By Robert W. Colby, Senior Analyst TraderPlanet.com
Stock prices turn resilient.
Energy and Utility sectors led the way up.
Some sentiment indicators have gone to Bearish extremes, which is Bullish according to the Art of Contrary Opinion. On 8/7/07, the ISEE Call/Put Ratio fell to a record low level of 0.51, indicating that nearly twice as many customers opened long put options than opened long call options. This 0.51 level is 3 standard deviations below the one-year mean, now at 1.27.
Stocks became very oversold during the 15 trading-day downside shakeout. RSI and Stochastics price momentum oscillators hit their most Bearish extreme lows on 7/27/07 and have been showing positive divergences since then by failing to confirm lower lows in price. As of Tuesday’s close, both oscillators and price indexes are in rising minor trends.
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
10.07% , WYNN , Wynn Resorts L
14.77% , IPG , INTERPUBLIC GRP
0.56% , EKH , Europe 2001 H, EKH
6.88% , HSIC , Henry Schein Inc
9.58% , URBN , Urban Outfitters Inc.
10.35% , LPX , LOUISIANA PAC
4.67% , XMSR , XM Satellite R
2.02% , UTH , Utilities H, UTH
7.05% , BMC , BMC SOFTWARE
0.59% , ADRU , Europe 100 BLDRS, ADRU
7.60% , PHM , PULTE HOMES
5.36% , DUK , DUKE ENERGY
2.63% , D , DOMINION RSCS
4.66% , VFC , VF
4.13% , PBG , PEPSI BOTTLING
6.85% , FHN , FIRST TENNESSEE
5.68% , EXPD , Expeditors International WA
3.19% , ED , CON ED
3.44% , SIRI , Sirius Satellite
6.58% , LEN , Lennar Corp. (LEN)
4.32% , LAMR , Lamar Advertising Company
2.18% , HHH , Internet H, HHH
2.32% , COST , COSTCO WHOLESAL
2.95% , SO , SOUTHERN
3.67% , EBAY , EBAY
5.32% , RX , IMS HEALTH
3.46% , XHB , Homebuilders SPDR, XHB
1.40% , PEY , Dividend High Yield Equity PS, PEY
3.59% , FPL , FPL GROUP INC
2.22% , CEG , CONSTELL ENERGY
3.50% , ADSK , AUTODESK
2.01% , DISCA , Discovery Holding Co.
1.24% , IJR , SmallCap S&P 600, IJR
2.65% , NWL , NEWELL RUBBER
6.33% , NOV , NATIONAL OILWELL VARC0
2.73% , FRE , FREDDIE MAC
6.88% , VC , VISTEON
2.26% , FAST , Fastenal Company
4.63% , MBI , MBIA
1.04% , TBH , Telebras H, TBH
3.24% , DE , DEERE & CO
3.17% , GM , GENERAL MOTORS
1.99% , JWN , NORDSTROM
3.09% , FNM , FANNIE MAE
1.10% , IXG , Financials Global LargeCap Value, IXG
2.22% , ABT , ABBOTT LABS
1.15% , EWU , United Kingdom Index, EWU
0.48% , PBJ , Food & Beverage, PBJ
2.08% , EOG , EOG RESOURCES
6.42% , MRO , MARATHON OIL
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-15.99% , THC , TENET HEALTHCARE
-5.57% , MMC , MARSH & MCLENNAN
-6.37% , IFF , INTL FLAV & FRAG
-2.98% , CR , CRANE
-3.13% , JBL , JABIL CIRCUIT
-2.77% , PTV , PACTIV
-2.14% , AMCC , APPLD MICRO CIRC
-3.06% , QCOM , QUALCOMM
-3.74% , KG , KING PHARM
-8.09% , SANM , SANMINA
-3.33% , PKI , PERKINELMER
-5.54% , CC , CIRCUIT CITY STR
-2.57% , LMT , LOCKHEED MARTIN
-2.03% , HAS , HASBRO
-3.82% , CPWR , COMPUWARE
-2.97% , XRX , XEROX
-1.28% , TAP , ADOLPH COORS STK B, TAP
-2.24% , GENZ , GENZYME GEN
-2.20% , ASH , ASHLAND
-2.30% , SNPS , Synopsys Inc
-2.02% , RRD , RR DONNELLEY SON
-2.32% , AVP , AVON
-2.45% , CBE , COOPER INDS STK A
-2.77% , MYL , MYLAN LABS
-0.88% , ROK , ROCKWELL AUTOMAT
-1.84% , EMC , EMC
-1.57% , CECO , CAREER EDUCATION CORP
-3.59% , FRX , FOREST LABS STK A
-4.05% , ABC , AMERISOURCEBERGN
-1.98% , PH , PARKER HANNIFIN
-6.00% , CVG , CONVERGYS
-2.03% , BRCM , BROADCOM STK A
-0.46% , EWG , Germany Index, EWG
-1.17% , TYC , TYCO INTL
-0.81% , FDC , FIRST DATA
-2.39% , GT , GOODYEAR TIRE
-1.24% , TXT , TEXTRON
-2.57% , BC , BRUNSWICK
-2.25% , ETN , EATON
-0.77% , AV , AVAYA
-1.05% , BLL , BALL
-2.09% , GD , GENERAL DYNAMICS
-2.65% , DISH , EchoStar Communications Corporation
-2.17% , EMN , EASTMAN CHEM
-2.27% , CIT , CIT GROUP
-1.34% , SHW , SHERWIN WILLIAMS
-0.68% , HCR , MANOR CARE
-0.98% , BAX , BAXTER INTL
-1.99% , ORCL , ORACLE
-1.42% , WEN , WENDYS INTL
Sectors: among the 9 major U.S. sectors, 7 rose and 1 fell.
