By Robert W. Colby, Senior Analyst TraderPlanet.com
A Bullish Surprise from the Fed
Short-term stock price momentum surged.
The Energy stock sector price and relative strength both made new all-time highs, and Energy remains the leading sector.
Materials stock sector upgraded to Bullish.
Inflation expectations have been rising in September.
Higher new highs for Crude Oil and Gold.
The Financial sector bounced nicely, but the Financial main trend is still Bearish.
U.S. dollar fell to a new 15-year low.
Most prognosticators predicted that the FOMC would reduce the federal funds rate only by a quarter point, and relatively few even entertained the notion of a half-point rate cut.
The rate cut news eased fears of the risks of the liquidity, subprime, and credit-market crisis turning into a full-blown credit crunch which could lead to a recession.
Previously, despite news of scary credit problems surfacing over the past month, the stock market had been firming up since the downside shakeout low on 8/16/07. The stock market appeared to be shrugging off bad news, which was a Bullish sign.
Now, this very Bullish response to good news is another positive sign of the underlying strength of the Bullish major trend of the stock market.
Advances-Declines and Up-Down Volumes were extremely Bullish on both the NYSE and NASDAQ. New Highs outnumbered New Lows, which is also a Bullish sign.
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
4.31% , PKB , Building & Construction, PKB
2.56% , ISI , LargeCap Blend S&P 1500 iS, ISI
4.82% , IYG , Financial Services DJ, IYG
4.95% , PMR , Retail, PMR
9.01% , MLNM , Millennium Pharmaceuticals Inc
2.61% , ELV , Value Large Cap DJ, ELV
5.99% , MVV , Ultra MidCap400 Double, MVV
3.97% , IYT , Transportation Av DJ, IYT
4.18% , EWI , Italy Index, EWI
7.83% , MBI , MBIA
10.01% , LEH , LEHMAN BROS HLDG
2.57% , PWO , OTC Dynamic PS, PWO
3.46% , JKJ , SmallCap Core iS M, JKJ
4.56% , XME , Metals & Mining SPDR, XME
10.48% , CMI , CUMMINS
2.87% , PHJ , Dividend Growth PS, PHJ
10.10% , MCO , MOODYS CORP
2.85% , NY , Value LargeCap NYSE 100 iS, NY
4.00% , EWN , Netherlands Index, EWN
3.11% , PFM , Dividend Achievers PS, PFM
2.38% , RFG , Growth MidCap S&P 400, RFG
2.59% , PXQ , Networking, PXQ
9.07% , FII , FED INVESTORS STK B
1.27% , IXJ , Healthcare Global, IXJ
4.77% , DDM , Ultra Dow30 Double, DDM
6.56% , BBY , BEST BUY
4.00% , IXG , Financials Global LargeCap Value, IXG
5.89% , SSO , Ultra S&P500 Double, SSO
2.94% , IYJ , Industrial LargeCap Blend DJ US, IYJ
2.44% , RPG , Growth S&P 500, RPG
6.87% , GS , GOLDMAN SACHS
6.52% , ILF , Latin Am 40, ILF
7.42% , JCP , JC PENNEY
4.39% , IYF , Financial DJ US, IYF
4.20% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
4.50% , EWM , Malaysia Index, EWM
4.91% , BLL , BALL
8.76% , NVDA , NVIDIA
6.39% , TROW , T ROWE PRICE GP
4.19% , BRCM , BROADCOM STK A
4.54% , PWY , Value SmallCap Dynamic PS, PWY
4.89% , EZA , South Africa Index, EZA
6.42% , NTRS , NORTHERN TRUST
6.35% , MET , METLIFE
5.53% , FITB , FIFTH THIRD BANC
3.77% , XLF , Financial SPDR, XLF
3.55% , EWY , South Korea Index, EWY
4.84% , EEM , Emerging Markets, EEM
7.49% , EWZ , Brazil Index, EWZ
3.82% , IWC , Microcap Russell, IWC
Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-2.87% , SH , Short 100% S&P 500, SH
-2.58% , PSQ , Short 100% QQQ, PSQ
-5.68% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.48% , ETFC.O , E*TRADE FINANCIAL
-5.72% , SDS , Short 200% S&P 500 PS, SDS
-4.95% , DXD , Short 200% Dow 30 PS, DXD
-2.50% , DOG , Short 100% Dow 30, DOG
-5.57% , QID , Short 200% QQQ PS, QID
-0.75% , TLT , Bond, 20+ Years Treasury, TLT
-0.66% , NCR , NCR
-2.95% , MYY , Short 100% MidCap 400, MYY
-0.17% , BA , BOEING
-0.13% , AGN , ALLERGAN
-0.15% , BMET , BIOMET
-0.11% , IEF , Bond, 10 Year Treasury, IEF
-0.08% , ACS , AFFILIATED COMPUTER
-0.04% , DISCA , Discovery Holding Co.
Sectors: among the 9 major U.S. sectors, all 9 soared.
Major Sectors Ranked for the Day
% Price Change, Sector
4.66% Materials
3.90% Consumer Discretionary
3.77% Financial
3.24% Industrial
3.03% Energy
2.32% Utilities
1.97% Technology
1.95% Consumer Staples
1.79% Health Care
Looking beyond the daily fluctuation to the major trends (listed in order of relative strength):
Energy (XLE) Bullish. Both price and relative strength made new all-time highs on 9/18/07. XLE has been strong compared to the S&P since 3/12/03. Overweight.
Materials (XLB) upgraded to Bullish. The relative strength trend strongly outperformed since the price shakeout low on 8/16/07, and the long term trend has been Bullish since 9/27/2000.
