Gold, Silver, Copper signaled downside technical corrections.
Technology stock sector Relative Strength Ratio (XLK/SPY) and NASDAQ 100/S&P 500 Relative Strength Ratio (QQQ/SPY) both fell below their lows of the previous 9 months on 10/19/12, thereby confirming downside corrections.
The Dow-Jones Industrial Average closed below its 50-day SMA for the first time in more than 3 months, since 7/12/12.
The S&P 500 (SPX: 1,433.19) fell 1.66% on Friday. SPX closed below its 50-day SMA for the first time in nearly 4 months, since 6/28/12. The percentage of S&P 500 stocks above their 50-day SMAs fell to 58%, down from 86% in September.
NYSE trading volume increased to above-average levels as prices fell. The volume of declining stocks was 8.46 greater than the volume of advancing stocks on Friday, indicating that supply swamped demand.
On-Balance Volume for the SPX shows bearish divergence: far below its March 2012 high, and below its 50-day and 200-day SMAs. In addition, NYSE Cumulative Volume of Advancing Stocks minus Volume of Declining Stocks has been lagging, compared to price indexes, thereby demonstrating relative weakness and bearish divergence. Clearly, volume has not been confirming the price up move for many months.
Selling pressure was more severe on the NASDAQ last week. The NASDAQ Composite Stock Price Index fell 2.19% on Friday, and the large-cap NASDAQ 100 fell 2.40%.
Over the first 3 trading sessions of the past week, the major stock price indexes recovered normal fractions of their previous losses since their peaks on 10/5/12, and some appeared to be within striking distance of the year’s highs. The rally that ended on 10/5/12 resulted in a lower high than the rally that ended on 9/14/12 (the day after the Fed’s QE3 generous gift to banks), and the rally that ended on 10/18/12 resulted in a lower high than the rally that ended on 10/5/12, with each rally attempt weaker than the previous one. Failed rally attempts and 2 lower highs may lead the bullish majority to question their assumptions.
The technical condition of the stock market does not support the excessive optimism of the bullish majority of stock investors and traders. Fed and ECB plans to buy bonds in unlimited quantities (with fiat currencies printed out of thin air and backed by nothing but a theory and a hope) do not guarantee that stock prices will continue to rise, especially now that the news is out. Typically, action is followed by reaction, and so a downside correction seems overdue. Choosing safety over risk still appears to be the most reasonable approach for conservative traders and investors.
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Stock prices are cyclical. Stocks run through phases of optimism and pessimism. These phases are no secret: they have been written about by Charles H. Dow and his successors for more than a century. They repeat endlessly, over and over again. Still, the public never learns. It is all too easy, it is merely human nature, to get caught up in the mass mood of the moment, lose all perspective and run with the emotions of the crowd. If you do not learn how to recognize the technical indications, and if you are not disciplined, the easiest thing in the world to do is to allow yourself to be pulled along by the mass mood, the “group think”. But that is the way to be wrong at the critical turning points, to buy at tops and sell at bottoms, and to consistently underperform the market. To make money and outperform the market, we need to do the opposite.
The final bull market phase may be finished. Sentiment indicators have been at record-high bullish levels for months, which is typical of a top. Volume has diminished on rallies, as uninformed speculators have shot their wads and become fully invested. The bull market lasted more than 3.5 years, a ripe old age. The smart money knows that stock prices are cyclical, “no tree grows to the sky”, and all good things must eventually come to an end. Low and falling volume trends suggests that the smart money stopped buying months ago and switched to the distribution phase, parceling out at retail prices the stocks they bought years ago at wholesale prices at the bottom. The smart money used the Fed’s announcement of unlimited QE3 on 9/13/12 to sell at the top. Since then, stocks prices have churned and eroded. Tell-tale bearish technical cracks have been appearing under the “obviously” bullish surface as the smart money liquidates stocks.
The end of the Bull Market is followed by the first Bear Market phase, which is marked by general disbelief in the face of clear and widespread technical deterioration. But when everyone who ever is going to buy has already bought, there is only one direction for prices to go–down. When buying power is used up, there is insufficient demand to absorb the accelerating distribution of stocks by the smart money at high prices, so prices have to move lower. In this phase, an ever increasing number of stocks already have stalled out and formed potentially bearish chart patterns. But even as stocks break critical chart support levels, this clear bearish technical evidence is widely ignored by uninformed speculators. After all, the Fed is printing unlimited free money, and “buy the dips” is still the advice of the brokers and the dealers and their paid spokesmen in the media. The uninformed majority hopes and believes that the “conventional wisdom” of all the highly-compensated Wall Street analysts, strategists and economists will be right–never mind that they always tell the “Muppets” to “Buy! Buy! Buy!”, no matter what. So, stock price declines are met with general disbelief.
