“The financial markets have become driven by politics. It is central banks printing money, or governments bailing out banks, that determines whether asset prices rise or fall….While a few very clever people can predict trends in free markets, it is impossible to predict what political systems might do. They are inherently unstable, and unpredictable.”–Matthew Lynn, marketwatch.com
The S&P 500 Composite (SPX, 1,207.25) rose 11.71 points or 0.98% on Wednesday, October 12, 2011. SPX gapped higher on the open and added to gains until 2:33 p.m.ET. In the final hour and a half, prices surrendered more than half of their gains for the day but still managed to close above the highs of the previous 16 trading days.
The 7-day bounce has left the market in a vulnerable, overbought position. That may not necessarily rule out another day or two of upside attempts, similar to those we have already seen over the past 2 months.
This 7-day bounce is the 7th bounce of 3% or more since early August, and it probably will end the same way the others did, that is, failing near the upper end of the 2-month trading range.
Over the past 2 months, since early August, there have been 4 previous probes into the SPX 1204 to 1231 zone; each bounce found resistance there, and stock prices reversed to the downside.
The formerly weakest stocks bounced the most over the past 7 trading days, while the stocks that previously had held up best have lagged. This is typical of a short-covering rally.
Markets are likely to remain volatile, with large daily swings in both directions. Fundamentally, timing of the Daily Fluctuations may depend on the next overnight news headline about the debt crisis in Europe, since that crisis appears to be a key driver of Daily Fluctuations. Over the past 7 trading days, investors appear to be hoping for good news from Europe and seem willing to believe. Hope offers no comfort, however, since the market’s moods change all too frequently.
Daily upside reversals against the dominant bear trend lure short-term traders into trying to trade a bounce. Such minor price corrections are normal and expected, of course, but playing brief counter-trend bounces is risky. The mood can switch from “risk on” to “risk off” overnight, leaving the too-clever trader suddenly holding the bag, as we have seen repeatedly over the past 2 months. And in a Dow Theory Primary Tide Bear Market, the big surprises come to the downside.
The Dow Theory signaled a Primary Tide Bear Market on 8/2/11, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their closing price lows of June, 2011. The Bear Market was confirmed on 10/3/11 by lower closing price lows for both Averages. A Dow Theory Primary Tide Bear Market is a powerful beast that must not be underestimated.
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Stock Market Indicators
NASDAQ Composite/S&P 500 Relative Strength Ratio has consolidated gains over the past 2 weeks. The Ratio rose above previous 10-year highs on 9/23/11, reconfirming a major long-term uptrend. That relative trend probably will resume–in time. NASDAQ absolute price trend has been whipsawing and is now neutral.
iShares MSCI BRIC Fund (BKF) Relative Strength Ratio (BKF/SPY) fell below 31-month lows on 10/4/11, reconfirming a major long-term downtrend. This basket of the stocks of Brazil, Russia, India and China is in a relatively bearish major trend.
Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) broke down below 29-month lows on 9/22/11, reconfirming its preexisting bearish major trend. Absolute price has been bearish since 5/2/11, broke down below 2-year lows on 10/4/11, and remains bearishly below falling 50- and 200-day SMAs.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) broke down below 7-year lows on 9/19/11, reconfirming its preexisting bearish major trend. Absolute price has been bearish since 5/2/11 and broke down below 2-year lows on 10/4/11.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) OEX/SPX consolidated after rising above 50-day and 200-day SMAs on 9/21/11, which was a RELATIVELY bullish sign of the OEX outperforming the SPX. Large Caps tend to outperform Mid Caps and Small Caps in bearish markets as investors seek the perceived relative safety of large size. Absolute price of OEX has been whipsawing and is now neutral.
The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) broke down below the lows of the previous 20-months on 10/3/11, thereby reconfirming a major downtrend. Absolute price has been in a bearish trend since 5/2/11.
The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) broke down below the lows of the previous 18-months on 10/3/11, reconfirming a bearish long-term major trend. Absolute price has been in a bearish trend since 5/2/11.
Advisory Service Sentiment: There were 34.4% Bulls versus 46.3% Bears as of 10/12/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio was 0.74, which is the lowest level since the big bear market of 2007- 2009. The Bull/Bear Ratio is now more 1 standard deviation below the 20-year average. It was more than 2 standard deviations above the 20-year average at the end of April, 2011. The 20-year median is 1.56 and the mean is 1.64. Sentiment is not so easy to interpret. Contrary to what many contrarians seem to believe, when advisors turn this bearish, stocks sometimes have much further to fall. Examples include similar levels of bearish sentiment in April 1973 and in July 2008, after which stock prices fell much further.
