End Of a Textbook-Perfect, Counter-Trend Bounce

The CRB Commodity Price Index has recovered about 1/3 of its May loss for a textbook-perfect, counter-trend bounce. Look for the downtrend to resume.

Crude Oil looks to be consolidating losses, possibly before another downwave. The latest data from the Commodity Futures Trading Commission shows hedge-fund and other money managers increased net long positions in Oil–bearish when this hot money rushes for the exits.

S&P 500 Composite (SPX, 1,331.10) rose 5.41 points or 0.41% on Friday. Trading volume fell 17% on the NYSE. Although choppy up and down movement day-to-day is normal and expected within any trend, the 20 trading days trend is clearly down. Over the past 3 days, SPX has recovered to the top end of its downtrend channel, which might offer resistance to further advance.

According to Alistair Barr, reporting for MarketWatch.com, some of the world’s largest hedge-fund firms suffered losses so far in May: Paulson Advantage Fund -3.93%, FX Concepts GCP Fund -4.13%, Bridgewater Associates -2.09%, Armajaro’s Commodities fund -4.32%, Tudor Momentum Fund Limited -5.6%, Lynx Fund -5.77%, Caxton’s Hawk Fund -3.54%, Aspect Diversified -5.6%, and Winton Capital Management Fund -3.34%.

But not all money managers are down in May; see:
The Colby Global Markets Report (click here).
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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
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
11.06% , MRVL , MARVELL TECHNOLOGY
1.02% , PXE , Energy Exploration & Prod, PXE
0.61% , PIV , Value Line Timeliness MidCap Gr, PIV
1.12% , PGJ , China LargeCap Growth G D H USX PS, PGJ
1.48% , PSTL , Steel Global PS ETF, PSTL
0.58% , PUI , Utilities, PUI
5.40% , BRCM , BROADCOM STK A
0.80% , IXP , Telecommunications Global, IXP
0.68% , IXG , Financials Global LargeCap Value, IXG
0.67% , IGN , Networking, IGN
0.51% , EWP , Spain Index, EWP
0.78% , JKI , Value MidCap iS M, JKI
1.19% , SOXX , Semiconductor iS IGW, SOXX
1.70% , CVS , CVS
0.90% , ADRU , Europe 100 BLDRS, ADRU
0.63% , RPV , Value S&P 500, RPV
0.61% , PBE , Biotech & Genome, PBE
1.01% , SCZ , Small Cap EAFE MSCI iS, SCZ
1.15% , IYM , Basic Materials DJ US, IYM
5.57% , LIZ , LIZ CLAIRBORNE
6.85% , RL , Polo Ralph Lauren
0.62% , IWS , Value MidCap Russell, IWS
1.92% , TEVA , Teva Pharmaceutical Industries Limited
0.53% , JKG , MidCap Blend Core iS M, JKG
0.53% , PFM , Dividend Achievers PS, PFM
1.14% , RKH , Bank Regional H, RKH
0.43% , JKH , MidCap Growth iS M, JKH
0.24% , MUB , Bond Muni ATM-Free S&P iS, MUB
0.39% , EWI , Italy Index, EWI
0.78% , EWQ , France Index, EWQ
0.40% , FDV , Value 40 Large Low P/E FT DB, FDV
0.61% , PWP , Value MidCap Dynamic PS, PWP
0.50% , JKL , Value SmallCap iS M, JKL

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-8.97% , MHS , MEDCO HEALTH
-4.76% , EK , EASTMAN KODAK
-5.44% , WY , WEYERHAEUSER
-3.21% , AFL , AFLAC
-2.67% , VRSN , VeriSign Inc
-1.76% , ESRX , EXPRESS SCRIPTS
-1.11% , YUM , YUM BRANDS
-1.29% , INTC , INTEL
-0.89% , ABC , AMERISOURCEBERGN
-1.16% , MZZ , Short 200% MidCap 400 PS, MZZ
-0.72% , ADBE , ADOBE SYS
-1.20% , DPS , Dr Pepper Snapple Group
-0.15% , EPU , Peru MSCI iS, EPU
-0.60% , K , KELLOGG
-2.61% , MBI , MBIA
-0.59% , OIH , Oil Services H, OIH
-1.09% , KSS , KOHLS
-0.53% , HD , HOME DEPOT
-0.31% , CVG , CONVERGYS
-1.66% , SNV , SYNOVUS
-0.43% , NE , NOBLE
-0.04% , NSM , NATL SEMICONDUCT
-0.45% , INTU , INTUIT
-0.25% , LOW , LOWES
-0.15% , PCL , PLUM CREEK TIMB
-0.07% , CINF , CINCINNATI FIN
-0.13% , AEP , AM ELEC POWER
-1.54% , AMAT , APPLIED MATERIAL
-0.39% , MRO , MARATHON OIL
-0.69% , DXD , Short 200% Dow 30 PS, DXD

