By Robert W. Colby, Senior Analyst TraderPlanet.com
Financial sector made a new 5-year low relative to the S&P 500.
Industrial sector made a new relative strength high.
Bonds gave up gains on the flight to safety.
Stocks opened lower and hit a low at 9:55 a.m. Prices bounced to the plus side, then added to gains in the final hour to close at the best levels of the day. It was a normal retracement of about half of the previous day’s loss.
Trading volume fell, however, thereby denying confirmation of the price upturn.
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
0.52% , RPG , Growth S&P 500, RPG
4.74% , BEAS , BEA Systems Inc
2.20% , WFMI , Whole Foods Market Inc
4.43% , YUM , YUM BRANDS
4.05% , SGP , SCHERING PLOUGH
0.95% , PXQ , Networking, PXQ
2.56% , VC , VISTEON
0.54% , MTK , Technology MS sT, MTK
0.66% , PTE , Telecommunications & Wireless, PTE
0.50% , IYF , Financial DJ US, IYF
0.27% , RSP , LargeCap Blend S&P=Weight R, RSP
3.10% , CPB , CAMPBELL SOUP
2.72% , EFX , EQUIFAX
0.32% , RFV , Value MidCap S&P 400, RFV
0.22% , RPV , Value S&P 500, RPV
1.40% , IIH , Internet Infrastructure H, IIH
2.70% , FCX , FREEPRT MCMORAN STK B
1.13% , EWU , United Kingdom Index, EWU
0.43% , ELV , Value Large Cap DJ, ELV
1.87% , MOT , MOTOROLA
2.03% , XMSR , XM Satellite R
2.10% , CEPH , Cephalon Inc
0.99% , BBH , Biotech H, BBH
2.68% , NUE , NUCOR
3.40% , CTXS , CITRIX SYSTEMS
2.75% , MAT , MATTEL
0.55% , RFG , Growth MidCap S&P 400, RFG
0.99% , MWV , MEADWESTVACO
0.65% , IYH , Healthcare DJ, IYH
0.80% , SLR , SOLECTRON
2.07% , EBAY , EBAY
1.94% , NSC , NORFOLK SOUTHERN
1.35% , GD , GENERAL DYNAMICS
2.44% , APD , AIR PRODS & CHEM
0.95% , IYM , Basic Materials DJ US, IYM
3.01% , BNI , BURLINGTON NORTH
1.03% , AW , ALLIED WASTE IND
1.14% , EZU , EMU Europe Index, EZU
4.23% , RFMD , RF Micro Devices Inc
2.56% , JNPR , Juniper Networks Inc
0.89% , LIZ , LIZ CLAIRBORNE
0.63% , SANM , SANMINA
1.07% , XLI , Industrial SPDR, XLI
0.70% , GCI , GANNETT
3.06% , PTV , PACTIV
3.32% , CSX , CSX
2.58% , BDK , BLACK & DECKER
0.28% , RZV , Value SmallCap S&P 600, RZV
1.48% , XME , Metals & Mining SPDR, XME
0.89% , SWH , Software H, SWH
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-9.78% , SLM , SLM CORP
-20.30% , CPWR , COMPUWARE
-48.53% , TBH , Telebras H, TBH
-2.45% , NEM , NEWMONT MINING
-1.32% , TRB , TRIBUNE
-2.69% , MHP , MCGRAW HILL
-0.61% , MYY , Short 100% MidCap 400, MYY
-1.74% , NE , NOBLE
-2.34% , TER , TERADYNE
-1.34% , RZG , Growth SmallCap S&P 600, RZG
-2.09% , F , FORD MOTOR
-1.39% , COF , CAPITAL ONE FNCL
-0.87% , NBR , NABORS
-1.64% , CC , CIRCUIT CITY STR
-0.25% , RWR , REIT Wilshire, RWR
-1.85% , RSH , RADIOSHACK
-1.57% , HAL , HALLIBURTON
-0.99% , DDS , DILLARD STK A
-1.07% , NYT , NY TIMES STK A
-1.04% , OIH , Oil Services H, OIH
-0.72% , BHI , BAKER HUGHES
-0.56% , AT , ALLTEL
-0.27% , UNH , UNITEDHEALTH GRP
-0.98% , DELL , DELL
-0.88% , BJS , BJ SERVICES
-0.27% , EKH , Europe 2001 H, EKH
-0.12% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-0.33% , PXE , Energy Exploration & Prod, PXE
-0.89% , WYE , WYETH
-0.21% , TXT , TEXTRON
-0.46% , ROST , Ross Stores Inc
-1.76% , AIV , APT INV MNGMT
-0.05% , PEJ , Leisure & Entertainment, PEJ
-0.88% , NSM , NATL SEMICONDUCT
-0.06% , HET , HARRAHS ENTER