Major Sectors Ranked for the Day
% Price Change, Sector
0.57% Consumer Discretionary
0.47% Health Care
-0.26% Consumer Staples
Industrial (XLI) Bullish. Price has held up above July lows. Relative strength made a new high on 8/3/07. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Energy (XLE) Bullish. Relative strength suffered a short-term downward correction since its peak on 7/25/07. But longer term, XLE is still in an uptrend compared to the S&P since 3/12/03. Overweight.
Technology (XLK) Bullish. XLK appears to be consolidating since the price peak on 7/19/07. Longer term, XLK has been relatively strong compared to the S&P since its low on 7/24/06. Overweight.
Materials (XLB) Bullish. Relative strength suffered a short-term downward correction since its peak on 7/18/07. But longer term, XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.
Consumer Staples (XLP) Improving. Price held up above July lows. Relative strength made a new 3-month high. XLP has been relatively weak compared to the S&P since 10/9/02. Market weight.
Utilities (XLU) Improving. Relative strength has been rising since 7/30/07. Market weight.
Health Care (XLV) Bearish. Relative strength made a new 5-year low on 7/19/07, confirming a major downtrend. Underweight.
Consumer Discretionary (XLY) Bearish. Price made a new 9-month low on 8/6/07. Relative strength made a new 10-month low on 8/7/07. Underweight.
Financial (XLF) Bearish. Price fell to a new 12-month low on 8/6/07, confirming a major downtrend. Relative strength made a new 6-year low on 8/3/07. Major trends are down. Underweight.
Foreign stocks lagged over the past 2 days, but still outperformed since 7/26/07. 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 underperformed again. NASDAQ has underperformed the S&P since 7/27/07 but outperformed since 5/17/07. Appears uncertain–at best.
Growth sharply outperformed Value since 5/16/07. Longer term, the major trend of Growth/Value, mostly Bearish for seven years, appears to have turned Bullish.
Large Caps beat Small Caps since 4/19/06, and that trend in is motion. Relative Strength of Large/Small Caps made a new 2-year high on 8/6/07.
Crude Oil prices bounced slightly following a new 4-week low on 8/6/07. The short-term trend looks corrective but the longer-term trend is Bullish. Crude made a new 10-month price high on 7/31/07. 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 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 fell: looks uncertain for the short term. Last week, Gold benefited from the flight to safety, but that trend could be temporary. Longer term, StreetTRACKS Gold Trust ETF (NYSE: GLD) has underperformed the S&P since the GLD top on 5/12/06.
Silver has substantially 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. In fact, Gold mining stocks have substantially underperformed both Gold and the S&P 500 for more than 20 years.
Deflating: inflation expectations plunged steeply to new 2-month low on 8/6/07. They have been falling since 6/22/07. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes indicates declining inflation expectations.
U.S. Treasury Bond prices eased mildly lower following a new 11-week price high on 8/3/07. The shift from risk to safety was renewed last week as the fundamental news took a turn for the worse. This may shift again and again day to day with the news. 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 bounced again after successfully testing its low of 7/24/07. This could be somewhat encouraging for the short term, but the chart “needs work” before a meaningful trend change beyond the day to day minor noise. Traders be nimble. Longer term, the dollar fell to a new 15-year price low on 7/24/07, confirming the major trend as Bearish.Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day: 2.91% Oil Services
2.00% Dow Utilities
1.57% Commodity Related
1.20% Broker Dealers
1.15% United Kingdom
0.98% Natural Gas
0.94% Russell 2000
0.85% Dow Transports
0.85% Gold Mining
0.80% Dow Composite
0.78% S&P Mid Caps
0.70% S&P Small Caps
0.68% Wilshire 5000
0.67% Russell 3000
0.65% Russell 1000
0.62% S&P 500
0.61% S&P 100
0.59% Value Line
0.57% Consumer Discretionary
0.56% Nasdaq Composite
0.55% NYSE Composite
0.47% Health Care
0.37% Nasdaq 100
0.33% South Korea
0.28% US Dollar Index
0.26% Dow Industrial
0.22% Japanese Yen
0.16% Health Care
0.13% Health Care Products
0.07% AMEX Composite
0.03% 30Y T-Bond
-0.02% Computer Tech
-0.26% Consumer Staples
-0.30% Euro Index
-0.34% Hong Kong
-0.35% Canadian Dollar
-0.36% British Pound
-0.40% Swiss Franc
-0.61% Australian Dollar
-0.81% Disk Drives
To sum up the current position of the U.S. stock market:
Looking beyond the recent short-term downside shakeout, 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 (as they have the great majority of the time since 2003) 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.