By Robert W. Colby, Senior Analyst TraderPlanet.com
Put/Call Ratio: The CBOE Equity Volume and Put/Call Ratio (http://www.cboe.com/data/PutCallRatio.aspx), fell to 0.47 on 6/18/07, a level indicating extreme Bullish complacency. The three-year median is 0.62, and the past 12 months’ range is 0.45 to 0.98.
Stocks opened higher, but immediately turned down. A steady slide after 2 p.m. into a weak close did most of the relatively large damage.
Trading volume increased to high levels, on both on the NYSE and NASDAQ, indicating intense selling of stocks.
The Advance-Decline balance was very Bearish on both the NYSE and NASDAQ.
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
4.60% , HD , HOME DEPOT
1.36% , CA , COMPUTER ASSOC
3.23% , DJ , DOW JONES
2.82% , FII , FED INVESTORS STK B
1.28% , CR , CRANE
4.91% , PMCS , PMC SIERRA
0.15% , PMR , Retail, PMR
3.08% , SSCC , Smurfit-Stone Container Corporation
2.80% , CMI , CUMMINS
1.87% , LTD , LIMITED BRANDS
2.25% , MU , MICRON TECH
0.35% , XSD , Semiconductor SPDR, XSD
2.83% , SDS , Short 200% S&P 500 PS, SDS
2.38% , GM , GENERAL MOTORS
1.61% , FDX , FEDEX
1.10% , MYY , Short 100% MidCap 400, MYY
1.91% , MDP , MEREDITH
2.33% , JBL , JABIL CIRCUIT
0.41% , EWM , Malaysia Index, EWM
2.92% , TWX , TIME WARNER INC
0.78% , CTB , COOPER TIRE
1.03% , CL , COLGATE
1.00% , IR , INGER RAND
2.43% , F , FORD MOTOR
1.81% , QID , Short 200% QQQ PS, QID
2.17% , DXD , Short 200% Dow 30 PS, DXD
1.48% , TGT , TARGET
0.27% , CAR , Avis Budget Group, Inc. (CAR)
0.46% , RTH , Retail H, RTH
0.71% , GR , GOODRICH CORP
0.34% , BEN , FRANKLIN RSC
0.81% , SWY , SAFEWAY
0.48% , HSIC , Henry Schein Inc
1.88% , ABI , Applera Corp-Applied Biosystems Group (ABI)
0.89% , QCOM , QUALCOMM
0.80% , PDCO , Patterson Dental Company
1.22% , LUV , SOUTHWEST AIRLS
0.38% , ROST , Ross Stores Inc
0.22% , LOW , LOWES
0.45% , EWT , Taiwan Index, EWT
0.52% , AMD , ADV MICRO DEV
0.96% , PSQ , Short 100% QQQ, PSQ
0.28% , WMI , WASTE MANAGEMENT
0.37% , SHW , SHERWIN WILLIAMS
0.19% , PX , PRAXAIR
0.40% , ECL , ECOLAB
0.18% , RX , IMS HEALTH
0.10% , NVDA , NVIDIA
0.35% , CAG , CONAGRA FOODS
0.14% , NWL , NEWELL RUBBER
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-1.42% , IYH , Healthcare DJ, IYH
-7.28% , DRI , DARDEN REST
-0.61% , RZV , Value SmallCap S&P 600, RZV
-4.12% , MCO , MOODYS CORP
-2.99% , MTG , MGIC INVESTMENT
-3.10% , IYE , Energy DJ, IYE
-2.74% , PNW , PINNACLE WEST
-1.11% , JKI , Value MidCap iS M, JKI
-3.11% , URBN , Urban Outfitters Inc.
-2.91% , XLE , Energy SPDR, XLE
-0.80% , VIS , Industrials VIPERs, VIS
-1.14% , IJT , Growth BARRA Small Cap 600, IJT
-1.80% , XBI , Biotech SPDR, XBI
-1.63% , IWC , Microcap Russell, IWC
-4.12% , GTW , GATEWAY
-0.79% , MTK , Technology MS sT, MTK
-1.78% , EWY , South Korea Index, EWY
-3.27% , PCG , PG&E
-1.43% , IJS , Value SmallCap S&P 600 B, IJS
-1.31% , ISI , LargeCap Blend S&P 1500 iS, ISI
-1.67% , XEL , XCEL ENERGY
-4.14% , NOV , NATIONAL OILWELL VARC0
-1.36% , XLG , LargeCap Rydex Rus Top 50, XLG
-3.12% , MHP , MCGRAW HILL
-1.59% , RKH , Bank Regional H, RKH
-2.10% , BHH , Internet B2B H, BHH
-2.35% , UNH , UNITEDHEALTH GRP
-1.98% , TAP , ADOLPH COORS STK B, TAP
-2.84% , VDE , Energy VIPERs, VDE
-2.67% , GCI , GANNETT
-1.76% , XLF , Financial SPDR, XLF
-2.11% , XME , Metals & Mining SPDR, XME
-2.99% , MBI , MBIA
-2.63% , DTE , DTE ENERGY
-3.03% , SGP , SCHERING PLOUGH
-2.61% , PGN , PROGRESS ENERGY
-1.87% , ACV , Alberto-Culver Co.