VIX Fear Index remains stuck in a 9-week, relatively high level trading range, from a low of 29.79 to a high of 48.00. 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 S&P 500 Composite (SPX: 1,207.25) 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
1370.58, high of 5/2/11
1359.44, high of 5/10/11
1356.48, high of 7/7/11
1347.00, high of 7/21/11
1258.07, low of 6/16/11
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
1234.56, low of 8/3/11
1232.85, low of 12/16/10
1230.71, high of 8/31/11
1228.74, Fibonacci 61.8% of 2007-2009 range
1220.39, high of 9/20/11
1220.25, high of 10/12/2011
S&P 500 Cash Index (SPX: 1,207.25) Potential Support
1074.77, low of 10/4/2011
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
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Fixed-Income Investments
Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) price broke down below the lows of the previous 3 weeks on 10/12/11, confirming a larger-than-expected downside shakeout. TLT price is still above its rising 50-day and 200-day SMAs. TLT rose above all-time highs on 10/4/11, reconfirming a long-term, major uptrend. Support 113.48, 111.25, 106.08, 103.20, 102.27, 96.31, 94.83, 93.14, 89.65, and 88.14. Resistance 125.03.
Bond, iShares Barclays 7-10 Year U.S. Treasury ETF (IEF) fell below 9-week lows on 10/12/11, confirming a larger-than-expected downside shakeout. Support 102.05 and 101.67. Resistance 106.66.
Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) broke down below the lows of the previous 29-months on 10/3/11, reconfirming a bearish long-term major trend.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF) fell below 13-month lows on 9/30/11, reconfirming a bearish long-term major trend. This bearish trend means that fixed-income investors have been choosing the unprotected 7-10 Year U.S. Treasury Note ETF (IEF) over the inflation-protected TIPs. So, fixed-income investors may be more worried about deflation than inflation.
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Tangible Assets, Commodities
U.S. dollar ETF (UUP) price fell below the lows of the past 3 weeks on 10/12/11, continuing a big shakeout in its major price uptrend. Support 21.71, 21.56, 21.42, and 20.84. Resistance 22.63.
Agriculture, PowerShares DB Agriculture Fund ETF (DBA) price fell below the lows of the previous 10 months on 10/3/11, reconfirming a major long-term downtrend.
Crude Oil, United States Oil ETF (USO) appears to have found resistance after bouncing back to its 5-month downtrend line. USO fell below 17-month lows on 10/4/11, which reconfirmed a major long-term downtrend. Support 29.10, 26.28, and 22.74. Resistance 33.53, 35.08, 35.14, 39.25, 40.74, and 45.60.
Gold, SPDR Gold Shares ETF (GLD) price is approaching its 5-week downtrend line at 164.00, where it may find resistance. The medium-term trend appears doubtful. Support: 154.19, 153.61, 147.19, 143.97, 143.42, and 142.55. Resistance: 164.00, 165.72, 170.32, 177.40, and 185.85.
Gold Mining Stocks ETF/ Gold Shares ETF Relative Strength Ratio (GDX/GLD) remains bearishly below its falling 50-day and 200-day SMAs. GDX/GLD fell below 29-month lows on 8/8/11, reconfirming a bearish major trend for the long term. Investors still prefer Gold bullion over Gold Miners.
Silver, iShares Silver Trust ETF (SLV) price consolidated losses since breaking down below the lows of the previous 7 months on 9/26/11, which confirmed a bearish major trend for the long term. SLV fell back below its 50-day SMA on 9/19/11 and fell below its 200-day SMA on 9/22/11. Support 27.41, 26.03, and 24.44. Resistance: 32.62, 34.51, 40.23, 41.49, 42.30, 42.78, 44.71 and 48.35.
Silver/Gold ETFs Ratio (SLV/GLD) broke down below the lows of the previous 11 months on 9/30/11, reconfirming a bearish major trend for the long term. SLV/GLD has been mostly weak since peaking on 4/28/11. This means investors prefer Gold over Silver.
Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) price consolidated losses since breaking down below the lows of the previous 14 months on 10/5/11, which confirmed a bearish major trend for the long term. Major trend weakness in Copper suggests serious concerns about the economic outlook.
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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
34.12% , LIZ , LIZ CLAIRBORNE
4.74% , EWO , Austria Index, EWO
1.18% , JKK , Growth SmallCap iS M, JKK
2.14% , RFV , Value MidCap S&P 400, RFV
1.59% , EIS , Israel MSCI iS, EIS
5.44% , IDX , Indonesia MV, IDX
2.51% , PIC , Insurance, PIC
2.05% , LAMR , Lamar Advertising Company
5.00% , NIHD , NII Holdings, Inc.