The next Bear Market phase is marked by a sudden mood change, from optimism and hope to shock and fear. One day, the public wakes up and sees, much to its surprise, that “the emperor has no clothes”. Actual fundamental business conditions are not panning out to be as positive as previously hoped. The “new era” of unlimited monetary policy expansion does not appear to be having the desired effect. In fact, there may be a problem. The smart money is long gone, and there is no one left to buy when the public wants out. Stock prices drop steeply in a vacuum. Fear quickly replaces greed. Repeated waves of panic may sweep the market. Transactional volume swells as the unsophisticated investor screams, “Get me out at any price!” Sharp professional traders may be willing to bid way down in price for stocks when prices drop too far too fast, but the best that can be hoped for is a dead-cat bounce that recovers only a fraction of the steep loss.
In the third and final Bear Market phase, uninformed speculators and investors throw away stocks at distress prices. After everyone who is capable of selling has sold already, the Bear Market is exhausted, and the stage is then set for the cycle to begin again.
*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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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
The S&P 500 Composite Potential Support
1433.48, 50-day SMA
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
1418.71, high of 8/17/2012
1415.32, high of 5/1/2012
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
1374.81, high of 7/3/2012
1373.90, 200-day SMA
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
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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Tangible Assets, Commodities
U.S. dollar ETF (UUP) 50-day SMA fell below the 200-day SMA on 10/2/12, thereby turning systematically bearish. UUP closed below its 50-day SMA on 8/3/12 and fell below its 200-day SMA on 8/31/12. Support 21.57, 21.07, and 20.84. Resistance 21.96, 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 3 months on 10/15/12. DBA turned systematically neutral on 9/17/12 when price crossed below its 50-day SMA. Price remains above its 200-day SMA, and the 50-day SMA remains well above the 200-day SMA.
Crude Oil, United States Oil ETF (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 remains below its 200-day SMA. Support 32.52, 32.45, 31.40, 29.02, 26.28, and 22.74. Resistance 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 5 weeks on 10/19/12, suggesting a downside correction. GLD turned systematically bullish on 9/20/12, when the 50-day SMA rose above the 200-day SMA. GLD price rose above its 200-day SMA on 8/22/12 and rose above its 50-day SMA on 8/3/12. Support: 166.23, 159.56, 154.83, 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 174.07, 175.46, 177.40, and 185.85.
Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) turned systematically bullish on 10/19/12, when the 50-day SMA rose above the 200-day SMA. GDX/GLD rose above its 50-day SMA on 8/16/12 and rose above its 200-day SMA on 9/13/12 .
Silver, iShares Silver Trust ETF (SLV) fell below its 50-day SMA on 10/19/12, thereby turning systematically neutral again. SLV price 50-day SMA crossed above the 200-day SMA on 10/1/12, and SLV crossed above its 200-day SMA on 8/31/12. Support 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 50-day SMA on 10/19/12, thereby turning systematically neutral again. SLV/GLD 50-day SMA crossed above the 200-day SMA on 10/9/12, and SLV/GLD crossed above its 200-day SMA on 8/31/12.
Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) price fell below its 200-day SMA on 10/19/12, thereby turning systematically neutral again. JJC price 50-day SMA has remained below the 200-day SMA every day since 5/31/12. “Dr. Copper” is one of the better indicators of investor confidence (or lack thereof) in the global industrial economy.
