By Robert W. Colby, Senior Analyst TraderPlanet.com
Foreign stocks outperformed…again.
Energy stock sector relative strength made a new high.
Financial made a new 3-month closing price low and a new 5-year relative strength low.For the general stock market, it looks like a phase of moderate consolidation in recent days, following strong gains into the intraday peak on 7/17/07.
Stimulated by M&A news, stock prices gapped higher on Monday’s open. The S&P 500 ETF (SPY) peaked at 11:32 a.m. SPY surrendered most of its early gain by the close. Trading volume fell, which is typical on the trading day following options expiration. The Advance-Decline balances were moderately Bearish, both on the NYSE and the 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
4.85% , PXN , Nanotech Lux, PXN
6.75% , MRK , MERCK & CO
5.45% , RIG , TRANSOCEAN
2.95% , TLAB , TELLABS
4.36% , CIEN.O , CIENA
3.86% , RDC , ROWAN COMPANIES
2.73% , EZA , South Africa Index, EZA
4.15% , GNTX , Gentex Corporation
0.55% , PIV , Value Line Timeliness MidCap Gr, PIV
0.71% , ADRU , Europe 100 BLDRS, ADRU
1.19% , TBH , Telebras H, TBH
1.50% , DISH , EchoStar Communications Corporation
2.65% , AFL , AFLAC
3.73% , NE , NOBLE
1.42% , UIS , UNISYS
0.68% , EKH , Europe 2001 H, EKH
0.52% , OEF , LargeCap Blend S&P 100, OEF
2.26% , CSCO , CISCO SYSTEMS
0.75% , EWG , Germany Index, EWG
1.78% , LLL , L-3 COMMS HLDGS
0.68% , GLW , CORNING
1.17% , GRMN , GARMIN LTD
1.66% , SSCC , Smurfit-Stone Container Corporation
2.88% , SIRI , Sirius Satellite
0.83% , PJP , Pharmaceuticals, PJP
3.20% , HAL , HALLIBURTON
1.76% , BHI , BAKER HUGHES
1.22% , TNB , THOMAS & BETTS
0.72% , XRX , XEROX
1.86% , ADM , ARCHER DANIELS
0.43% , EFV , Value EAFE MSCI, EFV
0.72% , PWV , Value LargeCap Dynamic PS, PWV
0.35% , PUI , Utilities, PUI
0.95% , ADRA , Asia 50 BLDRS, ADRA
3.14% , FXI , China 25 iS, FXI
0.66% , NY , Value LargeCap NYSE 100 iS, NY
0.24% , PSJ , Software, PSJ
1.06% , RFMD , RF Micro Devices Inc
1.24% , CHKP , Check Point Software Technologies Ltd
0.89% , IYZ , Telecom DJ US, IYZ
0.46% , IXC , Energy Global, IXC
1.03% , IVGN , Invitrogen Corporation
0.91% , EPP , Pacific ex-Japan, EPP
0.95% , AW , ALLIED WASTE IND
0.74% , PFM , Dividend Achievers PS, PFM
2.56% , PGR , PROGRESSIVE OHIO
2.53% , TXT , TEXTRON
0.61% , EWU , United Kingdom Index, EWU
0.35% , IXN , Technology Global, IXN
0.29% , CCU , CLEAR CHANNEL
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-1.05% , IIH , Internet Infrastructure H, IIH
-5.41% , HAS , HASBRO
-2.25% , BOL , BAUSCH & LOMB
-4.12% , URBN , Urban Outfitters Inc.
-3.74% , CC , CIRCUIT CITY STR
-2.59% , THC , TENET HEALTHCARE
-3.92% , EOG , EOG RESOURCES
-0.89% , PXE , Energy Exploration & Prod, PXE
-2.38% , CEPH , Cephalon Inc
-0.66% , PMR , Retail, PMR
-0.98% , RZG , Growth SmallCap S&P 600, RZG
-1.11% , AV , AVAYA
-2.04% , HMA , HEALTH MGMT STK A
-1.09% , USO , Oil, Crude, U.S. Oil Fund, USO
-2.56% , TRB , TRIBUNE
-3.24% , NUE , NUCOR
-2.26% , DGX , QUEST DIAG
-0.60% , PDCO , Patterson Dental Company
-3.39% , QLGC , QLOGIC
-2.81% , XTO , XTO ENERGY INC
-0.52% , ACV , Alberto-Culver Co.