9 major U.S. stock sectors ranked in order of long-term relative strength:

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Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell below 11-week lows on 5/23/11 and remains bearish. The Ratio gave a bearish signal on 5/3/11 by crossing below its 50-day SMA. The Ratio remains below the 200-day SMA, and the 50-day SMA remains below the 200-day SMA.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below 8-week lows on 5/23/11. The Ratio gave a bearish signal on 5/11/11 by crossing below its 50-day SMA. The Ratio remains below the 200-day SMA, and the 50-day SMA remains below the 200-day SMA.

NASDAQ Composite/S&P 500 Relative Strength Ratio appears to have entered a downside correction since peaking on 1/18/11 and remains neutral. Absolute price appears to have entered a downside correction since peaking on 5/2/11.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below 28-year lows on 5/26/11, again reconfirming its preexisting bearish major trend.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) broke down below 2-month lows on 5/24/11 and has been in a downside correction since 4/5/11.

The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) has been correcting and consolidating major gains since 4/5/11 and remains neutral. The Ratio rose above all-time highs on 4/5/11.

Crude Oil nearest futures contract price marked time with an “Inside Day” on 5/27/11. Over the past 3 weeks, Oil looks to be consolidating losses, possibly before another downwave. Oil fell below the lows of the previous 10 weeks on 5/6/11, signaling a price downtrend in a larger time frame. The latest data from the Commodity Futures Trading Commission shows hedge-fund and other money managers increased net long positions in Oil–bearish when this hot money rushes for the exits. On 5/3/11, when Crude Oil was 111.56, I wrote, “Crude Oil nearest futures contract price fell below the lows of the previous 7 trading days on 5/3/11, suggesting a short-term price pullback.” Support 94.63, 87.09, 83.85, 83.55, 80.28, 80.06, 79.84, 79.25, 78.86, 73.52, 72.63, 70.76, 70.35, 69.51, 68.59, 67.15, 65.05, and 64.24. Resistance 101.90, 104.60, 105.16, 114.83, 115.27, 120.42, 130.0, and 147.27.

Gold nearest futures contract price rose above 3-week highs on 5/27/11. Gold has recovered a normal fraction of its loss since its peak at 1577.4 on 5/2/11–but still it may be only a temporary countertrend bounce in a larger downside correction. On 5/2/11, when Gold was 1557.1, I wrote, “Gold rose above all-time highs on 5/2/11, again reconfirming its major uptrend. Gold looks overextended, however, and could be due for a downside correction.” Support: 1462.5, 1445.0, 1411.5, 1380.7, 1419.5, 1351.4, 1309.1, 1307.7, 1297.0, 1274.8, 1270.5, 1232.4, 1210.9, 1191.5, and 1155.6. Resistance: 1577.4.

Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) has been falling steeply since 4/8/11 and remains bearish.

Silver nearest futures contract price marked time with an “Inside Day” on 5/27/11. Since falling to a low of 32.3 on 5/12/11, Silver may have experienced nothing more than a temporary countertrend bounce and normal partial retracement of losses in a larger downside correction. The problem is that Silver broke support levels and uptrend lines in May, so the larger trend may be bearish. Silver fell below 11-week lows on 5/12/11. On 5/2/11, when Silver was 46.084, I wrote, “Silver nearest futures contract price broke sharply below the lows of the previous 2 weeks. The short-term price trend has turned down. If this downtrend continues, it could have implications for inflation expectations.” Support 32.3, 31.695, 31.61, 30.265, 29.635, 26.30, 24.98, and 22.84. Resistance: 39.38, 39.47, 49.845 and 50.35.

Silver/Gold Ratio entered a steep downtrend since the peak on 4/28/11 and remains bearish.

