The markets may not be offering adequate compensation now for the potential risks.
All along, nearly everyone has been assuming a political deal to prevent “catastrophic” default would somehow get done before the deadline on Tuesday 8/2/11. Therefore, one might deduce that some kind of a deal is already discounted, and so any relief rally on the actual news might be limited in extent and duration.
On the other hand, “no deal” may not be fully discounted by the financial markets. Any compromise designed by the leaders of Congress seems certain to displease the more extreme members of both parties, so it might be difficult to get enough votes to pass a compromise. The possibility of “no deal” may represent unquantifiable risks to financial markets–and even to most commodity markets if it triggers a scramble for liquidity.
The stock market ended last week in weakened condition. The S&P 500 Composite (SPX, 1,292.28) fell 0.65% on Friday, and it fell 3.92% for the week. SPX broke down below the lows of the previous 4 weeks, again confirming its short-term downtrend. The Dow-Jones Industrials and Transports also confirmed by breaking down below the lows of the previous 4 weeks.
The S&P 500 tested its widely-followed 200-day SMA (now at 1,284.84) and closed above it on Friday. A close below the 200-day SMA might bring in still more selling pressure, however.
Trading volume on the NYSE rose 14% above its 200-day SMA on Friday to confirm the bearish price action.
Uncertainty prevails for the short term. For the medium term, a complex Dow Theory Secondary Reaction probably is still unfolding during the historically weak, “Sell in May, and go away” season.
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Fixed-Income Investments
Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) closed above the highs of the previous 8 months on 7/29/11, suggesting a significant uptrend. Still, the U.S. debt ceiling stalemate may hold unquantifiable risks for the financial markets.
Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) fell further below its 20-, and 50-, and 200-day simple moving averages on 7/29/11, confirming a significant bearish trend. JNK/LQD broke down below 9-month lows on 6/16/11.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF) rose above the highs of the previous 10 weeks on 7/28/11, suggesting a medium-term uptrend. TIP/IEF is rising above key SMAs of 20, 50, and 200 days. This means fixed-income investors currently prefer the inflation-protected TIPs over the unprotected 7-10 Year U.S. Treasury Note ETF (IEF).
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Tangible Assets, Commodities
U.S. dollar ETF (UUP) fell below the lows of the previous 11 weeks on 7/26/11, again confirming a significant downtrend. In addition, on 7/21/11, UUP fell below the lower boundary line of a Symmetrical Triangle Consolidation Pattern from the low at 20.84 on 5/4/11.
Agriculture, PowerShares DB Agriculture Fund ETF (DBA) fell below the lows of the previous 4 weeks on 7/29/11, suggesting a downtrend. DBA may be forming a bearish Descending Triangle Top Reversal Pattern since its high at 35.58 set on 3/4/11.
Crude Oil, United States Oil ETF (USO) fell below the lows of the previous 8 trading days and closed further below its 20-, 50-, and 200-day simple moving averages on 7/29/11, suggesting, a short-term downtrend.
Gold, SPDR Gold Shares ETF (GLD) rose above all-time highs on 7/29/11. The dominant trend remains bullish. In a world of too much debt, weak currencies, and self-serving politicians, investors around the globe seek the safety of gold as the only forever-true money.
Gold Mining Stocks ETF (GDX) Relative (to the Gold bullion ETF) Strength Ratio (GDX/GLD) fell further below its 50- and 200-day SMAs on 7/29/11. GDX/GLD fell below 27-month lows on 6/17/11, which was a bearish indication for the long term. The Ratio is down substantially since its peak on 4/8/11, and the main trend remains bearish.
Silver, iShares Silver Trust ETF (SLV) fell below 4-day lows on 7/28/11, suggesting a possible short-term price pullback or consolidation. Longer term, Silver appears to have emerged on the bullish side of a 2-month Triangle Consolidation.
Silver/Gold ETFs Ratio (SLV/GLD) fell below 9-day lows on 7/29/11, confirming a minor pullback. The SLV/GLD Ratio remains in a bullish position relative to 50- and 200-day SMAs.
Copper, iPath DJ-UBS Copper TR Sub-Idx ETN (JJC ) consolidated gains in recent days. JJC rose above the highs of the previous 3 months on 7/19/11, confirming a preexisting medium-term uptrend. JJC has been in a bullish trend since bottoming at 51.13 on 5/11/11.
