The S&P 500 (SPX: 1,355.49) fell sharply on Wednesday, down 1.39%. NYSE trading volume rose 28% to a level 12% above its 200-day SMA.
SPX fell below its lowest lows of the previous 16 weeks, down to its lowest level since 7/26/12. SPX has fallen 7.52% since 9/14/12, based on closing prices.
The technical condition of the stock market has not supported the excessive optimism that the bullish majority of stock investors and traders clearly exhibited over the past several months. Typically, action is followed by reaction, and so a downside shakeout or correction has produced significant losses for bullish investors starting from the second trading day after the latest Fed Quantitative Easing was announced on 9/13/12. The Bears have momentum on their side, at least for the short term and medium term–and perhaps beyond. Choosing safety over risk still appears to be the most reasonable approach for conservative traders and investors.
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*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 6 consecutive quarters; see:
Robert W. Colby Asset Management, Inc. (click here).
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Sentiment for Contrary Thinking
Investor sentiment data recently indicated alarming degrees of optimism and bullish complacency as the stock price indexes rose above their 2012 market highs. Elevated levels of optimism are bearish because when the majority is extremely bullish, investors are already fully invested in the market. Once everyone who is going to buy has already bought, stocks are vulnerable to a downside shakeout. 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 CFTC’s Commitments of Traders report for stock indexes shows smart professionals selling heavily to dumb speculators. Large commercial hedging firms enjoy an enormous inside informational advantage over speculators, who are usually wrong at major market turning points, according to Steve Briese, bullishreview.com. The current maximum bearish reading indicates that a major top is brewing and next move should be down big, possibly to SPX 1074.77, the low of 10/4/2011.
Large speculators hold a record net-long position in futures and options contracts on the NASDAQ 100, according to the CFTC’s Commitment of Traders report. Large Speculators, which are mainly hedge funds, are trend-followers, and their aggregate position usually becomes extreme near market reversals.
SentimentTrader.com notes that 67% of the “dumb money” is bullish, compared to 29% of the “smart money”. At such readings in the past, the stock market suffered a 3% to 8% downside correction spread out over a few weeks.
Put/Call Ratios fell to a record low in September on the CBOE.
Market Vane’s Bullish Consensus survey shows extreme optimism. The percentage of stock market bulls surged to 70% in September, the highest since June 2007.
AAII Sentiment shows that individual investors were recently extremely bullish. As of 8/23/12, there were 41.96% Bulls and 25.87% Bears. This was the most extreme optimism since 3/29/12, a few days before the SPX high close on 4/2/2012 and the beginning of a 10% downside correction.
Investors Intelligence Sentiment confirmed that stock market newsletter advisors were recently extremely bullish. As of 9/19/12, there were 54.2% Bulls and 24.5% Bears. That was the highest percentage of Bulls since 2/15/12 and the second highest since 54.9% Bulls on 5/4/11, just 2 days after the SPX peak for 2011 and the beginning of a 22% downside correction.
Hulbert Stock Newsletter Sentiment Index showed that the average recommended equity exposure among a subset of the shortest-term stock market timers jumped to 53.1% in August, up from previous peaks at 47.0% in July and 42.1% in May. “Watch out for a correction — or worse. The odds of a stock market correction are now quite elevated,” according to Mark Hulbert.
Corporate insiders are extremely bearish. Insiders sold 5.97 shares for each share bought in September–up from 1.6-to-1 in May 2012, up from a low of 1.04-to-1 in October 2011, and up from a long-term average of 2.25-to-1. For Nasdaq-listed stocks, insiders sold 6.17 shares for each share bought. This data is compiled by Vickers Weekly Insider Report, published by Argus Research. Reporting for MarketWatch.com, Mark Hulbert wrote, “To be sure, the stock market didn’t decline in September, notwithstanding the insiders’ selling. But, since historically the insiders have been more right than wrong, it seems risky to bet that the market will continue to escape the bearish implication of their behavior…. Note carefully that the insiders’ bearish behavior doesn’t necessarily mean the bull market is now over. However, to the extent the insiders turn out to be as right as they were on other recent occasions when their behavior was as lopsided on the sell side, we should be prepared for a notable market decline.” Separately, data provided by Bloomberg shows 40 sales for every buy by insiders of S&P 500 companies.
NYSE Margin Debt rose $30 billion to $315 billion in September, the highest level since March 2011, a few weeks before the highest price for the S&P 500 for the year 2011. Stocks may be vulnerable to forced selling if stock prices fall significantly.