Copper nearest futures contract price rose above 3-week highs on 5/27/11. Copper has recovered a normal fraction of its loss since its peak at 4.6495 set on 02/15/11–but still it may be only a temporary countertrend bounce in a larger downside correction. Copper broke down below previous 4-month lows on 5/12/11, confirming an intermediate-term correction, if not a bear market. Weakness in Copper suggests doubts about the economic outlook. Support 3.9505, 3.8535, 3.6065, 3.3930, 3.1775, 2.9285, 2.8555, 2.8445, and 2.72. Resistance: 4.533, 4.554, 4.6495, 4.6535, and 4.6575.

U.S. Treasury Bond nearest futures contract price rose above the highs of the previous 5 months on 5/26/11, again reconfirming a significant uptrend. The Bond built a 5-month, intermediate-term bullish base since the low of 12/15/10. In its favor, nearly everyone has been talking bearish on Bonds this year, so the Bond is rising up off an extreme oversold condition. Support 124.30, 123.18, 120.20, 119.15, 117.28, 117.04, 116.26, 115.15, 114.06, 113.04, and 112.15. Resistance 128.00 129.14, 129.27, 132.26, 133.00, 135.12, 135.19, 136.31, 137.31, and 142.31.

Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) broke down below 2-month lows on 5/26/11. Absolute price of JNK peaked at 41.32 on 11/4/10.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) fell below 13-week lows on 5/23/11, again reconfirming a medium-term downtrend. TIP/IEF entered a downtrend after peaking on 4/8/11. This downtrend means that fixed-income investors now prefer the unprotected 7-10 Year U.S. Treasury Note ETF (IEF) over the inflation-protected TIPs. Inflation expectations are dying.

The U.S. dollar nearest futures contract price fell below 11-day lows on 5/2711, suggesting a short-term downside price correction. But USD rose above highs of the previous 7 weeks on Monday 5/23/11, reconfirming a longer time frame uptrend. Support 72.86 and 70.80. Resistance 76.54, 76.87, 77.675, 78.98, 79.34, 81.635, 81.935, 82.02, 83.64, 84.73, 85.36, 86.71, 88.80, 89.22, 89.71, and 92.53.

Advisory Service Sentiment: There were 57.3% Bulls versus 15.7% Bears as of 4/6/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio soared to 3.65, up from 2.23 the previous week. The Ratio rose its highest level in the 8 years since the 20-year high of 3.74 set on 6/18/03. Following that 2003 peak, the stock market turned sideways/choppy for 2 months and sentiment reverted toward the mean. The Ratio’s 20-year range is 0.41 to 3.74, the median is 1.56, and the mean is 1.63. According to Humphrey B. Neill, The Art of Contrary Thinking, when everybody thinks alike, everyone is likely to be wrong.

VIX Fear Index fell below its 3-year range on 4/20/11, hitting 14.30 intraday, and again confirming a preexisting trend toward bullish complacency. This follows a brief spike up to an intraday peak of 31.28 on 3/16/11. Fear was short-lived. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

The Dow Theory signaled a Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. Looking ahead, joint closes below the 5/17/11 closing price lows could have serious bearish implications for the multi-month Secondary Trend. Here are the critical closing price levels to watch out for: 12,479.60 for the Dow-Jones Industrials and 5,335.37 for the Dow-Jones Transports.

On 5/2/11, when the S&P 500 Composite (SPX) was 1,358.59, I warned, “The majority of major stock price indexes opened higher on gaps but reversed to close with losses on the day. This may signal exhaustion of the short-term uptrend. Sentiment indicators have been suggesting that the stock market may be over loved and overbought. And in view of the sharp reversals in the metal commodities, the so-called “inflation trade”, when speculators buy stocks and sell fixed-income instruments based on expectations of rising price levels for goods and services, may be on thin ice.”

Based on the daily SPX, momentum indicators have turned down and remained bearish. Momentum indicators gave bearish divergence warnings in April; that is, they never made it back to their February peaks when the price indexes rose to higher highs. These bearish divergence warnings are still in effect.

For all the bullish sentiment and bullish news stories (such as better-than-expected earnings and big deal M&A) over the past 3 months, SPX is lower than it was 3 months ago. Worse, a wide variety of momentum indicators are significantly lower than they were 3 months ago, thereby showing bearish divergence. This suggests exhaustion of the uptrend.

Furthermore, the absolute prices of the major stock price indexes show patterns of lower highs and lower lows since 5/2/11. “Lower highs and lower lows” is the classic definition of a bearish downtrend.

