By Robert W. Colby, Senior Analyst TraderPlanet.com
Consumer Staples sector: relative strength made a new 9-month low.
U.S. dollar fell again to another new 2-year low and remains very Bearish long term.
Stocks scored very big gains, encouraged by news of a very big M&A deal: Rio Tinto bid for Alcan. Liquidity driven merger and acquisitions news has been helping to keep the old Bull alive for a long time, and it does not appear to be over.
Stocks opened higher and trended higher all morning. Prices hesitated at lunchtime, then added to gains in the final two hours to close at the best levels of the day. It was a very impressive trend day.
Trading volume rose, thereby confirming the price uptrend.
The Advance-Decline balance was very Bullish on both the NYSE and NASDAQ, thereby confirming the price uptrend.
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
0.85% , MKH , Market 2000 H, MKH
6.74% , AA , ALCOA
2.04% , VFH , Financials VIPERs, VFH
9.90% , FAST , Fastenal Company
7.39% , TLAB , TELLABS
1.79% , FDV , Value 40 Large Low P/E FT DB, FDV
1.57% , UTH , Utilities H, UTH
1.58% , FPX , IPOs, First Tr IPOX-100, FPX
6.77% , TGT , TARGET
1.55% , JKK , Growth SmallCap iS M, JKK
7.30% , BDK , BLACK & DECKER
2.60% , PMR , Retail, PMR
1.48% , HHH , Internet H, HHH
1.16% , DSV , Value Small Cap DJ, DSV
1.59% , IXJ , Healthcare Global, IXJ
5.82% , INTC , INTEL
2.17% , IOO , Global 100, IOO
2.00% , IAH , Internet Architecture H, IAH
1.77% , TMW , Wilshire 5000 ST TM, TMW
3.48% , SWK , STANLEY WORKS
4.35% , DDM , Ultra Dow30 Double, DDM
6.04% , JCP , JC PENNEY
1.83% , IWZ , Growth LargeCap Russell 3000, IWZ
2.06% , DGT , Global Titans, DGT
4.53% , GLW , CORNING
1.44% , VXF , Extended Mkt VIPERs, VXF
3.03% , MVV , Ultra MidCap400 Double, MVV
1.26% , PBJ , Food & Beverage, PBJ
1.32% , IYC , Consumer Cyclical DJ, IYC
2.47% , SWH , Software H, SWH
5.13% , PWER , POWER ONE
3.62% , CSCO , CISCO SYSTEMS
1.56% , IYJ , Industrial LargeCap Blend DJ US, IYJ
2.67% , TMO , THERMO ELECTRON
1.61% , IYK , Consumer Non-Cyclical, IYK
2.42% , FEZ , Euro STOXX 50, FEZ
1.87% , KLD , LargeCap Blend Socially Responsible iS, KLD
2.54% , XLB , Materials SPDR, XLB
1.61% , PHW , Hardware & Electronics, PHW
5.38% , SNDK , SanDisk Corporation
2.85% , GWW , WW GRAINGER
2.02% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
1.29% , JKI , Value MidCap iS M, JKI
1.51% , JKH , MidCap Growth iS M, JKH
4.85% , AMD , ADV MICRO DEV
3.26% , JCI , JOHNSON CONTROLS
1.92% , IYE , Energy DJ, IYE
1.58% , JKJ , SmallCap Core iS M, JKJ
2.00% , PSI , Semiconductors, PSI
4.34% , APD , AIR PRODS & CHEM
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-3.03% , PGR , PROGRESSIVE OHIO
-1.80% , DOG , Short 100% Dow 30, DOG
-2.83% , MAR , MARRIOTT INTL STK A
-4.27% , DXD , Short 200% Dow 30 PS, DXD
-1.08% , PSQ , Short 100% QQQ, PSQ
-2.57% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.18% , ACS , AFFILIATED COMPUTER
-4.09% , IGT , INTL GAME TECH
-1.63% , MNST , MONSTER WORLDWID
-1.53% , ERTS , ELECTRONIC ARTS
-1.49% , SH , Short 100% S&P 500, SH
-1.34% , RZG , Growth SmallCap S&P 600, RZG
-0.69% , SAF , SAFECO
-0.72% , AES , AES
-2.69% , QID , Short 200% QQQ PS, QID
-3.38% , SDS , Short 200% S&P 500 PS, SDS
-0.34% , TIP , Bond, TIPS, TIP
-0.99% , DRI , DARDEN REST
-0.63% , AZO , AUTOZONE
-0.70% , GPS , GAP
-0.70% , VLO , VALERO ENERGY
-0.34% , TLT , Bond, 20+ Years Treasury, TLT
-0.38% , XRAY , DENTSPLY International Inc
-0.40% , LQD , Bond, Corp, LQD
-0.45% , DJ , DOW JONES
-0.29% , IEF , Bond, 10 Year Treasury, IEF
-0.13% , WEN , WENDYS INTL
-0.15% , TAP , ADOLPH COORS STK B, TAP
-0.14% , VIA.B , VIACOM STK B
-0.12% , SBUX , STARBUCKS
-0.06% , SHY , Bond, 1-3 Year Treasury, SHY
-0.07% , CKFR , Checkfree Corp.