NYSE Short Interest fell by more than 884 million shares from June to August, a decline of 6%. This source of short-covering, potential demand for stocks has diminished.
The ICI reported $62.6 billion has been withdrawn from domestic equity mutual funds so far in 2012. This is another confirmation that supply is greater than demand for stocks.
VIX Fear Index has been fluctuating near 5-year lows from July into November, suggesting bullish complacency. VIX fell to 13.30 intraday on 8/17/12, its lowest level in more than 5 years, since 6/20/07. VIX fell from an intraday peak of 27.73 on 6/4/12. This large drop suggests a shift from worried concern to bullish complacency. 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 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
1474.51, high of 9/14/2012
1464.02, high of 10/18/2012
1440.24, high of 5/19/2008
1439.15, high of 9/12/2012
1431.37, 50-day SMA
1434.27, high of 11/2/2012
1430.53, low of 9/26/2012
1425.53, low of 10/12/2012
1425.48, Fibonacci 23.6% of June-Sept 2012 range
1422.38, high of 4/2/2012
1422.06, low of 10/22/2012
1421.12, high of 10/25/2012
1418.71, high of 8/17/2012
1415.32, high of 5/1/2012
1403.28, low of 10/26/12
1396.56, low of 9/4/2012
1395.14, Fibonacci 38.2% of June-Sept 2012 range
1391.04, low of 8/6/2012
1388.71, low of 5/3/2012
1381.50, Fibonacci 78.6% of 2007-2009 range
1380.39, high of 7/19/2012
1381.79, 200-day SMA
1374.81, high of 7/3/2012
1370.62, Fibonacci 50.0% of June-Sept 2012 range
1370.58, high of 5/2/2011
1363.49, high of 6/19/2012
1357.38, low of 4/10/2012
1355.70, low of 7/2/2012
The S&P 500 Composite Potential Support
1346.11, Fibonacci 61.8% of June-Sept 2012 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
1325.41, low of 7/12/2012
1311.20, Fibonacci 78.6% of June-Sept 2012 range
1306.62, low of 6/12/2012
1291.98, low of 5/18/2012
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
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
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
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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Fixed-Income Investments
Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) turned systematically bullish on 11/7/12 when price rose above its 50-day SMA. TLT remains above its 200-day SMA, and TLT’s 50-day SMA has remained above the 200-day SMA every day since 6/24/11. Support 119.87, 118.05, 117.44, 115.69, 114.82, 109.69, 106.08, 103.20, 102.27, 96.31, 94.83, 93.14, 89.65, and 88.14. Resistance: 127.72, 130.69, and 132.22.
Bond, iShares Barclays 7-10 Year U.S. Treasury ETF (IEF) turned systematically bullish on 11/7/12 when price rose above its 50-day SMA. IEF remains above its 200-day SMA, and IEF’s 50-day SMA has remained above the 200-day SMA every day since 6/21/11. Support 106.59, 106.42, 105.84, 105.22, 104.77, 103.90, 102.51, 101.77, 101.36, 101.11, 99.79, and 97.66. Resistance: 109.32 and 109.89.
Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) fell below its 50-day SMA on 9/25/12, thereby turning systematically bearish again. JNK/LQD fell below its 200-day SMA on 9/20/12. JNK/LQD 50-day SMA has remained consistently below the 200-day SMA every day since 6/1/12.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF) turned systematically neutral on 11/13/12 when it fell below its 50-day SMA. TIP/IEF rose above its 200-day SMA on 9/27/12, and the 50-day SMA rose above the 200-day SMA on 10/10/12.
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Tangible Assets, Commodities
U.S. dollar ETF (UUP) turned systematically neutral on 11/2/12 when price rose above its 50-day SMA. UUP fell below its 200-day SMA on 8/31/12, and the 50-day SMA fell below the 200-day SMA on 10/2/12. Support 21.86, 21.57, 21.07, and 20.84. Resistance 22.36, 22.45, 23.14, 23.52, 25.84, 27.19, 28.97.
Agriculture, PowerShares DB Agriculture Fund ETF (DBA) fell below its lows of the previous 4 months on 11/13/12. DBA turned systematically neutral on 9/17/12 when price crossed below its 50-day SMA. DBA price fell below its 200-day SMA on 11/12/12. The 50-day SMA remains above the 200-day SMA, but the 50-200 spread has been narrowing gradually.