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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
6.02% , COF , CAPITAL ONE FNCL
5.05% , RHI , ROBERT HALF
2.71% , SNDK , SanDisk Corporation
2.40% , PSQ , Short 100% QQQ, PSQ
2.94% , MZZ , Short 200% MidCap 400 PS, MZZ
1.24% , AIV , APT INV MNGMT
1.54% , DOG , Short 100% Dow 30, DOG
1.36% , KSU , Kansas City Southern, KSU
3.12% , DXD , Short 200% Dow 30 PS, DXD
1.74% , HON , HONEYWELL INTL
1.51% , IR , INGER RAND
1.70% , SH , Short 100% S&P 500, SH
0.69% , SNI , Scripps Networks Interactive
3.38% , SDS , Short 200% S&P 500 PS, SDS
4.79% , QID , Short 200% QQQ PS, QID
0.52% , MHP , MCGRAW HILL
0.13% , GVI , Bond Interm U.S. Gov, GVI
0.21% , DBA , Agriculture DB PS, DBA
0.09% , NCR , NCR
0.13% , LEN , Lennar Corp. (LEN)
0.21% , LOW , LOWES
0.13% , LBTYA , Liberty Global Inc. (LBTYA)
0.03% , MUB , Bond Muni ATM-Free S&P iS, MUB
0.24% , DOV , DOVER
0.15% , HD , HOME DEPOT
0.07% , EPU , Peru MSCI iS, EPU
0.07% , ITW , ILLINOIS TOOL
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-14.31% , MRVL , MARVELL TECHNOLOGY
-9.02% , ETFC , E*TRADE FINANCIAL
-16.79% , AMD , ADV MICRO DEV
-3.79% , XBI , Biotech SPDR, XBI
-1.83% , IGV , Software, IGV
-6.28% , APD , AIR PRODS & CHEM
-5.62% , JNS , JANUS CAPITAL
-7.72% , PH , PARKER HANNIFIN
-5.87% , NVDA , NVIDIA
-1.65% , IOO , Global 100, IOO
-4.46% , MCD , MCDONALDS
-5.16% , XRX , XEROX
-2.68% , EWI , Italy Index, EWI
-1.40% , EWG , Germany Index, EWG
-3.54% , PBE , Biotech & Genome, PBE
-3.49% , IGT , INTL GAME TECH
-2.09% , FEZ , Euro STOXX 50, FEZ
-4.98% , BHI , BAKER HUGHES
-1.56% , PWV , Value LargeCap Dynamic PS, PWV
-3.42% , GE , GENERAL ELECTRIC
-4.35% , HOLX , Hologic, Inc., HOLX
-3.55% , ADSK , AUTODESK
-3.75% , SHLD , SEARS HOLDINGS
-4.61% , VMC , VULCAN MATERIALS
-2.35% , IYW , Technology DJ US, IYW
-2.43% , SYY , SYSCO
-3.96% , AVP , AVON
-2.46% , PBW , WilderHill Clean Energy PS, PBW
-2.91% , EWP , Spain Index, EWP
-4.72% , MBI , MBIA
-3.72% , ROK , ROCKWELL AUTOMAT
-3.64% , SBUX , STARBUCKS
-1.79% , XLG , LargeCap Rydex Rus Top 50, XLG
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
1.70% Bear, Short S&P 500, SH
1.36% Bond, 20+ Years Treasury, TLT
0.42% Bond, 10 Year Treasury, IEF
0.34% Bond, TIPS U.S. Treasury iS, TIP
0.21% Agriculture DB PS, DBA
0.18% Bond, Long-Term Corp iBoxx iS, LQD
0.13% Bond, Intermediate US Aggregate iS, AGG
0.03% Bond, Muni S&P ATM-Free iS, MUB
0.00% Bond, 1-3 Year Treasury, SHY
-0.01% Bond Treasury Short-Term iS, SHV
-0.07% Turkey MSCI iS, TUR
-0.15% Bond, Emerg Mkt JPM iS, EMB
-0.23% Homebuilders SPDR, XHB
-0.27% Financial Preferred, PGF
-0.27% Preferred Stock iS, PFF
-0.32% Bond Ex-US Treas, BWX
-0.44% Bond, High-Yield Junk, JNK
-0.50% Bond, High Yield Corp iBoxx iS, HYG
-0.69% Utilities VIPERs, VPU
-0.80% Utilities SPDR, XLU
-0.82% REIT Wilshire, RWR
-0.83% REIT VIPERs, VNQ
-0.84% China 25 iS, FXI
-0.85% Realty Cohen & Steers, ICF
-0.90% United Kingdom Index, EWU
-0.93% Real Estate US DJ iS, IYR
-0.98% Emerging 50 BLDRS, ADRE
-0.99% Latin Am 40, ILF
-1.05% Australia Index, EWA
-1.05% Mexico Index, EWW
-1.08% Switzerland Index, EWL
-1.08% Gold Shares S.T., GLD
-1.13% Frontier Markets Guggenheim , FRN
-1.13% Netherlands Index, EWN
-1.13% SmallCap Blend EAFE MSCI iS, SCZ
-1.15% Dividend International, PID
-1.17% Pacific VIPERs, VPL
-1.19% Consumer Staples SPDR, XLP
