The Federal Open Market Committee (FOMC) is widely expected to announce QE3 Thursday afternoon–even though easing monetary policy does not appear to be sufficient for fixing the real global economic problems.
The bullish majority of investors seems to be assuming that the FOMC decision will stimulate stock prices. With the S&P 500 already up more than 12% over the past 15 weeks, however, investors might consider two questions: to what extent is a favorable decision already discounted, and what are the risks if the decision is less favorable than generally expected?
Based on yo-yo, up-down market reactions after previous Fed pronouncements, both Bulls and Bears could have a chance to get whipsawed. To come out whole, traders will have to outsmart high-frequency-trading computers, which are always much faster than mere flesh and blood. Doing the obvious often gets punished.
The S&P 500 (SPX: 1,436.56) rose 3.00 points or 0.21% on Wednesday, making back most of its insignificant loss on Monday.
NYSE volume rose 8% to a level 6% below its 200-day SMA. Volume fell to its lowest levels in 13 years in August, reflecting diminishing enthusiasm for stocks. NYSE Volume 50-day SMA and 200-day SMA fell to their lowest levels in 13 years, and both are still trending down.
On-Balance Volume for the SPX remains in a relatively weak trend with bearish divergence.
NYSE Cumulative Volume of Advancing Stocks minus Volume of Declining Stocks is still a considerable distance away from recovering its March-June loss. Clearly, volume has not been confirming the price up move.
It takes volume to push prices up. After the shorts have been forced to cover and the longs have had their fill of buying, in the absence of a fresh source of demand, stocks fall of their own weight.
RSI for the SPX is in the overbought zone that has marked previous market highs.
While the S&P 500 Composite Price Index rose to a new 4-year high last week, both the percentage of these same 500 stocks that are above their 200-day SMAs (now at 77, down from a peak above 85 in March) and the percentage in bullish Point-and-Figure Chart uptrends (now at 75, down from a peak above 85 in February) failed to confirm that higher high. Although both rose last week, both market breadth indicators still are diverging bearishly compared to the S&P 500 Composite Stock Price Index.
Investor sentiment data indicates alarming degrees of optimism and bullish complacency as the stock price indexes rise above their 2012 market highs. The pendulum of emotion tends to swing too far in one direction, but market mood always reverts to the mean, as it did during the -10% April-June 2012 downside price correction for the stock market.
The technical condition of the stock market does not support the optimism of the bullish majority of stock investors and traders.
The S&P 500 much closer to its upper channel resistance line than to its lower channel support line. If the S&P continues to fluctuate within this channel, as it commonly does, then potential risk to the lower line is now about 4 times potential reward to the upper line. Choosing safety over risk appears to be the most reasonable approach for conservative traders and investors.
*For extensive coverage of major global markets with illustrative charts, take a free trial for my weekly report —
click here.
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Hedge funds and equity mutual funds both lost money last year, 2011, and some are down again this year as well.
Meanwhile, one money manager made gains for 5 consecutive quarters; see:
Robert W. Colby Asset Management, Inc. (click here).
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Stock Market Indicators
The Dow Theory signaled a Primary Tide Bear Market on 5/17/12 when both Industrials and Transports closed below their closing price lows of the previous 4 months, including the critical lows of March and April, 2012. The Dow-Jones Industrial Average rose above its closing price highs of the previous 4-years on Tuesday, 9/12/12, but the Dow-Jones Transportation Average did not, thereby failing to confirm a Dow Theory uptrend. The Transportation Average closed below its lows of the previous 6 weeks on 9/5/12 and remains relatively weak, trading below its 2012 closing price highs.
Investors Intelligence Sentiment shows that stock market newsletter advisors are even more bullish. As of 9/12/12, there were 51.1% Bulls and 23.5% Bears. This 51.1% Bulls is the largest percentage of Bulls since 4/4/12, just 2 days after the SPX high close for the year and the beginning of a 10% decline for the S&P 500 index stretching over 60 days. com.