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Stock Market Indicators
NASDAQ Composite/S&P 500 Relative Strength Ratio has been strong since bottoming on 6/20/11. Although the Ratio’s 50-day SMA remains below the 200-day SMA, the spread is closing and the SMAs may cross in days ahead. Long term, the trend remains bullish. Absolute price peaked on 5/2/11 at 2,887.75 (intraday) and appears to be consolidating.
Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) rose above 7-week highs on 7/29/11, suggesting a recovery attempt. The EEM/SPY ratio remains below the 200-day SMA, and the 50-day SMA remains below the 200-day SMA, so the trend is neutral. Absolute price is neutral: EEM broke down below 14-week lows on 6/23/11 but has stabilized since.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) has been in a major long-term downtrend since peaking on 11/27/07. The Ratio remains below the 200-day SMA, and the 50-day SMA remains below the 200-day SMA. Absolute price has been weak since 5/2/11.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) rose above the highs of the previous 4 months on 7/27/11, suggesting a medium-term recovery. But OEX/SPX fell below 28-year lows on 5/26/11, confirming its preexisting bearish long-term major trend.
The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) fell below 6-week lows on 7/27/11. IWM/SPY appears bearish for the short term.
The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) fell below 5-month lows and key SMAs on 7/28/11. MDY/SPY appears bearish for the medium term.
Advisory Service Sentiment: There were 49.5% Bulls versus 21.5% Bears as of 7/27/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio rose to 2.30, which suggests bullish complacency when compared to 20-year range of 0.41 to 3.74, a median of 1.56, and a mean of 1.64.
VIX Fear Index jumped to 25.94 intraday on 7/29/11, up from a low of 15.12 on 7/1/11. This is the highest level of fear in 19 weeks, but it is still well below the 31.28 peak on 3/16/11. 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.
As of the close on June 6, 2011, the Dow Theory confirmed a Secondary Reaction (a significant downside correction) for the general stock market, as the Dow Industrials and Transports both closed below 10-week lows. Previously, as of June 1, 2011, the Dow Theory gave a warning of a significant downside correction for the general stock market, as the Dow Industrials and Transports both closed below 5-week lows.
The S&P 500 Composite (SPX, 1,292.28) fell 8.39 points or 0.65% on Friday, July 29, 2011.
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, high of 5/10/11
1356.48, high of 7/7/11
1347.00, high of 7/21/11
S&P 500 Cash Index Potential Support
1282.86, low of 7/29/11
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
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
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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
6.39% , GNW , GENWORTH FINANCIAL
2.90% , MDP , MEREDITH
8.00% , NWL , NEWELL RUBBER
1.98% , TLT , Bond, 20+ Years Treasury, TLT
4.11% , HGSI , Human Genome Sciences Inc
3.52% , MET , METLIFE
