European and Asian stock markets underperformed over the past 3 trading days, quite possibly resuming their relatively weak trends that were so evident last year.
The S&P 500 Composite (SPX: 1,350.50) fell 0.09% on Tuesday, but that is not the whole story. SPX was below Monday’s low and looking quite weak at 3:30 p.m. when suddenly a sharp bounce on rising volume recovered nearly all the day’s loss. Media sources attributed the bounce a report about political support for austerity within Greece. After the close, China’s Premier Wen Jiabao expressed support for Europe, but he offered nothing specific.
It appears that the U.S. stock market is still very sensitive to developments in the ongoing Europe financial crisis, as it has been for many months. Unfortunately, that news has been extremely changeable, unpredictable, and difficult to interpret. In addition, foreign news usually comes out when the U.S. is sleeping, then the U.S. markets open on gaps. I would guess that attempting to trade based on the news would result in losses.
Short-Term Price Momentum based on SPX declined again, is well below last week’s levels, and is still demonstrating bearish divergence. Even as the SPX rose to a new high last week, the slowness of the grind higher indicated that the stock market already had lost most of its bullish momentum and could be vulnerable to a downside correction at any time. A correction appears to be even more probable now.
SPX appears to be forming a potential Bearish Rising Wedge chart pattern since December. In addition, that pattern is contained within a larger potential Bearish Rising Wedge chart pattern beginning at the October low. Break downs below the lower boundary lines shown on the chart would offer technical warning of a possible fast return to the lows.
Expect resistance near the 2011 highs, 1356.48 set on 7/7/12 and 1370.58 set on 5/2/2011, allowing plus or minus a few percentage points for Gann’s “lost motion”.
Up big from recent lows, and with very little room above before resistance, Potential Reward relative to potential Risk appears unattractive.
The latest sentiment data, detailed below, indicates alarming degrees of optimism and bullish complacency. When the majority of investors has been bullish for some time, we can assume that they 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.
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Equity Mutual Funds lost 6% in 2011, according to Lipper Research Services.
Hedge funds lost 5%, according to COO Connect.
Hedge funds suffered their second-worst year on record in 2011, according to an index maintained by Eurekahedge, an independent research firm that specializes in hedge fund data. Some of the world’s largest and best-known hedge funds suffered huge losses, down 20% to 50%.
But not all money managers were down in 2011; see:
Robert W. Colby Asset Management, Inc. (click here).
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The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) turned down since 2/3/12. The 50-day SMA has remained below the 200-day SMA consistently every day since 8/11/11.
The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) turned down last week after peaking on 2/3/12. The 50-day SMA has remained bearishly below the 200-day SMA consistently every day since 8/24/11.
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Sentiment for Contrary Thinking
Investors Intelligence Sentiment: There were 71.3% Bulls plus Neutrals versus 28.7% Bears, according to the Investors Intelligence weekly survey of stock market newsletter advisors reported on 2/8/11. This represents an above average level of bullish sentiment: the 20-year median of Bulls plus Neutrals is 69.5% and the mean is 69.0%.
AAII Sentiment: There were 52% Bulls and 20% Bears, according to the AAII weekly survey reported on 2/9/12. That was an upswing in net bullish emotion from 44% Bulls and 25% Bears as of the 2/2/12 reading.
Investment Newsletters are 75% bullish, the highest since near the major top in year 2000, according to Hulbert Digest.
Short Selling ETFs are trading the lowest volume since the market top in April, 2011, according to Frank D. Gretz of Wellington Shields & Co.
Corporate insiders are now selling their companies’ stock at the heaviest rate since the market peak last July, according to Mark Hulbert at MarketWatch. Insiders sold 577 shares for each 100 shares they bought, according to Argus Research Vickers Weekly Insider Report. That is a big change in insider behavior from 81 shares sold for each 100 shares bought in November. Since corporate insiders (officers, directors, and largest shareholders) know so much more about their companies than the public can possibly know, it is bearish when insiders sell at such a heavy pace.
NYSE short interest collapsed from a high peak of 16 billion shares sold short last September, which coincided with the stock market lows, to 12.5 billion shares sold short in February. This is the lowest level since last April, at the market top. Short interest represents a pool of potential demand for stocks, since short sellers eventually must buy back the shares they borrowed. Currently, that pool of demand is depleted.