S&P 500 Composite (SPX, 1,331.10) rose 5.41 points or 0.41% on Friday. Trading volume fell 17% on the NYSE. Although choppy up and down movement day-to-day is normal and expected within any trend, the 20 trading days trend is clearly down. Over the past 3 days, SPX has recovered to the top end of its downtrend channel, which might offer resistance to further advance.

S&P 500 Cash Index Potential Resistance
1576.09, high of 10/11/2007
1552.76, high of 10/31/2007
1523.57, high of 12/11/2007
1498.85, high of 12/26/2007
1440.24, high of 5/19/2008
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1370.50, high of 5/2/11
1359.44.50, high of 5/10/11

S&P 500 Cash Index Potential Support
1294.70, low of 4/18/11
1249.05, low of 3/16/11
1246.73, high of 12/13/10
1238.81, Fibonacci 78.6% of 1,576.09 high
1235.05, high of 12/7/10
1232.85, low of 12/16/10
1228.74, Fibonacci 61.8% of 2007-2009 range
1227.08, high of 11/5/10
1173.00, low of 11/16/10
1171.70, low of 10/27/10
1166.74, low of 10/20/10
1159.71, low of 10/19/10
1,151.41, low of 10/7/10
1,131.87, low of 10/4/10
1122.79, low of 9/23/2010
1114.63, low of 9/15/2010
1110.88, low of 9/10/2010
1091.15, low of 9/7/2010
1039.70, low of 8/27/10
1039.31, Fibonacci 23.6% of June-Aug. 2010 range
1010.91, low of 7/1/2010
1008.55, Fibonacci 38.2% of 2009-2010 range
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
943.29, Gann 50.0% of 2009-2010 range
878.04, Fibonacci 61.8% of 2009-2010 range
874.17, Gann 62.5% of 2009-2010 range
869.32, low of 7/8/2009
805.17, Gann 75.0% of 2009-2010 range
785.13, Fibonacci 78.6% of 2009-2010 range
666.79, intraday low of 3/6/2009

