By Robert W. Colby, Senior Analyst TraderPlanet.com
Financial sector and U.S. dollar collapse.
U.S. dollar collapsed to a new 2-year low and remains Bearish long term.
Bond prices jumped up, reflecting a flight to safety.
Crude Oil, Gold, and Inflation Expectations showed renewed Bullish momentum.
Stocks opened lower and fell further on Tuesday afternoon, ending an 8-day rally. The S&P 500 suffered its biggest loss since 6/7/07.
Trading volume rose substantially, confirming the downturn.
The Advance-Decline balance was very Bearish on the NYSE and NASDAQ, confirming the downturn.
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
4.91% , JBL , JABIL CIRCUIT
1.48% , SH , Short 100% S&P 500, SH
3.09% , XRX , XEROX
2.70% , MZZ , Short 200% MidCap 400 PS, MZZ
3.58% , GNTX , Gentex Corporation
4.18% , ATVI , Activision Inc.
3.80% , PBG , PEPSI BOTTLING
2.73% , SDS , Short 200% S&P 500 PS, SDS
1.69% , TLT , Bond, 20+ Years Treasury, TLT
1.09% , IVGN , Invitrogen Corporation
2.48% , HES , AMERADA HESS
1.48% , MRVL , MARVELL TECHNOLOGY
1.29% , AGN , ALLERGAN
2.12% , DXD , Short 200% Dow 30 PS, DXD
1.69% , LPX , LOUISIANA PAC
0.58% , ATI , ALLEGHENY TECH
1.47% , QID , Short 200% QQQ PS, QID
1.30% , CVG , CONVERGYS
1.74% , CAT , CATERPILLAR
0.43% , AGG , Bond, Aggregate, AGG
1.56% , PAYX , PAYCHEX
0.91% , PTEN , Patterson-UTI Energy Inc
0.68% , DISCA , Discovery Holding Co.
0.92% , NTAP , NETWK APPLIANCE
0.68% , IEF , Bond, 10 Year Treasury, IEF
0.69% , LQD , Bond, Corp, LQD
1.55% , AAPL , APPLE COMPUTER
0.25% , PFG , PRINCIPAL FINL
0.99% , VLO , VALERO ENERGY
1.35% , DRI , DARDEN REST
0.72% , DBC , Commodity Tracking, DBC
1.74% , GM , GENERAL MOTORS
0.89% , MU , MICRON TECH
1.57% , MYY , Short 100% MidCap 400, MYY
0.79% , TIP , Bond, TIPS, TIP
1.21% , DOG , Short 100% Dow 30, DOG
0.25% , ASN , ARCHSTONE-SMITH TRUST
1.50% , SLV , Silver Trust iS, SLV
0.25% , MRO , MARATHON OIL
0.74% , SUN , SUNOCO
0.41% , CPWR , COMPUWARE
0.87% , PSQ , Short 100% QQQ, PSQ
0.33% , CCE , COCA COLA ENTER
0.31% , CEPH , Cephalon Inc
0.35% , BA , BOEING
0.96% , EXPD , Expeditors International WA
0.05% , HD , HOME DEPOT
0.07% , WWY , WM WRIGLEY JR
0.98% , NVDA , NVIDIA
0.50% , MIL , MILLIPORE
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-10.03% , SHLD , SEARS HOLDINGS
-0.57% , XSD , Semiconductor SPDR, XSD
-1.78% , IYC , Consumer Cyclical DJ, IYC
-1.93% , DSV , Value Small Cap DJ, DSV
-1.68% , IWW , Value LargeCap Russell 3000, IWW
-0.92% , BDH , Broadband H, BDH
-1.61% , PEJ , Leisure & Entertainment, PEJ
-2.58% , KCE , Capital Markets KWB ST, KCE
-5.02% , LEH , LEHMAN BROS HLDG
-1.99% , IYZ , Telecom DJ US, IYZ
-1.15% , DGT , Global Titans, DGT
-4.05% , ABK , AMBAC FINL GRP
-4.02% , COF , CAPITAL ONE FNCL
-3.06% , XHB , Homebuilders SPDR, XHB
-2.98% , PCL , PLUM CREEK TIMB
-4.20% , WHR , WHIRLPOOL
-4.12% , BSC , BEAR STEARNS
-1.56% , IGV , Software, IGV
-4.43% , MHP , MCGRAW HILL
-1.67% , JKJ , SmallCap Core iS M, JKJ
-3.99% , SPG , SIMON PROP GRP
-1.30% , PUI , Utilities, PUI
-1.41% , SWH , Software H, SWH
-3.06% , SLE , SARA LEE
-1.82% , RKH , Bank Regional H, RKH
-1.88% , PIC , Insurance, PIC
-1.97% , DHI , D.R. HORTON, DHI
-2.76% , MBI , MBIA
-3.73% , CFC , COUNTRYWIDE FNCL
-0.75% , PSI , Semiconductors, PSI
-1.80% , PBI , PITNEY BOWES
-3.04% , SSO , Ultra S&P500 Double, SSO
-2.42% , MET , METLIFE
-1.77% , XLY , Consumer Discretionary SPDR, XLY
-3.14% , JWN , NORDSTROM
-2.76% , OMX , OFFICEMAX INC., OMX
-2.11% , XLF , Financial SPDR, XLF
-0.50% , EKH , Europe 2001 H, EKH
-2.43% , IGT , INTL GAME TECH
-2.20% , IYG , Financial Services DJ, IYG
-3.13% , HIG , HARTFORD FINL
-2.85% , AM , AMER GREETINGS STK A
-1.41% , HUM , HUMANA
-4.69% , TROW , T ROWE PRICE GP
-1.31% , XLG , LargeCap Rydex Rus Top 50, XLG
-3.43% , AXP , AMERICAN EXPRESS
-2.09% , BDK , BLACK & DECKER
-1.88% , RTH , Retail H, RTH
-1.65% , FII , FED INVESTORS STK B
-2.27% , TTH , Telecom H, TTH
Sectors: among the 9 major U.S. sectors, all 9 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
-0.84% Health Care
-0.91% Consumer Staples
-1.77% Consumer Discretionary
Energy (XLE) Bullish. Both price (intraday) and relative strength made new highs on 7/10/07. Relative strength has been strong compared to the S&P since 3/12/03. Overweight.