7.85% , LPX , LOUISIANA PAC
3.04% , WHR , WHIRLPOOL
2.19% , DGT , Global Titans, DGT
4.70% , SHLD , SEARS HOLDINGS
1.03% , PPA , Aerospace & Defense, PPA
7.07% , FMCN , Focus Media, FMCN
6.21% , AIG , AMER INTL GROUP
1.74% , RPV , Value S&P 500, RPV
0.71% , PFM , Dividend Achievers PS, PFM
3.82% , DV , DeVry, Inc.
6.05% , ETFC , E*TRADE FINANCIAL
5.24% , JCI , JOHNSON CONTROLS
5.56% , PWER , POWER ONE
5.60% , CTSH , Cognizant Technology Solutions
1.08% , JKH , MidCap Growth iS M, JKH
3.21% , SEE , SEALED AIR
2.38% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
1.33% , JKL , Value SmallCap iS M, JKL
3.56% , PBW , WilderHill Clean Energy PS, PBW
1.39% , PID , Dividend International, PID
4.23% , AFL , AFLAC
1.95% , RWR , REIT Wilshire, RWR
3.07% , EZU , EMU Europe Index, EZU
4.12% , HUM , HUMANA
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-12.06% , EK , EASTMAN KODAK
-3.05% , BAX , BAXTER INTL
-5.32% , TLAB , TELLABS
-2.43% , AA , ALCOA
-1.57% , CIEN.O , CIENA
-1.89% , WAG , WALGREEN
-1.97% , EIX , EDISON INTL
-2.39% , MZZ , Short 200% MidCap 400 PS, MZZ
-1.25% , CHRW.O , CH Robinson Worldwide Inc, CHRWD
-1.45% , TLT , Bond, 20+ Years Treasury, TLT
-0.56% , GRMN , GARMIN LTD
-0.52% , HOLX , Hologic, Inc., HOLX
-1.27% , RAI , Reynolds American
-1.86% , SDS , Short 200% S&P 500 PS, SDS
-1.64% , YUM , YUM BRANDS
-2.17% , RIMM , RESEARCH IN MOTION LTD
-0.97% , TXT , TEXTRON
-1.45% , LXK , LEXMARK INTL STK A
-1.31% , MRVL , MARVELL TECHNOLOGY
-1.49% , CHKP , Check Point Software Technologies Ltd
-1.02% , GLW , CORNING
-1.73% , DXD , Short 200% Dow 30 PS, DXD
-0.60% , PSQ , Short 100% QQQ, PSQ
-1.02% , MDT , MEDTRONIC
-0.34% , IEF , Bond, 10 Year Treasury, IEF
-1.16% , PGN , PROGRESS ENERGY
-0.74% , PPL , PPL
-1.07% , BF.B , BROWN FORMAN STK B
-0.44% , A , AGILENT TECH
-0.40% , FAST , Fastenal Company
-1.10% , EXPD , Expeditors International WA
-0.85% , SH , Short 100% S&P 500, SH
-0.29% , SIAL , SIGMA ALDRICH
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
5.44% Indonesia MV, IDX
4.74% Austria Index, EWO
3.95% China 25 iS, FXI
3.56% WilderHill Clean Energy PS, PBW
3.45% India PS, PIN
3.42% China LargeCap Growth G D H USX PS, PGJ
3.40% India Earnings WTree, EPI
3.11% Russia MV, RSX
3.09% Netherlands Index, EWN
3.07% South Korea Index, EWY
3.07% EMU Europe Index, EZU
2.96% Chile MSCI iS, ECH
2.88% France Index, EWQ
2.82% Brazil Index, EWZ
2.81% Emerging Markets, EEM
2.78% Emerging VIPERs, VWO
2.76% Hong Kong Index, EWH
2.75% Financial Services DJ, IYG
2.73% Germany Index, EWG
2.69% Emerging 50 BLDRS, ADRE
2.60% Water Resources, PHO
2.53% Financial SPDR, XLF
2.52% Latin Am 40, ILF
2.43% Bond, High-Yield Junk, JNK
2.41% Capital Markets KWB ST, KCE
2.40% European VIPERs, VGK
2.35% Mexico Index, EWW
2.33% Bond, High-Yield Corporate, HYG
2.30% Financials VIPERs, VFH
2.29% Canada Index, EWC
2.24% Europe 350 S&P Index, IEV
2.16% Singapore Index, EWS
2.16% Financial DJ US, IYF
2.09% Metals & Mining SPDR, XME
2.05% Pacific ex-Japan, EPP
2.02% Turkey MSCI iS, TUR
1.96% Global ex US ACWI iS, ACWX
1.95% REIT Wilshire, RWR
1.92% Italy Index, EWI
