By Robert W. Colby, Senior Analyst TraderPlanet.com
4-month uptrend line tested
Industrial stock sector relative strength made another new high.
Consumer Discretionary stock sector made another new 10-month relative strength low.
U.S. T. Bond prices made another new 7-week price high.
U.S. dollar rebounded.Stock prices were choppy and erratic on Wednesday. Both the S&P 500 and the popular S&P 500 ETF (SPY) briefly broke down below their pivot lows of 7/11/07, thereby taking out stops below those lows, but both quickly rebounded. The SPY briefly broke below but closed above its 4-month uptrend line, so there still may be hope for the intermediate-term uptrend. Prices closed mixed.
Trading volume jumped up to near-record levels, reflecting extremely active buying and selling of stocks. The Advance-Decline balances were 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
11.24% , SNA , SNAP ON
24.45% , AMZN , Amazoncom Inc
8.27% , AFL , AFLAC
10.29% , NOV , NATIONAL OILWELL VARC0
5.11% , HHH , Internet H, HHH
9.88% , RFMD , RF Micro Devices Inc
5.77% , GENZ , GENZYME GEN
5.13% , JNPR , Juniper Networks Inc
6.04% , CB , CHUBB
5.24% , GRMN , GARMIN LTD
4.80% , ACE , ACE
3.30% , BA , BOEING
3.47% , GD , GENERAL DYNAMICS
3.15% , APD , AIR PRODS & CHEM
0.34% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
2.49% , SO , SOUTHERN
2.15% , SYMC , SYMANTEC
4.93% , BIIB , BIOGEN IDEC
3.76% , XEL , XCEL ENERGY
1.29% , MZZ , Short 200% MidCap 400 PS, MZZ
3.40% , CINF , CINCINNATI FIN
3.79% , TRB , TRIBUNE
1.55% , XBI , Biotech SPDR, XBI
2.34% , WYNN , Wynn Resorts L
2.05% , NOVL , NOVELL
1.61% , PCG , PG&E
0.60% , XLG , LargeCap Rydex Rus Top 50, XLG
3.11% , PEP , PEPSICO
0.36% , PHJ , Dividend Growth PS, PHJ
0.80% , IXC , Energy Global, IXC
4.29% , ABK , AMBAC FINL GRP
5.10% , MBI , MBIA
2.81% , TMO , THERMO ELECTRON
1.37% , PXJ , Oil & Gas, PXJ
1.27% , MTK , Technology MS sT, MTK
1.32% , TE , TECO ENERGY
1.77% , EWH , Hong Kong Index, EWH
0.73% , PJP , Pharmaceuticals, PJP
0.95% , JKF , Value LargeCap iS M, JKF
1.53% , LLTC , LINEAR TECH
2.07% , CL , COLGATE
1.19% , PGN , PROGRESS ENERGY
1.32% , FPL , FPL GROUP INC
2.46% , LRCX , LAM RESEARCH CORP
1.84% , AGN , ALLERGAN
0.61% , FDL , Dividend Leaders, FDL
0.96% , BUD , ANHEUSER BUSCH
0.64% , EWS , Singapore Index, EWS
1.23% , TUP , TUPPERWARE
1.73% , ABI , Applera Corp-Applied Biosystems Group (ABI)
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-14.51% , CVG , CONVERGYS
-4.23% , BCR , C R BARD
-0.89% , EKH , Europe 2001 H, EKH
-5.65% , GLW , CORNING
-4.72% , CHRW.O , CH Robinson Worldwide Inc, CHRWD
-1.56% , PBJ , Food & Beverage, PBJ
-3.51% , F , FORD MOTOR
-1.28% , VAW , Materials VIPERs, VAW
-5.74% , XRX , XEROX
-3.69% , DOV , DOVER
-4.15% , OMX , OFFICEMAX INC., OMX
-1.30% , PXQ , Networking, PXQ
-1.66% , TBH , Telebras H, TBH
-3.96% , GT , GOODYEAR TIRE
-2.37% , SEE , SEALED AIR
-1.25% , PKB , Building & Construction, PKB
-2.66% , GM , GENERAL MOTORS
-3.43% , LNCR , Lincare Holdings Inc
-3.00% , BAX , BAXTER INTL
-2.39% , ASD , AMER STANDARD
-2.08% , ATI , ALLEGHENY TECH
-1.15% , IYM , Basic Materials DJ US, IYM
-2.61% , CPWR , COMPUWARE
-2.83% , MHS , MEDCO HEALTH
-1.95% , BDH , Broadband H, BDH
-0.65% , IYT , Transportation Av DJ, IYT
-2.75% , XLNX , XILINX
-1.46% , HCR , MANOR CARE
-1.67% , XLB , Materials SPDR, XLB
-1.56% , WPI , WATSON PHARM
-2.95% , DDS , DILLARD STK A
-2.65% , WLP , WELLPOINT HEALTH
-2.37% , CIEN.O , CIENA
-3.13% , IP , INTL PAPER
-2.86% , MON , MONSANTO
-0.45% , IYW , Technology DJ US, IYW
-2.58% , HAS , HASBRO
-1.19% , RAI , RJR TOBACCO HLDS
-1.98% , EXC , EXELON CORP
-0.97% , IWS , Value MidCap Russell, IWS
-0.66% , VXF , Extended Mkt VIPERs, VXF
-1.08% , VNQ , REIT VIPERs, VNQ