Technology (XLK) Bullish. Relative strength made a new 2-year high on 9/6/07 but has lagged since then. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06. Overweight.
Industrial (XLI) Bullish. Price made a new 8-week high. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Utilities (XLU) Market Weight. Relative strength has been improving since 6/22/07.
Consumer Staples (XLP) Bearish. This defensive sector’s relative strength has underperformed since 8/15/07. Underweight.
Health Care (XLV) Bearish. Relative strength turned down on 4/19/07 and made a new 5-year low on 7/19/07, thereby confirming a major downtrend. Underweight.
Consumer Discretionary (XLY) Bearish. Price hit a new 10-month low on 8/16/07. Relative strength made another new 5-year low on 9/12/07. Underweight.
Financial (XLF) Bearish. Some limited oversold bounce is normal, but the long-term trend of relative strength has been down since 2/20/07. Underweight.
Foreign stocks outperformed and made new 7-week price highs. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is probably still Bullish.
NASDAQ price made a new 8-week high but relative strength underperformed. Previously, NASDAQ outperformed from 5/17/07 to 9/5/07. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.
Growth stocks made a new 8-week price high. Growth outperformed Value since 8/20/07. Also, Growth outperformed Value since 5/16/07. It looks like a strong trend.
Small Caps bounced but still have underperformed Large Caps since 8/21/07. Small Caps also underperformed since 4/19/06. These trends deserve respect.
Crude Oil futures jumped to another new all-time high. The U.S. OIL FUND ETF (AMEX: USO) price made another new one-year high. Note that the USO fund is not a pure play on Crude Oil. The longer-term trends for both remain Bullish.
The Energy sector price made a new all-time high and outperformed both USO and SPY. Longer 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 Trust ETF (NYSE: GLD) hit another new 16 month high. Longer term, GLD has underperformed the S&P since the GLD top on 5/12/06 at 72.26, which is a level that probably will be significant to traders.
Silver bounced but still has underperformed Gold since 12/7/06. The main trend remains relatively Bearish for iShares Silver Trust (AMEX: SLV).
The Gold Miners ETF (GDX) broke out to a new 1-year price high and outperformed Gold since 8/16/07. GDX underperformed GLD since 7/19/07. The Gold Miners also underperformed the Gold Metal since 1/31/06. In fact, Gold Mining stocks have substantially underperformed both Gold and the S&P 500 for more than 20 years.
Inflation expectations have been rising short-term, since 8/31/07. But the larger trend has been falling since 6/22/07. So, the ratio of the price of bond TIPS to 10-year U.S. Treasury Notes indicates mixed inflation expectations in different time frames.
U.S. Treasury Bond prices are consolidating after a making new 9-month high on 9/10/97. That new high confirmed a significant uptrend. Long-term, Bonds have recovered more than half of their losses since the price peak at 97.66 on 6/16/03 for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT). Bonds remain reactive to news about the credit crisis: the worse the credit crisis, the higher the Bond prices; the better the credit crisis, the lower the Bond prices.
U.S. dollar fell to a new 15-year low on 9/18/07. All trends are clearly Bearish. Traders will be watching 78.43, the low of 9/2/92.
Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:
7.49% Brazil
5.07% Spain
4.78% Broker Dealers
4.66% Materials
4.64% France
4.63% Singapore
4.62% Retailers
4.59% Banks
4.50% Malaysia
4.38% Mexico
4.26% Sweden
4.23% Taiwan
4.18% Italy
4.13% Austria
4.11% United Kingdom
4.09% Belgium
4.08% Hong Kong
4.06% Gold Mining
4.00% Netherlands
3.97% Russell 2000
3.94% Germany
3.92% Dow Transports
3.90% Consumer Discretionary
3.77% Financial
3.74% S&P Small Caps
3.67% Insurance
3.60% Chemicals
3.55% South Korea
3.33% REITs
3.28% Value Line
3.27% Australia
3.24% Industrial
3.21% Airlines
3.19% Commodity Related
3.14% NYSE Composite
3.14% Biotechs
3.08% Oil
3.07% Paper
3.03% Energy
2.98% Russell 3000
2.97% S&P Mid Caps
2.93% Oil Services
2.92% S&P 500
2.91% Wilshire 5000
2.89% Russell 1000
2.84% Semiconductors
2.82% Dow Composite
2.74% S&P 100
2.73% Canada
2.71% Nasdaq Composite
2.65% Switzerland
2.64% Nasdaq 100
2.51% Dow Industrial
2.51% Internet
2.46% Natural Gas
2.35% Disk Drives
2.35% DOT
2.32% Utilities
2.32% Hardware
2.23% Network
2.01% Dow Utilities
1.99% AMEX Composite
1.97% Technology
1.95% Consumer Staples
1.86% Computer Tech
1.85% Health Care
1.79% Health Care
1.75% Drugs
1.64% Health Care Products
1.51% Hospitals
1.04% Japan
1.03% Australian Dollar
0.97% Canadian Dollar
0.62% British Pound
0.54% Euro Index
0.27% Swiss Franc
-0.30% 30Y T-Bond
-0.40% Japanese Yen
-0.63% US Dollar Index
To sum up the current position of the U.S. stock market:
The unfolding fallout from the subprime- and credit-market crisis moved investor sentiment toward the Bearish side in August. News of both damages and rescues is still leaking out little by little, but the stock market seems to be taking all the news in stride.
Considering the long term, beyond the recent short-term downside shakeout, the U.S. stock market has shown impressive Bullish resilience from the major low on 10/10/02 to the new all-time highs on 7/19/07. 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.
Investors may 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 Bullish scenario.
Stocks generally are fully valued to over priced by long-term historical standards. Although that alone does not mean that stocks cannot resume their uptrends, 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.