-1.19% Growth EAFE MSCI, EFG
-1.20% Malaysia Index, EWM
-1.20% Financial Services DJ, IYG
-1.20% Financials VIPERs, VFH
-1.21% Canada Index, EWC
-1.22% Dividend High Yield Equity PS, PEY
-1.23% South Africa Index, EZA
-1.24% Japan Index, EWJ
-1.29% Global ex U.S. LargeCap Blend, ACWX
-1.29% European VIPERs, VGK
-1.31% Belgium Index, EWK
-1.32% Water Resources, PHO
-1.32% Dividend U.S. DJ iS, DVY
-1.32% Brazil Index, EWZ
-1.33% Financial DJ US, IYF
-1.34% Europe 350 S&P Index, IEV
-1.35% Financial SPDR, XLF
-1.35% Foreign LargeCap EAFE MSCI iS, EFA
-1.35% Pacific ex-Japan, EPP
-1.37% China LargeCap Growth G D H USX PS, PGJ
-1.37% MidCap Value S&P 400 iS, IJJ
-1.38% Hong Kong Index, EWH
-1.40% Germany Index, EWG
-1.46% Dividend ex-U.S. DJ iS, IDV
-1.46% Energy Global, IXC
-1.47% Singapore Index, EWS
-1.48% France Index, EWQ
-1.48% Value MidCap Russell, IWS
-1.49% Energy DJ, IYE
-1.49% Energy & Nat Res iS GS, IGE
-1.49% MidCap Growth S&P 400 iS, IJK
-1.49% Value VIPERs, VTV
-1.50% Commodity Tracking, DBC
-1.51% MidCap Blend S&P 400 iS, IJH
-1.52% MidCap S&P 400 SPDRs, MDY
-1.53% MidCap Russell, IWR
-1.53% India PS, PIN
-1.53% Global LargeCap Blend MSCI iS, ACWI
-1.55% Dividend SPDR, SDY
-1.55% Emerging Markets MSCI iS, EEM
-1.56% Emerging VIPERs, VWO
-1.56% Transportation Av DJ, IYT
-1.56% Value SmallCap VIPERS, VBR
-1.56% Value LargeCap Dynamic PS, PWV
-1.57% LargeCap Value Russell 1000 iS, IWD
-1.57% Energy SPDR, XLE
-1.59% LargeCap Value S&P 500 iS, IVE
-1.60% LargeCap Blend S&P=Weight R, RSP
-1.61% Thailand MSCI iS, THD
-1.62% Dividend Appreciation Vipers, VIG
-1.62% Energy VIPERs, VDE
-1.63% EMU Europe Index, EZU
-1.64% Networking, IGN
-1.64% LargeCap VIPERs, VV
-1.65% Growth MidCap Russell, IWP
-1.65% Global 100, IOO
-1.66% DIAMONDS (DJIA), DIA
-1.67% SmallCap Blend S&P 600 iS, IJR
-1.67% S&P 500 SPDRs LargeCap Blend, SPY
-1.68% LargeCap Blend Russell 1000 iS, IWB
-1.68% Industrial SPDR, XLI
-1.68% SmallCap Growth S&P 600 iS, IJT
-1.70% Russia MV, RSX
-1.71% LargeCap Blend Russell 3000 iS, IWV
-1.72% SmallCap Value S&P 600 iS, IJS
-1.72% SmallCap Value Russell 2000 iS, IWN
-1.73% Blend Total Market VIPERs, VTI
-1.73% Value EAFE MSCI, EFV
-1.73% Indonesia MV, IDX
-1.76% Small Cap VIPERs, VB
-1.78% LargeCap Growth S&P 500 iS, IVW
-1.78% LargeCap Blend S&P 500 iS, IVV
-1.79% Health Care SPDR, XLV
-1.79% LargeCap Blend S&P 100, OEF
-1.79% Consumer Discretionary SPDR, XLY
-1.81% Telecom DJ US, IYZ
-1.81% LargeCap Growth Russell 1000 iS, IWF
-1.81% India Earnings WTree, EPI
-1.89% Growth VIPERs, VUG
-1.91% Oil Fund PowerShares, DBO
-1.93% Chile MSCI iS, ECH
-1.99% Austria Index, EWO
-2.00% Growth SmallCap VIPERs, VBK
-2.00% Silver Trust iS, SLV
-2.02% SmallCap Blend Russell 2000 iS, IWM
-2.06% Taiwan Index, EWT
-2.09% Materials SPDR, XLB
-2.14% Oil, Crude, U.S. Oil Fund, USO
-2.15% Basic Materials DJ US, IYM
-2.22% Microcap Russell, IWC
-2.25% Info Tech VIPERs, VGT
-2.25% Technology SPDR, XLK
-2.27% Sweden Index, EWD
-2.32% SmallCap Growth Russell 2000 iS, IWO
-2.35% Technology DJ US, IYW
-2.39% QQQ Nasdaq 100 Trust, QQQ
-2.46% Capital Markets KWB ST, KCE
-2.46% WilderHill Clean Energy PS, PBW
-2.48% Metals & Mining SPDR, XME
-2.56% South Korea Index, EWY
-2.68% Italy Index, EWI
-2.91% Spain Index, EWP
-3.00% Semiconductor iS IGW, SOXX
-3.09% Semiconductor SPDR, XSD
-3.79% Biotech SPDR, XBI