1.84% Malaysia Index, EWM
1.83% South Africa Index, EZA
1.81% Realty Cohen & Steers, ICF
1.81% Switzerland Index, EWL
1.81% Telecom DJ US, IYZ
1.79% Homebuilders SPDR, XHB
1.79% Australia Index, EWA
1.72% Value EAFE MSCI, EFV
1.68% Microcap Russell, IWC
1.66% Value SmallCap S&P 600 B, IJS
1.64% REIT VIPERs, VNQ
1.63% Real Estate US DJ, IYR
1.61% Spain Index, EWP
1.60% Value SmallCap Russell 2000, IWN
1.54% Value MidCap S&P 400 B, IJJ
1.54% Small Cap EAFE MSCI iS, SCZ
1.53% Growth EAFE MSCI, EFG
1.49% Value SmallCap VIPERS, VBR
1.48% Belgium Index, EWK
1.47% Global 100, IOO
1.46% EAFE Index, EFA
1.42% SmallCap Russell 2000, IWM
1.40% Semiconductor SPDR, XSD
1.39% Dividend International, PID
1.38% United Kingdom Index, EWU
1.34% Small Cap VIPERs, VB
1.31% Transportation Av DJ, IYT
1.29% Growth MidCap 400 B, IJK
1.29% Basic Materials DJ US, IYM
1.27% Industrial SPDR, XLI
1.25% Growth SmallCap R 2000, IWO
1.24% Silver Trust iS, SLV
1.24% Value VIPERs, VTV
1.23% MidCap S&P 400 iS, IJH
1.23% SmallCap S&P 600, IJR
1.21% Sweden Index, EWD
1.18% Growth SmallCap VIPERs, VBK
1.17% Energy Global, IXC
1.16% Thailand MSCI iS, THD
1.16% Value MidCap Russell, IWS
1.15% MidCap S&P 400 SPDRs, MDY
1.12% Value 1000 Russell, IWD
1.12% Value S&P 500 B, IVE
1.08% Growth BARRA Small Cap 600, IJT
1.07% Frontier Markets Guggenheim , FRN
1.07% LargeCap Blend S&P=Weight R, RSP
1.06% LargeCap Blend Russell 3000, IWV
1.06% MidCap Russell, IWR
1.05% Pacific VIPERs, VPL
1.05% Value LargeCap Dynamic PS, PWV
1.03% Taiwan Index, EWT
1.02% Energy & Nat Res iS GS, IGE
0.99% Materials SPDR, XLB
0.97% LargeCap VIPERs, VV
0.97% LargeCap 1000 R, IWB
0.95% Energy VIPERs, VDE
0.95% Blend Total Market VIPERs, VTI
0.95% Energy DJ, IYE
0.92% Growth MidCap Russell, IWP
0.90% LargeCap Blend S&P 100, OEF
0.90% Consumer Discretionary SPDR, XLY
0.89% Preferred Stock iS, PFF
0.88% S&P 500 SPDRs LargeCap Blend, SPY
0.86% DIAMONDS (DJIA), DIA
0.85% Financial Preferred, PGF
0.85% Dividend SPDR, SDY
0.84% Silver Miners Global X, SIL
0.84% Info Tech VIPERs, VGT
0.82% S&P 500 iS LargeCap Blend, IVV
0.80% Dividend Appreciation Vipers, VIG
0.79% Bond EmrgMkt JPM iS, EMB
0.79% Consumer Staples SPDR, XLP
0.79% Growth S&P 500/BARRA, IVW
0.75% Semiconductor iS IGW, SOXX
0.72% Growth VIPERs, VUG
0.72% Gold Shares S.T., GLD
0.70% Dividend High Yield Equity PS, PEY
0.68% Growth 1000 Russell, IWF
0.63% Japan Index, EWJ
0.55% Technology DJ US, IYW
0.53% Energy SPDR, XLE
0.50% QQQ Nasdaq 100 Trust, QQQ
0.46% Bond Muni ATM-Free S&P iS, MUB
0.45% Bond Ex-US Treas, BWX
0.44% Technology SPDR, XLK
0.40% Dividend DJ Select, DVY
0.18% Commodity Tracking, DBC
0.15% Bond, Corp, LQD
0.06% Health Care SPDR, XLV
0.00% Bond Treasury Short-Term iS, SHV
0.00% Bond, 1-3 Year Treasury, SHY
-0.10% Utilities VIPERs, VPU
-0.16% Biotech SPDR, XBI
-0.16% Agriculture DB PS, DBA
-0.19% Bond, Aggregate, AGG
-0.20% Oil Fund PowerShares, DBO
-0.24% Utilities SPDR, XLU
-0.25% Networking, IGN
-0.27% Oil, Crude, U.S. Oil Fund, USO
-0.34% Bond, 10 Year Treasury, IEF
-0.42% Bond, TIPS, TIP
-1.45% Bond, 20+ Years Treasury, TLT
