PTV , PACTIV
4.32% , DOV , DOVER
1.07% , USO , Oil, Crude, U.S. Oil Fund, USO
0.74% , PIC , Insurance, PIC
1.60% , RRD , RR DONNELLEY SON
1.23% , MTK , Technology MS sT, MTK
2.37% , CAT , CATERPILLAR
1.28% , JKG , MidCap Blend Core iS M, JKG
4.23% , PXJ , Oil & Gas, PXJ
1.02% , VIA , VIACOM INC. (New)
0.98% , PZI , Micro Cap Zachs, PZI
1.18% , RFV , Value MidCap S&P 400, RFV
1.18% , TTH , Telecom H, TTH
0.69% , IAU , Gold COMEX iS, IAU
2.59% , S , SPRINT NEXTEL
3.59% , MON , MONSANTO
2.46% , ADI , ANALOG DEVICES
3.11% , GT , GOODYEAR TIRE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-2.88% , LVLT , LEVEL 3 COMMUNICATIONS
-1.66% , HUM , HUMANA
-2.14% , NSM , NATL SEMICONDUCT
-1.57% , SH , Short 100% S&P 500, SH
-1.38% , BOL , BAUSCH & LOMB
-1.77% , XMSR , XM Satellite R
-0.81% , MTG , MGIC INVESTMENT
-2.99% , DXD , Short 200% Dow 30 PS, DXD
-1.07% , CI , CIGNA
-3.25% , LXK , LEXMARK INTL STK A
-0.74% , UIS , UNISYS
-2.39% , AAPL , APPLE COMPUTER
-0.57% , EDS , ELECTR DATA
-0.49% , CAH , CARDINAL HEALTH
-0.48% , DIS , WALT DISNEY
-0.55% , LAMR , Lamar Advertising Company
-0.83% , LUV , SOUTHWEST AIRLS
-0.22% , TXU , TXU
-0.15% , BDX , BECTON DICKINSON
-0.64% , AET , AETNA
-0.42% , VZ , VERIZON COMMS
-0.70% , DDS , DILLARD STK A
-0.04% , CL , COLGATE
-0.10% , CMA , COMERICA
-0.12% , QLGC , QLOGIC
-0.04% , PBI , PITNEY BOWES
Energy (XLE) outperformed, and XLE’s major trend is Bullish. XLE has been relatively strong compared to the S&P since 3/12/03. Overweight.
Materials (XLB) outperformed, and XLB’s major trend is Bullish. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight for the long term. even though XLB may seem somewhat uncertain technically for the short-term.
Industrial (XLI) strongly outperformed, and XLI’s major trend is Bullish. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Financial (XLF) outperformed, but XLF’s major trend is Bearish. XLF has been relatively weak compared to the S&P since 3/23/04. Underweight.
Technology (XLK) underperformed, and XLK’s major trend is uncertain. XLK has been relatively strong compared to the S&P most of the time since 4/20/07, but XLK has been relatively weak compared to the S&P since 3/10/00. Marketweight until XLK makes up its mind.
Consumer Staples (XLP) sharply underperformed, and XLP’s major trend is Bearish. XLP has been relatively weak compared to the S&P since 10/9/02. Underweight.
Utilities (XLU) outperformed, but XLU’s major trend is Bearish. XLU has been relatively weak compared to the S&P since 9/20/01. Underweight.
Health Care (XLV) sharply underperformed, and XLV’s major trend is Bearish. XLV has been relatively weak compared to the S&P since 10/9/02. Underweight.
Consumer Discretionary (XLY) underperformed, and XLY’s major trend is Bearish. XLY has been relatively weak compared to the S&P since 1/5/05. Underweight.
Foreign Stocks underperformed again and have been underperforming since 4/12/07. The EAFE (international developed country stock markets, ex the U.S. and Canada) has been underperforming the S&P 500. This relative decline appears to be developing into a serious correction.
NASDAQ underperformed, and NASDAQ’s major trend is Bearish. The NASDAQ Composite has been relatively weak compared to the S&P since 3/10/00. Underweight.
Growth underperformend Value again. The trend of the ratio of Growth stocks relative to Value stocks has been choppy and sideways this year, 2007. The major trend of Growth/Value has been mostly Bearish for seven years.
Small Caps have Bearish minor and major relative strength trends. The ratio of Small Cap stocks relative to Large Caps (Russell 2000/Russell 1000) has fallen every day since 6/4/07. In longer-term perspective, the ratio has been heading down since 4/19/06, so the major trend is Bearish for Small Caps relative to Large Caps.
Semiconductors outperformed for the day. On an absolute price basis, Semiconductor HOLDERS (SMH) have been in a declining trend since 5/14/07. In the larger perspective, the Semiconductor industry group has been underperforming the S&P 500 for more than seven years.
Crude Oil rose above three-day highs on higher volume. But from a longer perspective, USO has been chopping up and down in a trading range since February, and it is still stuck in that range. Previous lows at 47.30-47.39 appear to be offering technical support. Resistance appears in the 51-52 zone. The USO cyclical trend has been Bearish since USO peaked at 73.29 on 7/13/06. The U.S. OIL FUND ETF (AMEX: USO) is a good indicator for the market price of crude oil futures.