The S&P 500 Composite 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
1439.15, high of 9/12/2012
The S&P 500 Composite Potential Support
1428.98, low of 9/10/2012
1426.68, high of 8/21/2012
1422.38, high of 4/2/2012
1418.71, high of 8/17/2012
1415.32, high of 5/1/2012
1396.56, low of 9/4/2012
1391.04, low of 8/6/2012
1389.07, Fibonacci 78.6% of April-June 2012 range
1388.71, low of 5/3/2012
1388.93, 50-day SMA
1381.50, Fibonacci 78.6% of 2007-2009 range
1380.39, high of 7/19/2012
1374.81, high of 7/3/2012
1370.58, high of 5/2/2011
1363.49, high of 6/19/2012
1362.93, Fibonacci 61.8% of April-June 2012 range
1357.38, low of 4/10/2012
1355.70, low of 7/2/2012
1344.56, Fibonacci 50% of April-June 2012 range
1346.05, 200-day SMA
1340.34, Fibonacci 23.6% of 2011-12 range
1340.03, low of 3/6/2012
1335.52, high of 6/11/2012
1334.93, high of 5/31/2012
1329.24, low of 7/24/2012
1329.05, high of 6/7/2012
1328.49, high of 5/22/2012
1326.19, Fibonacci 38.2% of April-June 2012 range
1325.41, low of 7/12/2012
1306.62, low of 6/12/2012
1303.47, Fibonacci 23.6% of April-June 2012 range
1291.98, low of 5/18/2012
1289.59, Fibonacci 38.2% of 2011-12 range
1266.74, low of 6/4/2012
1265.26, low of 1/5/2012
1262.30, low of 12/27/2011
1257.58, Fibonacci 61.8% of 2011 range
1248.58, Fibonacci 50.0% of 2011-12 range
1244.80, low of 12/7/2011
1239.73, low of 12/1/2011
1238.81, Fibonacci 78.6% of 1,576.09 high
1234.81, low of 11/3/2011
1231.04, high of 12/16/2011
1228.74, Fibonacci 61.8% of 2007-2009 range
1226.64, low of 11/9/2011
1224.57, high of 12/19/2011
1215.20, low of 12/16/2011
1207.56, Fibonacci 61.8% of 2011-12 range
1202.37, low of 12/19/2011
1158.66, low of 11/25/2011
1121.44, Fibonacci 50% of 2007-2009 range
1074.77, low of 10/4/2011
1149.16, Fibonacci 78.6% R of 2011-12 range
1014.14, Fibonacci 38.2% of 2007-2009 range
1010.91, low of 7/1/2010
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
881.38, Fibonacci 23.6% of 2007-2009 range
869.32, low of 7/8/2009
666.79, intraday low of 3/6/2009
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Tangible Assets, Commodities
U.S. dollar ETF (UUP) remains systematically neutral: below its 50-day SMA, below its 200-day SMA, and its 50-day SMA has stayed above its 200-day SMA every day since 10/26/11. Support 21.74, 21.58, 21.07, and 20.84. Resistance 22.36, 22.45, 23.14, 23.52, 25.84, 27.19, 28.97.
CRB Commodity Price Index remains systematically neutral: above its 50-day SMA, above its 200-day SMA, and its 50-day SMA has remained below its 200-day SMA every day since 8/18/11. The 50-200 SMA spread is narrowing rapidly, however, and a bullish crossover appears likely in days ahead.
Agriculture, PowerShares DB Agriculture Fund ETF (DBA) remains systematically bullish: above its 50-day SMA, above its 200-day SMA, and its 50-day SMA rose above its 200-day SMA on 8/13/12. High food prices could bring trouble for the general economy because more consumer spending for food means less consumer spending available for other goods and services.
Crude Oil, United States Oil ETF (USO) turned systematically neutral on 7/16/12, when price rose above its 50-day SMA. USO remains below its 200-day SMA, and its 50-day remains below its 200-day SMA. Support 34.34, 32.45, 31.40, 29.02, 26.28, and 22.74. Resistance 36.45, 36.97, 40.29, 41.38, 42.30, and 45.60.