4.80% , PWER , POWER ONE
2.10% , TGT , TARGET
1.36% , ZEUS , Olympic Steel, ZEUS
0.37% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
1.41% , AIV , APT INV MNGMT
0.83% , DOG , Short 100% Dow 30, DOG
1.21% , IEF , Bond, 10 Year Treasury, IEF
1.65% , GRMN , GARMIN LTD
2.38% , AMGN , AMGEN
1.40% , LVLT , LEVEL 3 COMMUNICATIONS
1.66% , DXD , Short 200% Dow 30 PS, DXD
0.38% , GVI , Bond Interm U.S. Gov, GVI
1.38% , SDS , Short 200% S&P 500 PS, SDS
0.75% , PIN , India PS, PIN
1.31% , LPX , LOUISIANA PAC
0.38% , PSQ , Short 100% QQQ, PSQ
2.48% , TLAB , TELLABS
1.81% , JNS , JANUS CAPITAL
3.19% , RYAAY , Ryanair Holdings plc
0.90% , LQD , Bond, Corp, LQD
0.11% , PXE , Energy Exploration & Prod, PXE
1.36% , VMC , VULCAN MATERIALS
0.18% , ADRD , Developed 100 BLDRS, ADRD
0.67% , EWD , Sweden Index, EWD
1.44% , SIRI , Sirius Satellite
0.36% , THD , Thailand MSCI iS, THD
1.91% , MCK , MCKESSON CORP
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-1.61% , PUI , Utilities, PUI
-5.36% , QLGC , QLOGIC
-0.60% , EWK , Belgium Index, EWK
-2.33% , PST , 200% Short Bond 7-10 Yr T, PST
-3.92% , TBT , 200% Short US T Bond, TBT
-2.01% , VIA , VIACOM INC. (New)
-2.96% , YHOO , YAHOO
-4.76% , DISH , EchoStar Communications
-3.30% , PLL , PALL
-5.24% , MTG , MGIC INVESTMENT
-2.57% , AON , AON
-1.51% , PWO , OTC Dynamic PS, PWO
-2.21% , UIS , UNISYS
-3.67% , NEM , NEWMONT MINING
-1.04% , RPV , Value S&P 500, RPV
-3.78% , HP , Helmerich & Payne HP
-0.24% , PSJ , Software, PSJ
-1.84% , WPO , Washington Post
-1.03% , PHO , Water Resources, PHO
-0.82% , EIS , Israel MSCI iS, EIS
-0.57% , KLD , LargeCap Blend Socially Responsible iS, KLD
-0.42% , JKI , Value MidCap iS M, JKI
-3.56% , EMN , EASTMAN CHEM
-1.95% , CBE , COOPER INDS STK A
-0.72% , IXN , Technology Global, IXN
-0.88% , IXC , Energy Global, IXC
-4.53% , KLAC , KLA TENCOR
-1.77% , GCI , GANNETT
-0.80% , OEF , LargeCap Blend S&P 100, OEF
-1.00% , VPU , Utilities VIPERs, VPU
-1.19% , HSIC , Henry Schein Inc
-1.51% , CLX , CLOROX
-0.87% , PWV , Value LargeCap Dynamic PS, PWV
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
1.98% Bond, 20+ Years Treasury, TLT
1.21% Bond, 10 Year Treasury, IEF
1.19% Brazil Index, EWZ
1.16% Bond, TIPS, TIP
0.90% Bond, Corp, LQD
0.80% Switzerland Index, EWL
0.75% India PS, PIN
0.67% Sweden Index, EWD
0.67% Biotech SPDR, XBI
0.65% Indonesia MV, IDX
0.62% Gold Shares S.T., GLD
0.60% Bond, Aggregate, AGG
0.59% Russia MV, RSX
0.55% Bond Ex-US Treas, BWX
0.53% Bond EmrgMkt JPM iS, EMB
0.53% South Africa Index, EZA
0.52% Spain Index, EWP
0.49% Japan Index, EWJ
0.48% Hong Kong Index, EWH
0.44% Emerging VIPERs, VWO
0.43% Germany Index, EWG
0.43% Emerging Markets, EEM
0.36% Thailand MSCI iS, THD
0.36% Homebuilders SPDR, XHB
0.34% India Earnings WTree, EPI
0.32% Value EAFE MSCI, EFV
0.26% EAFE Index, EFA
0.23% Silver Trust iS, SLV
0.21% Mexico Index, EWW
0.21% Singapore Index, EWS
0.14% Small Cap EAFE MSCI iS, SCZ
0.14% Bond Muni ATM-Free S&P iS, MUB
0.13% Dividend International, PID
0.12% Latin Am 40, ILF
0.12% WilderHill Clean Energy PS, PBW
0.11% Bond, 1-3 Year Treasury, SHY
0.10% Bond, High-Yield Corporate, HYG
0.10% SmallCap S&P 600, IJR
0.07% Global ex US ACWI iS, ACWX