Materials (XLB) Bullish. Both price (close) and relative strength made new highs on 7/9/07. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.
Industrial (XLI) Bullish. Both price (close) and relative strength made new highs on 7/9/07. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Technology (XLK) Bullish. Price made a new 6-year high close on 7/9/07, and relative strength made a new high on 7/10/07. XLK has been relatively Bullish compared to the S&P since its low on 7/24/06.
Financial (XLF) Bearish. XLF made a new 5-year low relative to the S&P 500 on 7/10/07. Underweight.
Consumer Staples (XLP) Bearish. XLP has been relatively weak compared to the S&P since 10/9/02. Underweight.
Utilities (XLU) Bearish. XLU has been relatively weak compared to the S&P since 9/20/01. Underweight.
Health Care (XLV) Bearish. XLV made a new 14-month relative strength low on 7/9/07 and has been relatively weak compared to the S&P since 10/9/02. Underweight.
Consumer Discretionary (XLY) Bearish. XLY has been relatively weak compared to the S&P since 1/5/05. Underweight.
Foreign stocks fell–but not as much as U.S. stocks–as the U.S. dollar collapsed. EFA made a new absolute price high on 7/9/07 and outperformed strongly since 6/13/07. The EFA’s short-term relative strength 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 fell moderately after making a new 6-year price high on 7/9/07. The NASDAQ Composite has been relatively strong since 5/17/07 but relatively weak compared to the S&P since 3/10/00.
Growth beat Value. Growth stocks rose more (and fell less) than Value stocks since 5/16/07. Longer term, the major trend of Growth/Value has been mostly Bearish for seven years.
Small Caps fell steeply and underperformed relative to Large Caps since 6/27/07. Longer term, the trend has been more Bearish than Bullish since the Small-Cap relative strength peak on 4/19/06.
Crude Oil made a new 7-month closing price high. The short-term trend is now questionable. The U.S. OIL FUND ETF (AMEX: USO) is still well below its peak at 73.29 on 7/13/06.
Energy stocks outperformed SPY but the underperformed USO. Long term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.
Gold rose to a new 1-month high as the U.S. dollar collapsed. The GLD price trend turned Bullish for the short term. 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 rose to a new 2-week high and outperformed GLD for the day. But the longer-term trend of SLV relative to GLD still looks Bearish. iShares Silver Trust (AMEX: SLV) broke down to a new 6-month low on 6/26/07. SLV sharply underperformed Gold since 6/5/07 and has been mostly underperforming since 12/7/06.
The Gold Miners Index (XAU) moderately underperformed GLD for the day, but XAU has outperformed GLD since 6/26/07. On the other hand, XAU has underperformed GLD since 5/31/1996, so the long-term trend is questionable.
Inflation expectations rose and appear to be in a renewed uptrend. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes has been rising since 1/16/07, indicating rising inflation expectations.
Bond prices jumped up reflecting a flight to safety. Longer term, TLT hit a new 3-year price low on 6/12/07, the lowest since June, 2004. That indicates a very serious major 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 collapsed to a new 2-year low and remains Bearish long term. The dollar has been heading down since 6/13/07. Longer term, the dollar has been falling most of the time since its peak at 121.29 on 7/5/2001.
Japanese Yen rose to a new 1-month high, which signals an uptrend for the short term. But on 6/15/07, the Yen fell to its lowest level in more than four years. The Yen has been weak since its peak at 12,625 on 4/19/1995.
0.97% Japanese Yen
0.89% Swiss Franc
0.70% Euro Index
0.51% British Pound
0.35% Australian Dollar
-0.32% Canadian Dollar
-0.36% Gold Mining
-0.71% Computer Tech
-0.75% US Dollar Index
-0.81% Disk Drives
-0.84% Health Care
-0.87% Nasdaq 100
-0.87% Oil Services
-0.91% Consumer Staples
-0.95% Commodity Related
-0.99% Health Care
-1.02% Health Care Products
-1.09% Dow Industrial
-1.16% Nasdaq Composite
-1.18% Dow Utilities
-1.18% Natural Gas
-1.25% Dow Composite
-1.33% S&P 100
-1.33% South Korea
-1.35% AMEX Composite
-1.40% Russell 1000
-1.42% S&P 500
-1.42% Wilshire 5000
-1.44% Russell 3000
-1.45% NYSE Composite
-1.46% Value Line
-1.48% S&P Mid Caps
-1.53% United Kingdom
-1.54% Dow Transports
-1.76% S&P Small Caps
-1.77% Consumer Discretionary
-1.85% Russell 2000
-2.20% Hong Kong
-2.88% Broker Dealers
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.