Gold, SPDR Gold Shares ETF (GLD) rose above its 200-day SMA on 8/22/12 and rose above its 50-day SMA on 8/3/12. GLD remains systematically neutral because its 50-day SMA has stayed below its 200-day SMA every day since 4/17/12. The 50-200 SMA spread is narrowing, however, and a bullish crossover appears possible in weeks ahead. Support: 159.56, 154.83, 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 174.00, 175.46, 177.40, and 185.85.
Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) rose above its 50-day SMA on 8/16/12, thereby turning systematically neutral. GDX/GLD remains below its 200-day SMA, and its 50-day SMA has remained bearishly below its 200-day SMA every day since 2/22/11.
Silver, iShares Silver Trust ETF (SLV) price rose above its 50-day SMA on 8/3/12, thereby turning systematically neutral. SLV price rose above its 200-day SMA on 8/31/12. The price 50-day SMA has remained below its 200-day SMA every day since 10/27/11, but the 50-200 SMA spread is narrowing. Support 29.28, 26.87, 26.13, 25.34, 25.00, 24.44, 22.52, 20.73, and 19.44. Resistance: 33.44, 36.44, 40.23, 41.49, 42.30, 42.78, 44.71, and 48.35.
Silver/Gold ETFs Ratio (SLV/GLD) rose above its 50-day SMA on 8/16/12, thereby turning systematically neutral. SLV/GLD rose above its 200-day SMA on 8/31/12. SLV/GLD remains systematically neutral because its 50-day SMA has stayed below its 200-day SMA every day since 8/30/11. The 50-200 SMA spread has been narrowing over the past two weeks, however, and a bullish crossover could be possible in weeks ahead if the SLV/GLD remains strong.
Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) price rose above its 50-day SMA on 8/21/12, thereby turning systematically neutral. Price rose above its 200-day SMA on 9/7/12. JJC remains systematically neutral because its 50-day SMA has remained below its 200-day SMA every day since 5/31/12. The 50-200 SMA spread has begun to narrow over the past few weeks, however. Given that “Dr. Copper” is one of the better indicators of investor confidence (or lack thereof) in the global industrial economy, this strengthening from bearish to neutral may be suggesting less pessimism about prospects going forward.
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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 later revealed to be deal stocks 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
21.16% , ODP , OFFICE DEPOT
0.58% , JKI , Value MidCap iS M, JKI
10.70% , VMC , VULCAN MATERIALS
0.75% , RFV , Value MidCap S&P 400, RFV
7.67% , SHLD , SEARS HOLDINGS
3.74% , LVLT.K , LEVEL 3 COMMUNICATIONS
4.25% , ETFC , E*TRADE FINANCIAL
4.49% , PMTC.O , PARAMETRIC
6.00% , PHM , PULTE HOMES
3.38% , OMX , OFFICEMAX INC., OMX
3.36% , KSS , KOHLS
0.49% , MTK , Technology MS sT, MTK
0.44% , RPV , Value S&P 500, RPV
2.67% , COL , ROCKWELL COLLINS
3.39% , IPG , INTERPUBLIC GRP
0.74% , EIS , Israel MSCI iS, EIS
1.11% , PXQ , Networking, PXQ
1.62% , EWT , Taiwan Index, EWT
2.47% , NCR , NCR
