By Robert W. Colby, Senior Analyst TraderPlanet.com
Inflation expectations are clearly rising.
Trading volume rose on both on the NYSE and NASDAQ, indicating active selling.
The Advance-Decline balance was very Bearish on the NYSE and slightly less Bearish on NASDAQ, for a change.
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
4.04% , HOG , HARLEY DAVIDSON
4.01% , SLB , SCHLUMBERGER
5.99% , SIRI , Sirius Satellite
6.27% , XMSR , XM Satellite R
9.10% , JBL , JABIL CIRCUIT
2.83% , TYC , TYCO INTL
3.40% , R , RYDER SYSTEM
1.69% , PTEN , Patterson-UTI Energy Inc
2.05% , CCL , CARNIVAL STK A
3.07% , UIS , UNISYS
2.65% , DYN , DYNEGY
0.76% , ACE , ACE
2.43% , RIG , TRANSOCEAN
1.35% , MRVL , MARVELL TECHNOLOGY
0.56% , CBE , COOPER INDS STK A
2.47% , F , FORD MOTOR
0.74% , XL , XL CAPITAL STK A
1.48% , JNY , JONES APPAREL
3.33% , LVLT , LEVEL 3 COMMUNICATIONS
1.21% , NE , NOBLE
0.98% , PWER , POWER ONE
2.11% , GOOG , Google
2.02% , EBAY , EBAY
3.11% , AES , AES
0.65% , TLT , Bond, 20+ Years Treasury, TLT
0.92% , MYY , Short 100% MidCap 400, MYY
1.14% , LTD , LIMITED BRANDS
0.66% , NBR , NABORS
0.20% , GRMN , GARMIN LTD
1.06% , SH , Short 100% S&P 500, SH
1.18% , BEAS , BEA Systems Inc
1.14% , LUV , SOUTHWEST AIRLS
0.20% , BDX , BECTON DICKINSON
0.48% , OXY , OCCIDENTAL
0.59% , MYL , MYLAN LABS
0.70% , DDS , DILLARD STK A
0.56% , IAU , Gold COMEX iS, IAU
0.14% , SHY , Bond, 1-3 Year Treasury, SHY
1.62% , MZZ , Short 200% MidCap 400 PS, MZZ
0.41% , TIP , Bond, TIPS, TIP
0.10% , DD , DU PONT
0.27% , WAG , WALGREEN
0.24% , HOT , STARWOOD HOTELS
0.51% , CTL , CENTURYTEL
0.89% , VRSN , VeriSign Inc
0.15% , HNZ , HJ HEINZ
0.24% , AGG , Bond, Aggregate, AGG
0.06% , GT , GOODYEAR TIRE
0.57% , MON , MONSANTO
0.05% , FHN , FIRST TENNESSEE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-0.99% , VB , Small Cap VIPERs, VB
-0.71% , VIS , Industrials VIPERs, VIS
-1.13% , NY , Value LargeCap NYSE 100 iS, NY
-4.79% , PMCS , PMC SIERRA
-3.29% , KR , KROGER
-2.52% , BCR , C R BARD
-2.25% , EZA , South Africa Index, EZA
-2.53% , PFG , PRINCIPAL FINL
-2.44% , SYK , STRYKER
-1.50% , DLTR , Dollar Tree Stores Inc
-0.52% , RPG , Growth S&P 500, RPG
-3.32% , SCHW.O , CHARLES SCHWAB
-0.98% , PZJ , SmallCap PS Zacks, PZJ
-1.14% , EWD , Sweden Index, EWD
-2.14% , IWZ , Growth LargeCap Russell 3000, IWZ
-1.74% , MOLX , MOLEX
-1.30% , ACS , AFFILIATED COMPUTER
-2.42% , STJ , ST JUDE MEDICAL
-2.25% , PCAR , PACCAR
-2.90% , BF.B , BROWN FORMAN STK B
-1.71% , VC , VISTEON
-1.04% , SNPS , Synopsys Inc
-2.53% , CIT , CIT GROUP
-2.01% , TEK , TEKTRONIX
-1.98% , MDP , MEREDITH
-2.22% , JNJ , JOHNSON&JOHNSON
-2.37% , CNP , CENTERPNT ENERGY
-2.27% , SO , SOUTHERN
-1.51% , HSIC , Henry Schein Inc
-1.51% , PBE , Biotech & Genome, PBE
-2.76% , SPLS , STAPLES
-1.17% , EWQ , France Index, EWQ
-2.20% , FITB , FIFTH THIRD BANC
-1.15% , PIC , Insurance, PIC
-2.33% , C , CITIGROUP
-2.35% , CKFR , Checkfree Corp.