-1.14% , JWN , NORDSTROM
-0.78% , ROK , ROCKWELL AUTOMAT
-1.69% , IACI , IAC/INTERACTIVCORP
-2.38% , SHLD , SEARS HOLDINGS
-0.53% , RHI , ROBERT HALF
-0.21% , TIP , Bond, TIPS, TIP
-0.79% , XMSR , XM Satellite R
-0.81% , LAMR , Lamar Advertising Company
-0.98% , DDS , DILLARD STK A
-0.49% , SH , Short 100% S&P 500, SH
-0.60% , SGP , SCHERING PLOUGH
-0.16% , IJK , Growth MidCap 400 B, IJK
-0.93% , BBY , BEST BUY
-2.68% , LEN , Lennar Corp. (LEN)
-1.08% , LM , LEGG MASON
-0.40% , DLX , DELUXE
-0.14% , ANDW , ANDREW
-1.09% , HD , HOME DEPOT
-0.69% , EWC , Canada Index, EWC
-1.09% , PTEN , Patterson-UTI Energy Inc
-0.62% , PNC , PNC FINL SVC
-0.78% , COP , CONOCOPHILLIPS
-0.33% , IGE , Natural Resource iS GS, IGE
-0.23% , CR , CRANE
-0.06% , CMS , CMS ENERGY
-0.33% , IAU , Gold COMEX iS, IAU
-1.68% , BEAS , BEA Systems Inc
-0.25% , CDWC , CDW Corporation
-0.29% , CNP , CENTERPNT ENERGY
Sectors: among the 9 major U.S. sectors, all 9 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.77% Health Care
0.15% Consumer Discretionary
0.00% Consumer Staples
Looking beyond the daily fluctuation to the major trends (listed in order of relative strength):
Energy (XLE) Bullish. Price made a new high on 7/20/07 and relative strength made a new high on 7/23/07. XLE has been relatively strong compared to the S&P since 3/12/03. Overweight.
Materials (XLB) Bullish. Price made a new high on 7/19/07 and relative strength made a new high on 7/18/07. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.
Industrial (XLI) Bullish. Both price and relative strength made new highs on 7/19/07. 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 on 7/19/07 and relative strength made a new 19-month high on 7/20/07. XLK has been relatively strong compared to the S&P since its low on 7/24/06.
Utilities (XLU) Bearish. XLU has been relatively weak compared to the S&P since 9/20/01. Underweight.
Consumer Discretionary (XLY) Bearish. XLY made a new 10-month relative strength low on 7/23/07 and has been relatively weak compared to the S&P since 1/5/05. Underweight.
Consumer Staples (XLP) Bearish. Relative strength made a new 7-year low on 6/19/07. XLP has been relatively weak compared to the S&P since 10/9/02. Underweight.
Health Care (XLV) Bearish. XLV made a new 5-year relative strength low on 7/19/07 and has been relatively weak compared to the S&P since 10/9/02. Underweight.
Financial (XLF) Bearish. XLF made a new 3-month closing price low and a new 5-year relative strength low on 7/23/07. Underweight.
Foreign stocks: main trend is still Bullish. EFA has been consolidating since its peak on 7/13/07, but its long-term trend is still strong. EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) outperformed the S&P 500 since 3/19/03.
NASDAQ has outperformed since 5/17/07. The short- and intermediate-term trends look Bullish.
Growth beat Value since 5/16/07. Longer term, the major trend of Growth/Value, mostly Bearish for seven years, could be turning.
Large Caps beat Small Caps since 6/27/07. Longer term, Large Caps beat Small Caps since the Small-Cap relative strength peak on 4/19/06.
Crude Oil gapped down below an uptrend line off the low of 6/27/07. It could signal a short-term correction. Longer term, the U.S. OIL FUND ETF (AMEX: USO) is in an uptrend since its shakeout low at 42.56 on 1/18/07.
Energy stocks underperformed the USO and outperformed the 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 consolidated after making a new 10-week price high on 7/20/07. StreetTRACKS Gold Trust ETF (NYSE: GLD) remains in an uptrend since its price low on 6/26/07.
Silver broke below its low of 7/20/07 but remains in a short-term uptrend. Longer term, iShares Silver Trust (AMEX: SLV) broke down to a new 6-month low on 6/26/07 and underperformed GLD since 12/7/06. So, the main trend is questionable.
The Gold Miners Index (XAU) has outperformed GLD since 6/26/07. XAU made a new 14-month price high on 7/20/07.
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 consolidated after breaking out to a new 7-week price high on 7/20/07. The short-term trend still looks Bullish since the price low on 6/12/07. But since the peak at 97.66 on 6/16/03, the long-term trend appears Bearish for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT).
U.S. dollar remains very Bearish. The dollar fell to a new 15-year price low on 7/20/07. It has been heading nearly straight down since 6/13/07. Longer term, the dollar has been falling most of the time since its peak at 121.29 on 7/5/01.
Japanese Yen appears to be consolidating within its Bearish major trend. 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:
2.25% South Korea
1.85% Oil Services
1.60% Hong Kong
1.02% Health Care
0.77% Health Care
0.70% Health Care Products
0.68% S&P 100
0.67% Dow Industrial
0.61% United Kingdom
0.54% Dow Utilities
0.54% Australian Dollar
0.49% S&P 500
0.48% NYSE Composite
0.47% Dow Composite
0.41% Russell 1000
0.37% Russell 3000
0.35% Computer Tech
0.33% Wilshire 5000
0.30% Disk Drives
0.16% Commodity Related
0.15% Consumer Discretionary
0.14% Broker Dealers
0.13% Dow Transports
0.12% British Pound
0.11% Nasdaq Composite
0.11% US Dollar Index
0.08% Value Line
0.07% Canadian Dollar
0.02% Nasdaq 100
0.00% S&P Small Caps
0.00% Consumer Staples
0.00% 30Y T-Bond
-0.08% Gold Mining
-0.10% Russell 2000
-0.12% Japanese Yen
-0.14% Euro Index
-0.19% AMEX Composite
-0.23% S&P Mid Caps
-0.52% Swiss Franc
-1.47% Natural Gas
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.