0.60% , PPA , Aerospace & Defense, PPA
1.58% , YHOO , YAHOO
4.33% , KBH , KB HOME
1.74% , GRMN , GARMIN LTD
2.75% , DLX , DELUXE
2.22% , PGR , PROGRESSIVE OHIO
2.05% , ZION , ZIONS
3.73% , AMD , ADV MICRO DEV
0.74% , THC , TENET HEALTHCARE
0.60% , JKK , Growth SmallCap iS M, JKK
0.16% , PWC , LargeCap Blend Dynamic PS, PWC
1.83% , STJ , ST JUDE MEDICAL
1.84% , ERIC.O , LM Ericsson Telephone Company
0.55% , PMR , Retail, PMR
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-3.91% , STLD , Steel Dynamics, STLD
-2.06% , MET , METLIFE
-4.33% , LO , Lorillard, Inc. LO
-2.12% , PEP , PEPSICO
-1.75% , EXC , EXELON CORP
-1.10% , SIL , Silver Miners Global X, SIL
-0.40% , PBJ , Food & Beverage, PBJ
-1.58% , EZA , South Africa Index, EZA
-1.14% , PAYX , PAYCHEX
-2.09% , AES , AES
-1.69% , MON , MONSANTO
-1.93% , PM , Philip Morris, PM
-1.25% , TLT , Bond, 20+ Years Treasury, TLT
-1.89% , RAI , Reynolds American
-0.62% , SLV , Silver Trust iS, SLV
-1.97% , CROX , CROCS Inc., CROX
-2.48% , BIDU , Baidu, Inc., BIDU
-0.65% , PCAR , PACCAR
-2.89% , SVU , SUPERVALU
-3.00% , SIRI , Sirius Satellite
-2.05% , PETM , PETsMART Inc
-3.17% , MO , ALTRIA, MO
-0.25% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
-1.61% , DD , DU PONT
-0.64% , QID , Short 200% QQQ PS, QID
-0.27% , MYY , Short 100% MidCap 400, MYY
-1.80% , HUM , HUMANA
-0.53% , XLP , Consumer Staples SPDR, XLP
-0.89% , SYY , SYSCO
-0.90% , A , AGILENT TECH
-0.96% , CNP , CENTERPNT ENERGY
-1.49% , EFX , EQUIFAX
-1.25% , RHI , ROBERT HALF
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
1.97% Homebuilders SPDR, XHB
1.62% Taiwan Index, EWT
1.37% Spain Index, EWP
1.33% Italy Index, EWI
1.25% Networking, IGN
1.20% Sweden Index, EWD
1.17% WilderHill Clean Energy PS, PBW
1.16% Telecom DJ US, IYZ
1.14% China 25 iS, FXI
1.10% Japan Index, EWJ
1.05% South Korea Index, EWY
0.98% Value EAFE MSCI, EFV
0.95% Pacific VIPERs, VPL
0.94% Thailand MSCI iS, THD
0.94% EMU Europe Index, EZU
0.91% Hong Kong Index, EWH
0.90% Austria Index, EWO
0.88% Germany Index, EWG
0.80% Dividend ex-U.S. DJ iS, IDV
0.80% Belgium Index, EWK
0.80% Transportation Av DJ, IYT
0.80% Agriculture DB PS, DBA
0.79% Capital Markets KWB ST, KCE
0.77% Malaysia Index, EWM
0.73% France Index, EWQ
0.71% Semiconductor SPDR, XSD
0.68% Financial Services DJ, IYG
0.68% SmallCap Blend EAFE MSCI iS, SCZ
0.65% Foreign LargeCap EAFE MSCI iS, EFA
0.64% India Earnings WTree, EPI
0.64% MidCap Value S&P 400 iS, IJJ
0.61% Energy SPDR, XLE
0.60% China LargeCap Growth G D H USX PS, PGJ
0.56% Financial DJ US, IYF
0.55% Value SmallCap VIPERS, VBR
0.55% Technology SPDR, XLK
0.55% SmallCap Value S&P 600 iS, IJS
0.55% SmallCap Value Russell 2000 iS, IWN
0.55% Biotech SPDR, XBI
0.55% MidCap Blend S&P 400 iS, IJH
0.54% Pacific ex-Japan, EPP
0.53% Small Cap VIPERs, VB
0.53% Singapore Index, EWS
0.52% MidCap S&P 400 SPDRs, MDY
0.52% Commodity Tracking, DBC
0.51% SmallCap Blend Russell 2000 iS, IWM
0.51% Global ex U.S. LargeCap Blend, ACWX
