By Robert W. Colby, Senior Analyst TraderPlanet.com
Stocks bounce off technical support.
There may be some hope–if there is no new big bad news.
DJTA held above its June low and its 200-day simple moving average.
S&P 500 held above its one-year uptrend line and its 200-day simple moving average.
Industrial stock sector relative strength made another new high.Stocks were very oversold according to all short-term oscillators. Last week’s huge downside volume indicated panic, selling climax conditions. But for every share sold, there was a share bought. When everything appeared scary, SOMEBODY had to be buying.
Monday’s bounce was relatively modest, technically speaking. The price recovery was fractional and volume eased a bit lower. Still, the market could pick up steam on the upside—if there is no new big bad news.
There may be hints (but certainly no assurance) that the market has bottomed. How it unfolds may depend on the news. In addition, a market bottom is often revisited or tested after a period of days or weeks—often, not always.
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
2.27% , XSD , Semiconductor SPDR, XSD
1.02% , RPG , Growth S&P 500, RPG
2.02% , PZJ , SmallCap PS Zacks, PZJ
1.52% , RSP , LargeCap Blend S&P=Weight R, RSP
1.09% , BDH , Broadband H, BDH
1.50% , PEY , Dividend High Yield Equity PS, PEY
1.59% , PSI , Semiconductors, PSI
5.07% , COH , COACH
4.13% , GR , GOODRICH CORP
5.23% , FPL , FPL GROUP INC
5.47% , DYN , DYNEGY
0.93% , IWC , Microcap Russell, IWC
1.83% , KCE , Capital Markets KWB ST, KCE
1.50% , IGN , Networking, IGN
1.53% , IVV , S&P 500 iS LargeCap Blend, IVV
5.96% , MNST , MONSTER WORLDWID
0.57% , UTH , Utilities H, UTH
2.14% , HSIC , Henry Schein Inc
0.97% , IYC , Consumer Cyclical DJ, IYC
1.59% , FPX , IPOs, First Tr IPOX-100, FPX
4.10% , CI , CIGNA
4.06% , DHR , DANAHER
2.28% , PWT , Growth SmallCap Dynamic PS, PWT
1.44% , EWI , Italy Index, EWI
1.75% , VB , Small Cap VIPERs, VB
3.51% , FITB , FIFTH THIRD BANC
2.54% , STI , SUNTRUST BANKS
7.54% , IR , INGER RAND
1.45% , JKG , MidCap Blend Core iS M, JKG
1.57% , VUG , Growth VIPERs, VUG
0.90% , JKF , Value LargeCap iS M, JKF
1.40% , VBK , Growth SmallCap VIPERs, VBK
2.18% , PWJ , Growth Mid Cap Dynamic PS, PWJ
3.02% , ISIL , INTERSIL CORP
1.13% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
4.15% , XRX , XEROX
1.67% , KG , KING PHARM
2.17% , WFMI , Whole Foods Market Inc
4.06% , ACE , ACE
1.49% , IJJ , Value MidCap S&P 400 B, IJJ
2.89% , NTRS , NORTHERN TRUST
0.80% , FDL , Dividend Leaders, FDL
1.07% , PXJ , Oil & Gas, PXJ
0.94% , ELG , Growth Large Cap, ELG
4.23% , OMX , OFFICEMAX INC., OMX
1.90% , USB , US BANCORP
3.02% , EZA , South Africa Index, EZA
1.89% , IJT , Growth BARRA Small Cap 600, IJT
2.75% , RFMD , RF Micro Devices Inc
0.89% , PIV , Value Line Timeliness MidCap Gr, PIV
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-11.28% , RSH , RADIOSHACK
-1.79% , LTR , LOEWS
-1.09% , BEAS , BEA Systems Inc
-3.25% , LXK , LEXMARK INTL STK A
-1.55% , ABI , Applera Corp-Applied Biosystems Group (ABI)
-2.77% , BIIB , BIOGEN IDEC
-2.48% , ABK , AMBAC FINL GRP
-1.11% , PSQ , Short 100% QQQ, PSQ
-0.38% , CEPH , Cephalon Inc
-2.09% , RHT , Red Hat Inc.