Crude Oil, United States Oil ETF (USO) fell below its lows of the previous 4 months on 11/7/12, confirming its preexisting bearish trend. USO turned systematically bearish on 9/19/12, when price fell below its 50-day SMA. USO price fell below its 200-day SMA on 9/17/12, and the 50-day SMA has remained below its 200-day SMA consistently every day since 6/7/12. Support 29.02, 26.28, and 22.74. Resistance 32.88, 34.70, 37.17, 38.31, 40.29, 41.38, 42.30, and 45.60.
Gold, SPDR Gold Shares ETF (GLD) fell below its lows of the previous 2 months on 11/2/12, confirming its preexisting corrective trend. GLD turned systematically neutral on 10/23/12, when price fell below its 50-day SMA. GLD price rose above its 200-day SMA on 8/22/12. GLD 50-day SMA rose above the 200-day SMA on 9/20/12. Support: 162.30, 159.56, 154.83, 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 168.54, 174.07, 175.46, 177.40, and 185.85.
Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) turned systematically neutral on 11/5/12 when it fell below its 50-day SMA. GDX/GLD fell below its 200-day SMA on 11/12/12. The 50-day SMA has been above the 200-day SMA since 10/19/12.
Silver, iShares Silver Trust ETF (SLV) fell below its lows of the previous 2 months on 11/2/12, confirming its preexisting corrective trend. SLV fell below its 50-day SMA on 10/19/12, thereby turning systematically neutral. SLV whipsawed back above its 200-day SMA on 11/5/12, and the 50-day SMA crossed above the 200-day SMA on 10/1/12. Support 29.84, 29.28, 26.87, 26.13, 25.34, 25.00, 24.44, 22.52, 20.73, and 19.44. Resistance: 32.23, 33.23, 34.08, 36.44, 40.23, 41.49, 42.30, 42.78, 44.71, and 48.35.
Silver/Gold ETFs Ratio (SLV/GLD) fell below its lows of the previous 2 months on 11/2/12, confirming its preexisting corrective trend. SLV/GLD fell below its 50-day SMA on 10/19/12, thereby turning systematically neutral again. SLV/GLD has been trading around its 200-day SMA since 10/23/12. Longer term, SLV/GLD 50-day SMA crossed above the 200-day SMA on 10/9/12.
Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) fell below its lows of the previous 10 weeks on 11/9/12. JJC price fell below its 50-day SMA on 10/22/12 and fell below its 200-day SMA on 10/19/12. “Dr. Copper” is one of the better indicators of investor confidence (or lack thereof) in the global industrial economy, and so this price weakness may be taken as a warning about economic conditions ahead.
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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
3.01% , NTAP , NETWK APPLIANCE
1.73% , MYY , Short 100% MidCap 400, MYY
4.81% , CSCO , CISCO SYSTEMS
1.30% , GIS , GENERAL MILLS
2.65% , DXD , Short 200% Dow 30 PS, DXD
0.73% , BCR , C R BARD
1.15% , USO , Oil, Crude, U.S. Oil Fund, USO
1.35% , SH , Short 100% S&P 500, SH
2.32% , QID , Short 200% QQQ PS, QID
2.72% , SDS , Short 200% S&P 500 PS, SDS
0.68% , PGR , PROGRESSIVE OHIO
1.28% , LXK , LEXMARK INTL STK A
0.76% , BRCM , BROADCOM STK A
0.76% , SLV , Silver Trust iS, SLV
1.50% , XLNX , XILINX
2.62% , SPLS , STAPLES
0.31% , HOG , HARLEY DAVIDSON
0.72% , URBN , Urban Outfitters Inc.