Energy Stocks bounced. XLE moved higher relative to both USO and SPY. Since 3/2/07, the stocks of the oil companies have been much stronger than oil as a commodity, not every day but most of the time, and that still looks like an important continuing trend. XLE is the Energy Select Sector SPDR ETF.
Gold underperformed again. On 6/8/07, GLD broke below April-May lows, confirming again an ongoing and significant downside correction. StreetTRACKS Gold Trust ETF (NYSE: GLD), which reflects the market price of gold futures, topped out at 70.2 on 5/12/06, and so has been relatively week for 13 months.
Silver outperformed Gold slightly for the day, but has been mostly underperforming for the year 2007. Most recently, iShares Silver Trust (AMEX: SLV) have been in a falling trend relative to GLD since 6/5/07. On an absolute price basis, the larger silver trend looks like a trading range since the top on 5/11/06.
Gold Mines outperformed GLD for the day but are still underperforming longer term. The Gold Miners Index (XAU) has underperformed GLD since 5/31/1996, with no clear end in sight to that relatively Bearish trend.
Inflation expectations are in a rising trend. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes rose to another new nine-month high on 6/13/07. This ratio has been rising since 1/16/07, thereby indicating a trend toward rising inflation expectations.
Bonds bounced but did not make back Tuesday’s steeper loss. TLT hit a new three-year price low on 6/12/07, the lowest since June, 2004. This is a very serious price downtrend and yield uptrend. The main trend is clearly Bearish for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT).
U.S. dollar rose to another new two-month high, again confirming its short-term uptrend. The two-month trend is rising, but the long-term, six-year trend still points down. The dollar has been falling most of the time since its peak at 121.29 on 7/5/2001.
Japanese Yen broke down to its lowest level in more than four years, a major Bearish signal. The yen has been weak since its peak at 12,625 on 4/19/1995.
3.03% Oil Services
2.52% Sweden
2.38% Industrial
2.35% Materials
2.24% Singapore
2.14% REITs
2.14% France
2.13% Hong Kong
2.07% Chemicals
2.04% Dow Utilities
2.01% Italy
2.00% Energy
1.99% Utilities
1.97% Natural Gas
1.96% Commodity Related
1.92% South Korea
1.91% Oil
1.90% Financial
1.88% Spain
1.87% Brazil
1.86% Belgium
1.81% United Kingdom
1.80% Banks
1.76% Taiwan
1.71% Dow Transports
1.64% Mexico
1.63% Dow Composite
1.60% Paper
1.52% S&P 500
1.47% Biotechs
1.46% Malaysia
1.44% S&P 100
1.44% Semiconductors
1.43% NYSE Composite
1.43% Russell 1000
1.43% Germany
1.42% Russell 3000
1.41% Dow Industrial
1.40% Wilshire 5000
1.40% Network
1.39% Gold Mining
1.38% DOT
1.33% Broker Dealers
1.32% Russell 2000
1.28% Nasdaq Composite
1.28% Value Line
1.28% Technology
1.25% S&P Small Caps
1.24% Computer Tech
1.23% Nasdaq 100
1.22% Canada
1.22% Netherlands
1.19% Australia
1.15% Consumer Discretionary
1.12% S&P Mid Caps
1.09% Internet
1.04% Retailers
0.95% Health Care
0.93% Health Care Products
0.88% Austria
0.81% Health Care
0.77% Consumer Staples
0.77% 30Y T-Bond
0.69% Hospitals
0.63% AMEX Composite
0.61% Drugs
0.58% Switzerland
0.32% Insurance
0.28% Japan
0.25% Disk Drives
0.18% Hardware
0.13% US Dollar Index
-0.06% Airlines
-0.25% Swiss Franc
-0.26% Euro Index
-0.28% British Pound
-0.44% Canadian Dollar
-0.50% Australian Dollar
-0.60% Japanese Yen
To sum up the current position of the U.S. stock market:
Longer term, the U.S. stock market has shown impressive Bullish resilience since the major low on 10/10/02, more than four years ago. Stock prices have been buoyed by abundant global liquidly (following years of fiscal stimulation, rapid money supply growth, and rising corporate profits), M&A, and earnings comparisons above expectations.
Liquidity driven merger and acquisitions news has been helping to keep the old Bull alive. Both U.S. and foreign corporations hold excess cash after several years of rising profits, and so M&A speculation as well as leveraged buyouts and corporate stock buybacks have provided substantial Bullish stimulus to stock prices. In 2007, mergers and acquisitions are running about 60% ahead of 2006’s record pace, driven by rising stock prices and private-equity funds that raised more than $250 billion for takeovers since the start of 2006. Takeovers are on track to surpass 2006’s all-time high of $3.49 trillion, according to data compiled by Bloomberg.
Conservative earnings estimates also have been useful in keeping the old Bull alive. First quarter 2007 corporate earnings reflected a significant growth slowdown. Nevertheless, earnings were ahead of expectations, which had been lowered to very conservative levels in advance of actual reporting. Managements and Wall Street have learned that investors hate disappointments, so they simply don’t give them any–unless absolutely necessary.
Stocks generally are fully valued to over priced by long-term historical standards. Although that alone does not mean that stocks cannot continue to trend higher, nevertheless, it is good to remember that “no tree grows to the sky.” The cyclical nature of stock prices never really changes, although the turning points are hard to predict.