0.06% Growth BARRA Small Cap 600, IJT
0.06% European VIPERs, VGK
0.06% REIT Wilshire, RWR
0.05% Real Estate US DJ, IYR
0.04% Emerging 50 BLDRS, ADRE
0.03% EMU Europe Index, EZU
0.02% REIT VIPERs, VNQ
0.01% Bond Treasury Short-Term iS, SHV
0.00% Value SmallCap S&P 600 B, IJS
0.00% Microcap Russell, IWC
0.00% China 25 iS, FXI
0.00% Bond, High-Yield Junk, JNK
-0.04% Realty Cohen & Steers, ICF
-0.05% Pacific VIPERs, VPL
-0.06% Italy Index, EWI
-0.07% Value SmallCap Russell 2000, IWN
-0.07% Value SmallCap VIPERS, VBR
-0.12% France Index, EWQ
-0.12% Growth SmallCap R 2000, IWO
-0.13% SmallCap Russell 2000, IWM
-0.14% Value MidCap S&P 400 B, IJJ
-0.14% Austria Index, EWO
-0.17% United Kingdom Index, EWU
-0.17% Transportation Av DJ, IYT
-0.18% Frontier Markets Guggenheim , FRN
-0.19% China LargeCap Growth G D H USX PS, PGJ
-0.20% Europe 350 S&P Index, IEV
-0.23% Growth EAFE MSCI, EFG
-0.24% Capital Markets KWB ST, KCE
-0.24% MidCap S&P 400 SPDRs, MDY
-0.27% MidCap Russell, IWR
-0.27% Growth MidCap Russell, IWP
-0.29% Financials VIPERs, VFH
-0.30% Netherlands Index, EWN
-0.30% Financial SPDR, XLF
-0.31% Financial DJ US, IYF
-0.33% QQQ Nasdaq 100 Trust, QQQ
-0.33% Malaysia Index, EWM
-0.33% Small Cap VIPERs, VB
-0.35% MidCap S&P 400 iS, IJH
-0.36% Preferred Stock iS, PFF
-0.38% Growth MidCap 400 B, IJK
-0.42% Growth SmallCap VIPERs, VBK
-0.43% Value MidCap Russell, IWS
-0.44% South Korea Index, EWY
-0.45% Financial Preferred, PGF
-0.46% Financial Services DJ, IYG
-0.47% Dividend High Yield Equity PS, PEY
-0.48% Consumer Discretionary SPDR, XLY
-0.49% Industrial SPDR, XLI
-0.49% LargeCap Blend S&P=Weight R, RSP
-0.50% Global 100, IOO
-0.52% Health Care SPDR, XLV
-0.55% Blend Total Market VIPERs, VTI
-0.55% Telecom DJ US, IYZ
-0.55% Dividend Appreciation Vipers, VIG
-0.56% Growth S&P 500/BARRA, IVW
-0.56% Growth 1000 Russell, IWF
-0.57% Growth VIPERs, VUG
-0.60% Belgium Index, EWK
-0.61% LargeCap VIPERs, VV
-0.62% LargeCap 1000 R, IWB
-0.64% Dividend DJ Select, DVY
-0.64% Consumer Staples SPDR, XLP
-0.66% Pacific ex-Japan, EPP
-0.67% S&P 500 iS LargeCap Blend, IVV
-0.67% Chile MSCI iS, ECH
-0.67% Metals & Mining SPDR, XME
-0.68% S&P 500 SPDRs LargeCap Blend, SPY
-0.69% Dividend SPDR, SDY
-0.72% Value VIPERs, VTV
-0.74% Technology DJ US, IYW
-0.76% Turkey MSCI iS, TUR
-0.80% Value S&P 500 B, IVE
-0.80% Agriculture DB PS, DBA
-0.80% Value 1000 Russell, IWD
-0.80% LargeCap Blend S&P 100, OEF
-0.81% Technology SPDR, XLK
-0.81% Basic Materials DJ US, IYM
-0.82% Commodity Tracking, DBC
-0.82% LargeCap Blend Russell 3000, IWV
-0.83% Semiconductor iS IGW, SOXX
-0.87% Value LargeCap Dynamic PS, PWV
-0.88% Info Tech VIPERs, VGT
-0.88% Energy Global, IXC
-0.91% Silver Miners Global X, SIL
-0.94% DIAMONDS (DJIA), DIA
-0.95% Energy VIPERs, VDE
-0.98% Semiconductor SPDR, XSD
-0.98% Australia Index, EWA
-1.00% Energy SPDR, XLE
-1.00% Utilities VIPERs, VPU
-1.01% Utilities SPDR, XLU
-1.02% Energy DJ, IYE
-1.03% Water Resources, PHO
-1.12% Materials SPDR, XLB
-1.14% Energy & Nat Res iS GS, IGE
-1.17% Taiwan Index, EWT
-1.29% Networking, IGN
-1.29% Oil, Crude, U.S. Oil Fund, USO
-1.30% Oil Fund PowerShares, DBO
-1.34% Canada Index, EWC