One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

2.64% Russia MV, RSX
2.09% Silver Miners Global X, SIL
1.96% South Korea Index, EWY
1.58% India Earnings WTree, EPI
1.42% Silver Trust iS, SLV
1.38% Switzerland Index, EWL
1.27% Brazil Index, EWZ
1.23% Financial Services DJ, IYG
1.22% Malaysia Index, EWM
1.19% Semiconductor iS IGW, SOXX
1.15% Singapore Index, EWS
1.15% Basic Materials DJ US, IYM
1.12% China LargeCap Growth G D H USX PS, PGJ
1.08% Materials SPDR, XLB
1.06% Emerging Markets, EEM
1.03% Bond Ex-US Treas, BWX
1.03% China 25 iS, FXI
1.03% Latin Am 40, ILF
1.02% Emerging 50 BLDRS, ADRE
1.01% Metals & Mining SPDR, XME
1.01% Small Cap EAFE MSCI iS, SCZ
1.00% Emerging VIPERs, VWO
1.00% Gold Shares S.T., GLD
0.99% India PS, PIN
0.99% United Kingdom Index, EWU
0.98% Austria Index, EWO
0.97% WilderHill Clean Energy PS, PBW
0.96% European VIPERs, VGK
0.94% Sweden Index, EWD
0.92% Homebuilders SPDR, XHB
0.91% Australia Index, EWA
0.91% Semiconductor SPDR, XSD
0.88% Capital Markets KWB ST, KCE
0.87% Pacific ex-Japan, EPP
0.84% Indonesia MV, IDX
0.83% Financials VIPERs, VFH
0.81% Mexico Index, EWW
0.81% Growth EAFE MSCI, EFG
0.81% Financial DJ US, IYF
0.80% Germany Index, EWG
0.80% Europe 350 S&P Index, IEV
0.80% Microcap Russell, IWC
0.78% South Africa Index, EZA
0.78% France Index, EWQ
0.77% Water Resources, PHO
0.76% Thailand MSCI iS, THD
0.76% Biotech SPDR, XBI
0.74% SmallCap S&P 600, IJR
0.73% Value SmallCap Russell 2000, IWN
0.73% EAFE Index, EFA
0.71% Value MidCap S&P 400 B, IJJ
0.71% Financial SPDR, XLF
0.69% SmallCap Russell 2000, IWM
0.69% Growth SmallCap VIPERs, VBK
0.68% Value EAFE MSCI, EFV
0.68% EMU Europe Index, EZU
0.67% Networking, IGN
0.67% Value SmallCap VIPERS, VBR
0.66% Growth BARRA Small Cap 600, IJT
0.64% Growth SmallCap R 2000, IWO
0.64% Netherlands Index, EWN
0.62% Value MidCap Russell, IWS
0.61% Value SmallCap S&P 600 B, IJS
0.61% Dividend International, PID
0.60% Small Cap VIPERs, VB
0.59% MidCap S&P 400 iS, IJH
0.59% Telecom DJ US, IYZ
0.58% MidCap S&P 400 SPDRs, MDY
0.57% REIT VIPERs, VNQ
0.57% Commodity Tracking, DBC
0.57% Growth MidCap 400 B, IJK
0.55% MidCap Russell, IWR
0.55% Info Tech VIPERs, VGT
0.55% Technology DJ US, IYW
0.53% Global ex US ACWI iS, ACWX
0.53% Hong Kong Index, EWH
0.53% REIT Wilshire, RWR
0.52% Energy Global, IXC
0.52% Energy & Nat Res iS GS, IGE
0.52% Global 100, IOO
0.51% Value VIPERs, VTV
0.51% Spain Index, EWP
0.50% QQQ Nasdaq 100 Trust, QQQ
0.50% Technology SPDR, XLK
0.50% Value 1000 Russell, IWD
0.49% Bond, High-Yield Junk, JNK
0.49% LargeCap Blend S&P=Weight R, RSP
0.49% Industrial SPDR, XLI
0.48% LargeCap VIPERs, VV
0.47% Realty Cohen & Steers, ICF
0.47% Growth MidCap Russell, IWP
0.46% Blend Total Market VIPERs, VTI
0.46% Value S&P 500 B, IVE
0.46% LargeCap 1000 R, IWB
0.45% LargeCap Blend Russell 3000, IWV
0.41% Belgium Index, EWK
0.41% Consumer Staples SPDR, XLP
0.41% LargeCap Blend S&P 100, OEF
0.40% S&P 500 iS LargeCap Blend, IVV
0.39% Taiwan Index, EWT
0.39% Dividend DJ Select, DVY
0.39% Italy Index, EWI
0.39% Growth VIPERs, VUG
0.38% S&P 500 SPDRs LargeCap Blend, SPY
0.38% Dividend High Yield Equity PS, PEY
0.37% Oil Fund PowerShares, DBO
0.36% Growth 1000 Russell, IWF
0.35% DIAMONDS (DJIA), DIA
0.33% Growth S&P 500/BARRA, IVW
0.33% Pacific VIPERs, VPL
0.32% Value LargeCap Dynamic PS, PWV
0.31% Energy VIPERs, VDE
0.30% Bond, High-Yield Corporate, HYG
0.30% Energy DJ, IYE
0.28% Frontier Markets Guggenheim , FRN
0.28% Oil, Crude, U.S. Oil Fund, USO
0.26% Dividend SPDR, SDY
0.25% Dividend Appreciation Vipers, VIG
0.25% Consumer Discretionary SPDR, XLY
0.25% Energy SPDR, XLE
0.24% Bond Muni ATM-Free S&P iS, MUB
0.22% Financial Preferred, PGF
0.18% Real Estate US DJ, IYR
0.18% Bond EmrgMkt JPM iS, EMB
0.17% Utilities VIPERs, VPU
0.16% Bond, TIPS, TIP
0.15% Preferred Stock iS, PFF
0.11% Bond, Corp, LQD
0.09% Bond, Aggregate, AGG
0.09% Canada Index, EWC
0.09% Agriculture DB PS, DBA
0.07% Chile MSCI iS, ECH
0.06% Health Care SPDR, XLV
0.04% Bond, 1-3 Year Treasury, SHY
0.02% Bond Treasury Short-Term iS, SHV
0.00% Utilities SPDR, XLU
0.00% Japan Index, EWJ
-0.01% Bond, 10 Year Treasury, IEF
-0.04% Bond, 20+ Years Treasury, TLT
-0.05% Transportation Av DJ, IYT
-2.46% Turkey MSCI iS, TUR