-1.18% , BIG , BIG LOTS
-2.81% , NOVL , NOVELL
-3.50% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.35% , CAR , Avis Budget Group, Inc. (CAR)
-0.40% , IIH , Internet Infrastructure H, IIH
-0.61% , SUNW , SUN MICROSYS
-0.65% , IVGN , Invitrogen Corporation
-1.39% , HMA , HEALTH MGMT STK A
-1.14% , WYNN , Wynn Resorts L
-0.81% , AM , AMER GREETINGS STK A
-0.71% , AW , ALLIED WASTE IND
-0.64% , PCG , PG&E
-0.35% , RX , IMS HEALTH
-0.43% , VMC , VULCAN MATERIALS
-2.26% , MTG , MGIC INVESTMENT
-0.33% , ACV , Alberto-Culver Co.
-0.57% , WLP , WELLPOINT HEALTH
-0.87% , MCO , MOODYS CORP
-0.39% , IPG , INTERPUBLIC GRP
-0.34% , CLX , CLOROX
-0.27% , PRU , PRUDENTIAL FINL
-0.36% , FE , FIRSTENERGY
-0.24% , PGR , PROGRESSIVE OHIO
-0.93% , BOL , BAUSCH & LOMB
-0.15% , AES , AES
-0.11% , BMET , BIOMET
-0.35% , NYT , NY TIMES STK A
-0.33% , LNCR , Lincare Holdings Inc
-0.16% , WPI , WATSON PHARM
-0.17% , WAT , WATERS
-0.72% , COL , ROCKWELL COLLINS
-0.12% , DUK , DUKE ENERGY
-0.05% , AGG , Bond, Aggregate, AGG
-0.14% , DELL , DELL
-0.63% , RIG , TRANSOCEAN
-0.85% , DOG , Short 100% Dow 30, DOG
-0.04% , WHR , WHIRLPOOL
-0.06% , CVS , CVS
Sectors: among the 9 major U.S. sectors, all 9 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
1.43% Consumer Discretionary
1.25% Health Care
0.23% 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. Price made a new high on 7/19/07 and relative strength made a new high on 7/30/07. 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 7/26/07. 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 4/2/07. Underweight.
Consumer Discretionary (XLY) Bearish. Price made a new 4-month low on 7/26/07. XLY made a new 10-month relative strength low on 7/26/07 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 10-month intraday price low on 7/30/07 and a new 5-year relative strength low on 7/24/07. Underweight.
Foreign stocks outperformed over the past two days. They were in a correction since 7/12/07. The long-term trend is still Bullish: EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has outperformed the S&P 500 since 3/19/03.
NASDAQ outperformed since 5/17/07. Relative strength made a new 8-month high on 7/27/07.
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 beat Small Caps since 4/19/06, and that trend in is motion.
Crude Oil closed slightly lower following a new 10-month intraday price high on 7/30/07. Longer term, the U.S. OIL FUND ETF (AMEX: USO) remains in its uptrend since its shakeout low at 42.56 on 1/18/07.
Energy stocks recovered modestly, outperforming both USO and S&P. 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 bounced but underperformed the S&P. StreetTRACKS Gold Trust ETF (NYSE: GLD) has been in a choppy trading range since 5/12/06.
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. Gold mining stocks have substantially underperformed the S&P 500 for more than 20 years.
U.S. Treasury Bond prices eased slightly lower after making a new 9-week price high on 7/27/07 on a flight to safety. Money has been shifting from risk to safety. The short-term bond price trend has been 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 consolidated following its sharp oversold counter trend bounce since its 7/24/07 low. 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.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
3.82% South Korea
3.41% Gold Mining
2.84% Hong Kong
1.97% Commodity Related
1.51% Disk Drives
1.43% Consumer Discretionary
1.34% Broker Dealers
1.28% Natural Gas
1.25% Health Care
1.24% United Kingdom
1.21% NYSE Composite
1.10% Dow Transports
1.03% S&P 500
1.02% Russell 1000
1.01% Russell 3000
0.97% Wilshire 5000
0.93% S&P Small Caps
0.91% Nasdaq 100
0.89% Value Line
0.88% S&P 100
0.88% S&P Mid Caps
0.84% Dow Composite
0.82% Nasdaq Composite
0.82% Russell 2000
0.76% Dow Utilities
0.70% Dow Industrial
0.68% Health Care
0.60% Health Care Products
0.57% Oil Services
0.42% Swiss Franc
0.35% Computer Tech
0.27% Euro Index
0.23% Consumer Staples
0.10% AMEX Composite
0.06% Australian Dollar
0.04% Japanese Yen
-0.11% 30Y T-Bond
-0.17% US Dollar Index
-0.20% British Pound
-0.68% Canadian Dollar
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.