1.91% , DELL , DELL
1.18% , JBL , JABIL CIRCUIT
0.41% , AES , AES
0.49% , ALTR , ALTERA
0.42% , XEL , XCEL ENERGY
0.66% , ALL , ALLSTATE
0.21% , LQD , Bond, Corp, LQD
0.13% , DLTR , Dollar Tree Stores Inc
0.02% , SHY , Bond, 1-3 Year Treasury, SHY
0.07% , PST , 200% Short Bond 7-10 Yr T, PST
0.07% , ED , CON ED
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-1.03% , IXN , Technology Global, IXN
-4.87% , SIL , Silver Miners Global X, SIL
-1.83% , XSD , Semiconductor SPDR, XSD
-2.52% , EIS , Israel MSCI iS, EIS
-1.38% , IWV , LargeCap Blend Russell 3000, IWV
-3.31% , SEE , SEALED AIR
-1.86% , MDY , MidCap S&P 400 SPDRs, MDY
-1.20% , FDL , Dividend Leaders, FDL
-1.29% , FRN , Frontier Markets Guggenheim , FRN
-3.18% , UNP , UNION PACIFIC
-2.46% , PEJ , Leisure & Entertainment, PEJ
-0.81% , EWK , Belgium Index, EWK
-3.40% , PWER , POWER ONE
-2.64% , IYT , Transportation Av DJ, IYT
-1.63% , PEY , Dividend High Yield Equity PS, PEY
-1.99% , TER , TERADYNE
-3.25% , ETFC , E*TRADE FINANCIAL
-1.81% , IWO , Growth SmallCap R 2000, IWO
-3.84% , KSU , Kansas City Southern, KSU
-2.72% , SSO , Ultra S&P500 Double, SSO
-3.29% , TXT , TEXTRON
-2.92% , SBUX , STARBUCKS
-1.49% , XLY , Consumer Discretionary SPDR, XLY
-1.49% , IWS , Value MidCap Russell, IWS
-2.63% , TYC , TYCO INTL
-2.49% , TLAB , TELLABS
-1.19% , PGF , Financial Preferred, PGF
-2.99% , LUV , SOUTHWEST AIRLS
-0.74% , PIN , India PS, PIN
-2.36% , XLI , Industrial SPDR, XLI
-5.10% , BIDU , Baidu, Inc., BIDU
-2.21% , WYN , Wyndham Worldwide
-3.15% , C , CITIGROUP
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
1.35% Bear, Short S&P 500, SH
1.15% Oil, Crude, U.S. Oil Fund, USO
0.76% Silver Trust iS, SLV
0.73% Oil Fund PowerShares, DBO
0.29% Commodity Tracking, DBC
0.21% Bond, Long-Term Corp iBoxx iS, LQD
0.14% Agriculture DB PS, DBA
0.09% Bond, 20+ Years Treasury, TLT
0.03% Bond, Intermediate US Aggregate iS, AGG
0.03% Bond, 10 Year Treasury, IEF
0.02% Gold Shares S.T., GLD
0.02% Bond, 1-3 Year Treasury, SHY
0.00% Bond Treasury Short-Term iS, SHV
0.00% Austria Index, EWO
-0.02% Bond, Emerg Mkt JPM iS, EMB
-0.10% Bond, TIPS U.S. Treasury iS, TIP
-0.16% Networking, IGN
-0.17% Italy Index, EWI
-0.25% MidCap Value S&P 400 iS, IJJ
-0.28% Bond, High-Yield Junk, JNK
-0.37% EMU Europe Index, EZU
-0.37% Spain Index, EWP
-0.37% Sweden Index, EWD
-0.55% Bond, High Yield Corp iBoxx iS, HYG
-0.56% Bond, Muni S&P ATM-Free iS, MUB
-0.59% Bond Ex-US Treas, BWX
-0.64% Netherlands Index, EWN
-0.67% France Index, EWQ
-0.68% Switzerland Index, EWL
-0.68% China 25 iS, FXI
-0.68% Growth EAFE MSCI, EFG
-0.70% Hong Kong Index, EWH
-0.71% Utilities SPDR, XLU
-0.74% India PS, PIN
-0.79% Technology DJ US, IYW
-0.81% Belgium Index, EWK
-0.82% Germany Index, EWG
-0.82% SmallCap Blend EAFE MSCI iS, SCZ
-0.88% Utilities VIPERs, VPU
-0.89% European VIPERs, VGK
-0.91% South Korea Index, EWY
-0.94% Europe 350 S&P Index, IEV
-0.95% Chile MSCI iS, ECH
-0.95% Dividend ex-U.S. DJ iS, IDV
-1.02% Technology SPDR, XLK
-1.02% Taiwan Index, EWT
-1.05% Value EAFE MSCI, EFV
-1.05% Foreign LargeCap EAFE MSCI iS, EFA