-0.95% , IAU , Gold COMEX iS, IAU
-1.93% , EDS , ELECTR DATA
-2.14% , PTEN , Patterson-UTI Energy Inc
-1.59% , IFF , INTL FLAV & FRAG
-2.02% , IR , INGER RAND
-3.11% , HOT , STARWOOD HOTELS
-0.96% , ADRU , Europe 100 BLDRS, ADRU
-1.94% , TIF , TIFFANY
Sectors: among the 9 major U.S. sectors, 4 rose, 3 fell, and 2 were unchanged.
Major Sectors Ranked for the Day
% Price Change, Sector
0.00% Consumer Staples
-0.06% Health Care
-0.33% Consumer Discretionary
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. Price made a new high on 7/19/07 and relative strength made a new high on 7/25/07. 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 7/24/07. 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 7/25/07 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 outperformed since 7/18/07. Also, EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) outperformed the S&P 500 since 3/19/03.
NASDAQ underperformed since 7/19/07 but outperformed since 5/17/07. Short-term down, intermediate-term up.
Growth has been beating Value since 5/16/07. Longer term, the major trend of Growth/Value, mostly Bearish for seven years, could be turning.
Large Caps made a new 11-month high relative to Small Caps. Large Caps beat Small Caps since 4/19/06, and that trend in is motion.
Crude Oil rebounded to a new 10-month high on higher volume. This should dash fears of a short-term correction. Longer term, the U.S. OIL FUND ETF (AMEX: USO) has been in an uptrend since its shakeout low at 42.56 on 1/18/07.
Energy stocks rose but 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 gapped down. Still, StreetTRACKS Gold Trust ETF (NYSE: GLD) remains in an uptrend since its price low on 6/26/07.
Silver underperformed Gold since 6/5/07. 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 relatively Bearish.
The Gold Miners Index (XAU) underperformed Gold since 7/19/07. XAU also underperformed Gold since 1/31/06.
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.
U.S. Treasury Bond prices made another new 7-week price high on 7/25/07. 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 rebounded to its highest close in 2 weeks. But longer term, dollar fell to a new 15-year price low on 7/24/07. The dollar has been falling most of the time since its peak at 121.29 on 7/5/01.
Japanese eased mildly lower. The Yen broke out to a new 10-week price high on 7/24/07. 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. So, the short-term trend is up and the long-term trend is down
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
2.20% Oil Services
1.77% Hong Kong
1.47% South Korea
1.01% Disk Drives
0.99% Health Care Products
0.70% Broker Dealers
0.68% S&P 100
0.66% US Dollar Index
0.58% AMEX Composite
0.53% Nasdaq 100
0.50% Dow Industrial
0.40% 30Y T-Bond
0.37% Russell 1000
0.34% Russell 3000
0.31% Nasdaq Composite
0.30% Computer Tech
0.21% NYSE Composite
0.21% Dow Utilities
0.17% Natural Gas
0.16% Japanese Yen
0.15% Health Care
0.08% Russell 2000
0.08% Dow Composite
0.06% Value Line
0.00% S&P 500
0.00% Wilshire 5000
0.00% Consumer Staples
-0.03% S&P Small Caps
-0.06% Health Care
-0.10% S&P Mid Caps
-0.16% Australian Dollar
-0.27% Commodity Related
-0.33% Consumer Discretionary
-0.39% United Kingdom
-0.56% British Pound
-0.63% Dow Transports
-0.68% Canadian Dollar
-0.76% Swiss Franc
-0.82% Euro Index
-1.34% Gold Mining
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.
Investors might perceive anything that threatens to end abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises as threats to the popular Bullish scenario.
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 (and indeed they have) 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.