-1.32% , EZU , EMU Europe Index, EZU
-1.00% , VO , MidCap VIPERs, VO
-1.35% , IXG , Financials Global LargeCap Value, IXG
-1.30% , RPV , Value S&P 500, RPV
-7.24% , PIV , Value Line Timeliness MidCap Gr, PIV
-2.62% , MER , MERRILL LYNCH
-1.50% , JKK , Growth SmallCap iS M, JKK
-1.06% , JKG , MidCap Blend Core iS M, JKG
-1.28% , JKJ , SmallCap Core iS M, JKJ
-3.35% , CNP , CENTERPNT ENERGY
-0.86% , VIA , VIACOM INC. (New)
-2.61% , ADBE , ADOBE SYS
-3.37% , OXY , OCCIDENTAL
Sectors: among the nine major U.S. sectors, all nine fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.11% Consumer Staples
-0.18% Consumer Discretionary
-1.25% Health Care
Materials (XLB) underperformed, but 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.
Industrial (XLI) outperformed again, and XLI’s major trend is Bullish. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Technology (XLK) outperformed, and XLK’s relative strength trend is Bullish since its low on 7/24/06. In the big picture, however, XLK has been relatively weak compared to the S&P since 3/10/00.
Financial (XLF) underperformed, and XLF’s major trend is Bearish. XLF has been relatively weak compared to the S&P since 3/23/04. Underweight.
Consumer Staples (XLP) outperformed, but XLP’s major trend is Bearish. XLP has been relatively weak compared to the S&P since 10/9/02. Underweight.
Utilities (XLU) underperformed, and XLU’s major trend is Bearish. XLU has been relatively weak compared to the S&P since 9/20/01. Underweight.
Health Care (XLV) 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) outperformed, but XLY’s major trend is Bearish. XLY has been relatively weak compared to the S&P since 1/5/05. Underweight.
Foreign Stocks outperformed, with Relative Strength making a new six-week high. EFA has outperformed strongly since 6/13/07, and its short-term trend is still Bullish. Long term, EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) outperformed the S&P 500 since 3/19/03.
NASDAQ outperformed. NASDAQ’s relative strength trends are mixed. The NASDAQ Composite has been relatively strong since 5/17/07 but relatively weak compared to the S&P since 3/10/00.
Growth stocks fell, but still outperformed Value. Nevertheless, the major trend of Growth/Value has been mostly Bearish for seven years.
Small Caps underperformed relative to Large Caps. Longer-term, the trend has been more Bearish than Bullish since the Small-Cap relative strength peak on 4/19/06.
Semiconductors fell in price on above-average volume. Most of the time in June, the Semiconductor HOLDERS (SMH) trended higher on below-average volume. I said that SMH may find resistance near old highs in the 38-39 zone, and it appears it has. Long term, SMH has been underperforming the S&P 500 for more than seven years, since 3/10/00.
Crude Oil fell on higher, above-average volume. On 6/18/07, crude made new ten-week highs—but on below-average volume. Volume is not confirming price strength. 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. Watch the April high at 54.22 for resistance. 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 fell more than USO. But generally, 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 price broke down below previous two-day lows. Trading volume remained low, suggesting little interest in trading gold. On 6/8/07, GLD price 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 weak for 13 months.
Silver underperformed Gold slightly for the day and has been mostly underperforming since 12/7/06. On an absolute price basis, the larger trend for iShares Silver Trust (AMEX: SLV) looks like a trading range since the top on 5/11/06.
The Gold Miners Index (XAU) underperformed GLD again. XAU underperformed GLD since 5/31/1996, so the big trend is Bearish.
Inflation expectations turned down, and may have entered a downside correction for the short term. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes set a new nine-month high on 6/14/07, after rising for six months, since 1/16/07. This intermediate-term trend still points toward rising inflation expectations.
Bonds turned back down. TLT hit a new three-year price low on 6/12/07, the lowest since June, 2004. That indicates 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 fell for the fourth consecutive session. The dollar fell below the lowest lows of the previous eight trading sessions. Nevertheless, the trend since 5/1/07 may still be up. 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. In cases of such time-frame conflict, the longer-term trend usually wins.
Japanese Yen eased slightly lower. On 6/15/07, it fell to its lowest level in more than four years, confirming a Bearish trend. The yen has been weak since its peak at 12,625 on 4/19/1995.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
0.34% British Pound
0.03% US Dollar Index
-0.01% Swiss Franc
-0.04% Euro Index
-0.11% Consumer Staples
-0.17% Japanese Yen
-0.18% Consumer Discretionary
-0.19% Australian Dollar
-0.26% 30Y T-Bond
-0.29% Canadian Dollar
-0.35% AMEX Composite
-0.35% Hong Kong
-0.50% Dow Transports
-0.87% Value Line
-0.94% United Kingdom
-1.01% Nasdaq 100
-1.02% Nasdaq Composite
-1.02% S&P Mid Caps
-1.07% Dow Industrial
-1.10% Computer Tech
-1.21% NYSE Composite
-1.21% Dow Composite
-1.25% Health Care
-1.26% S&P Small Caps
-1.28% S&P 100
-1.29% Wilshire 5000
-1.32% Russell 1000
-1.33% Russell 3000
-1.33% Disk Drives
-1.36% S&P 500
-1.38% Health Care Products
-1.43% Russell 2000
-1.46% Health Care
-1.59% Broker Dealers
-1.78% South Korea
-1.86% Gold Mining
-2.05% Commodity Related
-2.27% Oil Services
-2.39% Natural Gas
-2.56% Dow Utilities
To sum up the current position of the U.S. stock market:
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 not always easy to predict.