-1.05% India Earnings WTree, EPI
-1.06% Info Tech VIPERs, VGT
-1.09% Energy DJ, IYE
-1.10% Consumer Staples SPDR, XLP
-1.11% Malaysia Index, EWM
-1.13% Preferred Stock iS, PFF
-1.16% Global ex U.S. LargeCap Blend, ACWX
-1.18% QQQ Nasdaq 100 Trust, QQQ
-1.18% Dividend Appreciation Vipers, VIG
-1.19% Financial Preferred, PGF
-1.20% Health Care SPDR, XLV
-1.22% Energy VIPERs, VDE
-1.22% Global 100, IOO
-1.22% Energy SPDR, XLE
-1.23% United Kingdom Index, EWU
-1.24% Dividend SPDR, SDY
-1.24% Japan Index, EWJ
-1.25% Water Resources, PHO
-1.26% LargeCap Blend S&P 500 iS, IVV
-1.26% LargeCap Growth S&P 500 iS, IVW
-1.27% Pacific VIPERs, VPL
-1.27% Global LargeCap Blend MSCI iS, ACWI
-1.27% Mexico Index, EWW
-1.28% Energy Global, IXC
-1.29% Frontier Markets Guggenheim , FRN
-1.33% Turkey MSCI iS, TUR
-1.34% Value LargeCap Dynamic PS, PWV
-1.34% Growth VIPERs, VUG
-1.34% LargeCap Blend Russell 1000 iS, IWB
-1.34% Value VIPERs, VTV
-1.34% Dividend U.S. DJ iS, DVY
-1.35% S&P 500 SPDRs LargeCap Blend, SPY
-1.36% LargeCap Blend S&P=Weight R, RSP
-1.37% LargeCap VIPERs, VV
-1.38% LargeCap Blend Russell 3000 iS, IWV
-1.38% LargeCap Blend S&P 100, OEF
-1.38% Latin Am 40, ILF
-1.39% DIAMONDS (DJIA), DIA
-1.40% LargeCap Growth Russell 1000 iS, IWF
-1.40% Blend Total Market VIPERs, VTI
-1.41% Dividend International, PID
-1.41% Telecom DJ US, IYZ
-1.42% Pacific ex-Japan, EPP
-1.42% Emerging 50 BLDRS, ADRE
-1.45% LargeCap Value Russell 1000 iS, IWD
-1.45% LargeCap Value S&P 500 iS, IVE
-1.47% Emerging VIPERs, VWO
-1.48% Growth MidCap Russell, IWP
-1.48% Russia MV, RSX
-1.49% Value MidCap Russell, IWS
-1.49% MidCap Russell, IWR
-1.49% Consumer Discretionary SPDR, XLY
-1.50% Brazil Index, EWZ
-1.53% Emerging Markets MSCI iS, EEM
-1.57% Australia Index, EWA
-1.58% MidCap Growth S&P 400 iS, IJK
-1.61% SmallCap Blend S&P 600 iS, IJR
-1.62% Semiconductor iS IGW, SOXX
-1.63% Dividend High Yield Equity PS, PEY
-1.64% MidCap Blend S&P 400 iS, IJH
-1.65% SmallCap Growth S&P 600 iS, IJT
-1.69% Singapore Index, EWS
-1.70% Materials SPDR, XLB
-1.72% Financial DJ US, IYF
-1.75% Energy & Nat Res iS GS, IGE
-1.77% Small Cap VIPERs, VB
-1.78% Growth SmallCap VIPERs, VBK
-1.78% Financial SPDR, XLF
-1.81% SmallCap Growth Russell 2000 iS, IWO
-1.82% Basic Materials DJ US, IYM
-1.82% SmallCap Value S&P 600 iS, IJS
-1.83% China LargeCap Growth G D H USX PS, PGJ
-1.83% Semiconductor SPDR, XSD
-1.86% SmallCap Blend Russell 2000 iS, IWM
-1.86% MidCap S&P 400 SPDRs, MDY
-1.87% REIT VIPERs, VNQ
-1.87% REIT Wilshire, RWR
-1.88% Realty Cohen & Steers, ICF
-1.88% SmallCap Value Russell 2000 iS, IWN
-1.95% Real Estate US DJ iS, IYR
-1.95% Canada Index, EWC
-1.95% Financial Services DJ, IYG
-1.99% Value SmallCap VIPERS, VBR
-1.99% Financials VIPERs, VFH
-2.02% Indonesia MV, IDX
-2.11% Microcap Russell, IWC
-2.36% Industrial SPDR, XLI
-2.45% Thailand MSCI iS, THD
-2.58% Capital Markets KWB ST, KCE
-2.64% Transportation Av DJ, IYT
-2.65% Biotech SPDR, XBI
-2.73% Homebuilders SPDR, XHB
-2.85% Metals & Mining SPDR, XME
-3.00% WilderHill Clean Energy PS, PBW
-3.16% South Africa Index, EZA