-1.32% , VGK , European VIPERs, VGK
-2.01% , NCC , NATIONAL CITY
-1.19% , PWT , Growth SmallCap Dynamic PS, PWT
-1.89% , COH , COACH
-2.14% , LAMR , Lamar Advertising Company
-2.53% , NSC , NORFOLK SOUTHERN
-2.03% , IBM , IBM
-2.81% , ODP , OFFICE DEPOT
-1.51% , IYG , Financial Services DJ, IYG
-1.29% , TMK , TORCHMARK
-0.97% , LNC , LINCOLN NATL
-2.41% , WB , WACHOVIA
-2.89% , EOG , EOG RESOURCES
-1.09% , VBR , Value SmallCap VIPERS, VBR
Sectors: among the nine major U.S. sectors, all nine fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.29% Materials
-0.55% Consumer Staples
-0.58% Industrial
-0.66% Consumer Discretionary
-0.99% Energy
-1.12% Technology
-1.27% Financial
-1.52% Health Care
-1.90% Utilities
Energy (XLE) underperformed, but XLE’s major trend is Bullish. XLE has been relatively strong compared to the S&P since 3/12/03. Overweight.
Materials (XLB) strongly outperformed, and XLB’s major trend is Bullish. Relative strength made a new high. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.
Industrial (XLI) outperformed, and XLI’s major trend is Bullish. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Technology (XLK) underperformed, but 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) sharply underperformed again, 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) sharply 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) sharply underperformed again, 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 sharply outperformed last week, with Relative Strength making another 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 again, but 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 fell less than Value stocks in June, picking up relative strength. Longer term, the major trend of Growth/Value has been mostly Bearish for seven years.
Small Caps outperformed relative to Large Caps since 5/17/07. Longer term, the trend has been more Bearish than Bullish since the Small-Cap relative strength peak on 4/19/06.
Semiconductors have outperformed since 5/30/07. Longer-term, SMH has underperformed the S&P 500 for more than seven years, since 3/10/00.
Crude Oil rose again—but on lower, below-average volume. On 6/19/07, intraday, crude made a new ten-week high—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 rose less 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 has been weak since 4/20/07. Trading volume has declined to very low levels, 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. Longer term, 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 since 6/5/07 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. XAU underperformed GLD since 5/31/1996, so the big trend is Bearish.
Inflation expectations are clearly rising. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes set a new nine-month high on 6/22/07, after rising for six months, since 1/16/07. This intermediate-term trend still points toward rising inflation expectations.
Bond prices reversed to the upside. Friday’s action formed a Candlestick Bullish Engulfing Line, which may be a hopeful sign for the short term. Longer term, 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 resumed its seven-day downside correction. The dollar has been heading down since 6/13/07. It has been mostly heading up since 5/1/07. Longer term, 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 again. 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:
1.08% Swiss Franc
1.05% Oil Services
0.58% Euro Index
0.56% Canadian Dollar
0.32% British Pound
0.24% 30Y T-Bond
0.05% Australian Dollar
-0.03% Mexico
-0.11% Japanese Yen
-0.22% Austria
-0.29% Materials
-0.36% Chemicals
-0.42% US Dollar Index
-0.45% AMEX Composite
-0.46% Switzerland
-0.49% REITs
-0.55% Consumer Staples
-0.56% Gold Mining
-0.56% Insurance
-0.58% Industrial
-0.58% Hospitals
-0.58% Paper
-0.59% Australia
-0.60% Russell 2000
-0.60% Internet
-0.66% Consumer Discretionary
-0.73% Canada
-0.82% Malaysia
-0.85% Netherlands
-0.86% Dow Transports
-0.86% Commodity Related
-0.87% S&P Small Caps
-0.87% Oil
-0.90% Value Line
-0.90% Airlines
-0.90% DOT
-0.94% Retailers
-0.96% Japan
-0.99% Energy
-1.00% Nasdaq 100
-1.02% S&P Mid Caps
-1.05% Disk Drives
-1.07% Nasdaq Composite
-1.12% NYSE Composite
-1.12% Wilshire 5000
-1.12% Technology
-1.14% Sweden
-1.15% Belgium
-1.17% France
-1.18% Germany
-1.21% United Kingdom
-1.26% Russell 3000
-1.27% Financial
-1.28% Hong Kong
-1.29% S&P 500
-1.29% Dow Composite
-1.32% Computer Tech
-1.33% Russell 1000
-1.37% Dow Industrial
-1.39% Health Care Products
-1.43% S&P 100
-1.45% Hardware
-1.52% Health Care
-1.52% Semiconductors
-1.53% Italy
-1.57% Drugs
-1.61% Health Care
-1.63% Singapore
-1.63% Spain
-1.74% Banks
-1.76% Dow Utilities
-1.78% Natural Gas
-1.79% Broker Dealers
-1.81% Brazil
-1.82% Biotechs
-1.85% Network
-1.90% Utilities
-2.09% Taiwan
-2.78% South Korea
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 not always easy to predict.