0.49% Consumer Discretionary SPDR, XLY
0.49% Technology DJ US, IYW
0.48% Microcap Russell, IWC
0.47% Netherlands Index, EWN
0.47% Energy DJ, IYE
0.46% Energy VIPERs, VDE
0.45% Energy & Nat Res iS GS, IGE
0.45% Financials VIPERs, VFH
0.45% SmallCap Growth Russell 2000 iS, IWO
0.45% Russia MV, RSX
0.45% Value MidCap Russell, IWS
0.44% Emerging Markets MSCI iS, EEM
0.43% Emerging VIPERs, VWO
0.43% Growth VIPERs, VUG
0.43% Global LargeCap Blend MSCI iS, ACWI
0.42% Blend Total Market VIPERs, VTI
0.41% Info Tech VIPERs, VGT
0.41% Industrial SPDR, XLI
0.40% LargeCap Blend S&P 500 iS, IVV
0.40% India PS, PIN
0.40% SmallCap Blend S&P 600 iS, IJR
0.40% Bond, High-Yield Junk, JNK
0.38% MidCap Russell, IWR
0.38% Financial SPDR, XLF
0.38% LargeCap Blend S&P=Weight R, RSP
0.38% Mexico Index, EWW
0.38% Australia Index, EWA
0.38% Europe 350 S&P Index, IEV
0.38% Real Estate US DJ iS, IYR
0.36% Growth SmallCap VIPERs, VBK
0.36% Metals & Mining SPDR, XME
0.35% Growth EAFE MSCI, EFG
0.35% LargeCap Blend Russell 1000 iS, IWB
0.35% LargeCap Value S&P 500 iS, IVE
0.34% LargeCap Blend Russell 3000 iS, IWV
0.34% European VIPERs, VGK
0.33% S&P 500 SPDRs LargeCap Blend, SPY
0.33% LargeCap Value Russell 1000 iS, IWD
0.33% LargeCap Growth Russell 1000 iS, IWF
0.32% LargeCap Growth S&P 500 iS, IVW
0.32% Global 100, IOO
0.32% LargeCap Blend S&P 100, OEF
0.31% Emerging 50 BLDRS, ADRE
0.30% Preferred Stock iS, PFF
0.30% Bond, High Yield Corp iBoxx iS, HYG
0.30% QQQ Nasdaq 100 Trust, QQQ
0.28% Indonesia MV, IDX
0.27% Financial Preferred, PGF
0.25% REIT Wilshire, RWR
0.24% LargeCap VIPERs, VV
0.24% Growth MidCap Russell, IWP
0.24% MidCap Growth S&P 400 iS, IJK
0.23% United Kingdom Index, EWU
0.22% Semiconductor iS IGW, SOXX
0.22% Value VIPERs, VTV
0.21% DIAMONDS (DJIA), DIA
0.21% REIT VIPERs, VNQ
0.21% Dividend High Yield Equity PS, PEY
0.20% Dividend International, PID
0.18% Value LargeCap Dynamic PS, PWV
0.13% SmallCap Growth S&P 600 iS, IJT
0.12% Switzerland Index, EWL
0.10% Dividend SPDR, SDY
0.10% Realty Cohen & Steers, ICF
0.07% Canada Index, EWC
0.07% Latin Am 40, ILF
0.05% Health Care SPDR, XLV
0.05% Bond, Emerg Mkt JPM iS, EMB
0.01% Gold Shares S.T., GLD
0.00% Water Resources, PHO
0.00% Energy Global, IXC
0.00% Bond Treasury Short-Term iS, SHV
-0.01% Bond, 1-3 Year Treasury, SHY
-0.02% Brazil Index, EWZ
-0.03% Dividend Appreciation Vipers, VIG
-0.07% Oil Fund PowerShares, DBO
-0.09% Dividend U.S. DJ iS, DVY
-0.10% Bond Ex-US Treas, BWX
-0.13% Chile MSCI iS, ECH
-0.14% Materials SPDR, XLB
-0.14% Bond, Muni S&P ATM-Free iS, MUB
-0.16% Turkey MSCI iS, TUR
-0.17% Basic Materials DJ US, IYM
-0.19% Bond, Intermediate US Aggregate iS, AGG
-0.19% Oil, Crude, U.S. Oil Fund, USO
-0.20% Bond, Long-Term Corp iBoxx iS, LQD
-0.25% Frontier Markets Guggenheim , FRN
-0.32% Bear, Short S&P 500, SH
-0.49% Bond, TIPS U.S. Treasury iS, TIP
-0.49% Bond, 10 Year Treasury, IEF
-0.52% Utilities VIPERs, VPU
-0.53% Consumer Staples SPDR, XLP
-0.58% Utilities SPDR, XLU
-0.62% Silver Trust iS, SLV