-0.65% , SYY , SYSCO
-0.18% , SMH , Semiconductor H, SMH
-0.13% , ICF , Realty Cohen & Steers, ICF
-1.26% , SDS , Short 200% S&P 500 PS, SDS
-0.28% , TUP , TUPPERWARE
-0.17% , SPLS , STAPLES
-0.24% , HNZ , HJ HEINZ
-0.35% , IEF , Bond, 10 Year Treasury, IEF
-0.90% , ANDW , ANDREW
-0.40% , FPL , FPL GROUP INC
-0.61% , LTD , LIMITED BRANDS
-0.76% , NVLS , NOVELLUS SYS
-0.39% , PNC , PNC FINL SVC
-0.34% , USB , US BANCORP
-0.42% , RTN , RAYTHEON
Sectors: among the 9 major U.S. sectors, all 9 rose.
Major Sectors Ranked for the Day
% Price Change, Sector
0.62% Health Care
0.59% Consumer Discretionary
0.48% Consumer Staples
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. Relative strength made a new high on 7/11/07. Price (close) made a new high 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 7/11/07. 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 rose more than U.S. stocks as the U.S. dollar fell again. 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 have 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 eased modestly lower, after making a new 7-month closing price high on 7/10/07. The short-term trend is now questionable. The U.S. OIL FUND ETF (AMEX: USO) may be finding resistance near 55, and USO is still well below its peak at 73.29 on 7/13/06.
Energy stocks outperformed USO but underperformed SPY. 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 formed a Bearish Engulfing Line, even as U.S. dollar fell. 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 GLD has been relatively weak for 13 months.
Silver eased slightly lower 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) fell less than GLD and so moderately outperformed for the day—and 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 eased moderately lower, failing to capitalize on Tuesday’s strong momentum for the short term. Still, for the longer term, 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 gave up most of Tuesday’s gain, reflecting partial unwinding of the 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 fell again to another new 2-year low and remains very 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 eased slightly lower, and its major trend is Bearish. Although the Yen may still be in an uptrend for the short term, 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.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
1.72% Dow Transports
1.13% United Kingdom
1.08% South Korea
1.03% Health Care Products
0.96% AMEX Composite
0.96% Hong Kong
0.91% Dow Composite
0.67% Health Care
0.63% S&P 100
0.62% Nasdaq 100
0.62% Health Care
0.61% NYSE Composite
0.59% Consumer Discretionary
0.57% S&P 500
0.56% Dow Industrial
0.56% Russell 1000
0.55% S&P Small Caps
0.54% Russell 3000
0.53% Broker Dealers
0.52% Wilshire 5000
0.51% S&P Mid Caps
0.50% Dow Utilities
0.49% Computer Tech
0.48% Nasdaq Composite
0.48% Consumer Staples
0.46% Natural Gas
0.41% Value Line
0.36% British Pound
0.31% Euro Index
0.30% Russell 2000
0.30% Commodity Related
0.13% Swiss Franc
0.01% Japanese Yen
-0.06% Gold Mining
-0.09% US Dollar Index
-0.09% Australian Dollar
-0.34% Disk Drives
-0.39% Canadian Dollar
-0.42% Oil Services
-0.44% 30Y T-Bond
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.