-0.11% , ZMH , ZIMMER HLDGS
-0.32% , LUV , SOUTHWEST AIRLS
-0.30% , LNCR , Lincare Holdings Inc
-0.34% , HGSI , Human Genome Sciences Inc
-0.10% , UST , UST
-0.06% , BSX , BOSTON SCIENT
-0.10% , BUD , ANHEUSER BUSCH
-0.04% , HRB , H&R BLOCK
-0.10% , AGG , Bond, Aggregate, AGG
-0.11% , CMCSA , COMCAST HOLDINGS STK A
Sectors: among the 9 major U.S. sectors, all 9 rose.
Major Sectors Ranked for the Day
% Price Change, Sector
1.58% Health Care
0.84% Consumer Staples
0.78% Consumer Discretionary
Energy (XLE) Bullish. Both price and relative strength made new highs on 7/12/07. Relative strength has been strong compared to the S&P since 3/12/03. Overweight.
Materials (XLB) Bullish. Both price and relative strength made new highs on 7/12/07. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.
Industrial (XLI) Bullish. Price made a new high on 7/12/07. Relative strength made a new high on 7/11/07. 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 7/12/07, 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. Relative strength made a new 9-month low on 7/12/07. 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 again as the U.S. dollar fell further. EFA made a new absolute price high on 7/12/07 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 made a new 6-year price high on 7/12/07. 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 failed to make a new price high and 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 rose slightly but sharply underperformed the SPY. The short-term trend is up but may be losing momentum. The U.S. OIL FUND ETF (AMEX: USO) remains well below its peak at 73.29 on 7/13/06.
Energy stocks outperformed both USO and 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 rose slightly but underperformed the SPY. 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 rose slightly and outperformed GLD modestly since 6/26/07. 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) 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 since 6/22/07. 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 fell again: the flight to safety seems to be over. 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 fell more steeply, 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:
3.33% Gold Mining
3.07% South Korea
2.59% Commodity Related
2.30% Broker Dealers
2.17% Computer Tech
2.09% Dow Industrial
2.02% S&P 100
1.91% S&P 500
1.88% Nasdaq Composite
1.86% Nasdaq 100
1.85% United Kingdom
1.83% NYSE Composite
1.83% Russell 1000
1.83% Russell 3000
1.81% Russell 2000
1.76% Wilshire 5000
1.73% Hong Kong
1.72% S&P Small Caps
1.69% Health Care
1.66% Disk Drives
1.64% Value Line
1.63% Health Care Products
1.62% S&P Mid Caps
1.62% Dow Composite
1.61% Oil Services
1.58% Health Care
1.46% Dow Utilities
1.02% Dow Transports
0.90% Canadian Dollar
0.84% Consumer Staples
0.78% Consumer Discretionary
0.75% Natural Gas
0.65% AMEX Composite
0.45% Australian Dollar
0.18% Euro Index
0.13% Swiss Franc
-0.10% British Pound
-0.16% US Dollar Index
-0.23% Japanese Yen
-0.32% 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.