VIX Fear Index rose steeply to 21.98 on 2/10/12, breaking a 4-month downtrend line and moving above the highs of the previous 3 weeks. That might signal a change in market mood toward less bullish complacency. On 2/3/12, VIX broke down below the lows of the previous 6 months, hitting 16.10 intraday, which was down from peaks of 30.91 on 12/8/11, 37.83 on 11/1/11, 46.88 on 10/4/11, and 48.00 on 8/8/11. That large drop in VIX suggested a shift away from fear and toward bullish complacency, which, according to Humphrey Bancroft Neill’s Art of Contrary Thinking, may be bearish. 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
1440.24, high of 5/19/2008
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1376.55, Fibonacci 100.0% projection 10/11 range
1370.58, high of 5/2/11
1359.44, high of 5/10/11
1356.48, high of 7/7/11
1354.32, high of 2/9/2012
The S&P 500 Composite Potential Support
1337.35, low of 210/2012
1300.49, low of 1/30/2012
1277.58, low of 1/13/2012
1265.26, low of 1/5/2012
1262.30, low of 12/27/2011
1257.51, 200-day SMA
1257.46, low of 12/30/11
1257.58, Fibonacci 61.8% of 2011 range
1255.22, high of 12/22/2011
1248.64, low of 12/29/2011
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 11/3/11
1231.04, high of 12/16/11
1226.64, low of 11/9/2011
1222.68, Fibonacci 50% of 2011 range
1224.57, high of 12/19/11
1215.20, low of 12/16/11
1209.47, low of 12/14/2011
1209.43, low of 11/17/2011
1204.49, Fibonacci 23.6% of 2009-11 range
1202.37, low of 12/19/11
1187.77, Fibonacci 38.2% of 2011 range
1158.66, low of 11/25/2011
1144.38, Fibonacci 23.6% of 2011 range
1101.73, Fibonacci 38.2% of 2009-11 range
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
1018.69, Fibonacci 50% of 2009-11 range
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
935.64, Fibonacci 61.8% of 2009-11 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
817.40, Fibonacci 78.6% of 2009-11 range
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) fell below the lows of the previous 3 months on 2/9/12 but managed to recover most of the day’s loss by the close. TLT whipsawed back below its 50-day SMA on 2/1/12, turning technically neutral again. TLT remains above its 200-day SMA, and the 50-day SMA has remained above the 200-day SMA every day since 6/24/11, suggesting a persistently bullish major trend for the longer term. Support 114.62, 109.82, 106.08, 103.20, 102.27, 96.31, 94.83, 93.14, 89.65, and 88.14. Resistance 120.91, 121.64, 121.76, 124.02 and 125.03.
Bond, iShares Barclays 7-10 Year U.S. Treasury ETF (IEF) whipsawed back above its 50-day SMA on 2/10/12, turning technically bullish again. IEF remains above its 200-day SMA, and the 50-day SMA has remained bullishly above the 200-day SMA every day since 6/21/11, suggesting a persistently bullish major trend. Support 104.38, 104.00, 103.29, 102.32, 101.36, 101.11, 99.79, and 97.66. Resistance 106.49 and 106.66.
Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) whipsawed back below its 50-day SMA on 2/13/12 and remains below its falling 200-day SMA. The 50-day SMA has remained bearishly below the 200-day SMA every day since 6/20/11.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF) remains neutral. TIP whipsawed back below its 200-day SMA on 2/14/12 TIP remains above its 50-day SMA. The 50-day SMA has remained bearishly below the 200-day SMA every day since 7/15/11.
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Tangible Assets, Commodities
U.S. dollar ETF (UUP) fell below the lows of the previous 12 weeks on 2/9/12, reconfirming a downside correction. UUP fell below its 50-day SMA on 1/23/11, turning neutral. UUP remains above its 200-day SMA. Longer term, the 50-day SMA has remained above the 200-day SMA every day since 10/26/11. Support 21.84, 21.58, 21.07, and 20.84. Resistance 22.21, 22.41, 22.46, 22.85, 23.52, 25.84, 27.19, 28.97.
Agriculture, PowerShares DB Agriculture Fund ETF (DBA) whipsawed back above its 50-day SMA on 2/13/12, turning technically neutral again. DBA remains below its 200-day SMA, and the 50-day SMA has remained bearishly below the 200-day SMA every day since 8/8/11.
Crude Oil, United States Oil ETF (USO) rose above its 50-day SMA and rose above a 6-week downtrend line on 2/13/12, suggesting a minor rally. USO entered a correction after peaking at 39.96 on 1/4/12. Support 36.67, 35.73, 34.54, 32.52, 29.10, 26.28, and 22.74. Resistance 38.96, 39.96, 40.74, and 45.60.
Gold, SPDR Gold Shares ETF (GLD) broke down below the lows of the previous 11 trading days on 2/10/12, suggesting a minor downside correction. GLD already had stalled out after peaking 171.23 on 2/2/12. GLD rose above the highs of the previous 11 weeks on 2/2/12, thereby confirming its preexisting short-term uptrend. GLD rose above its 50-day SMA on 1/23/12 and rose above its 200-day SMA on 1/10/12. Longer term, the 50-day SMA has remained bullishly above the 200-day SMA every day since 2/11/09. Support: 166.33, 160.29, 159.68, 158.01, 156.19, 154.55, 148.27, 147.19, 143.97, 143.42, and 142.55. Resistance: 171.23, 175.46, 177.40, and 185.85.
Gold Mining Stocks ETF/Gold Shares ETF Relative Strength Ratio (GDX/GLD) fell below the lows of the previous 3 years on 1/24/12, thereby reconfirming a bearish major trend for the long term. GDX/GLD remains bearishly below its 50-day and 200-day SMAs. Longer term, the 50-day SMA has remained bearishly below the 200-day SMA every day since 2/22/11.
Silver, iShares Silver Trust ETF (SLV) rose above the highs of the previous 12 weeks on 2/9/12 intraday but closed lower, disappointing the bulls. SLV rose above its 50-day SMA on 1/20/12. SLV remains below its falling 200-day SMA, and the 50-day SMA has remained below the 200-day SMA every day since 10/27/11. Support 32.37, 32.02, 30.67, 28.63, 27.83, 25.65, and 24.44. Resistance: 33.47, 34.44, 34.51, 40.23, 41.49, 42.30, 42.78, 44.71 and 48.35.
Silver/Gold ETFs Ratio (SLV/GLD) rose above the highs of the previous 11 weeks on 2/8/12, confirming a short-term uptrend. SLV/GLD rose above its 50-day SMA on 1/20/12 but remains below its falling 200-day SMA. Longer term, SLV/GLD fell below the lows of the previous 14 months on 12/28/11, and the 50-day SMA has remained below the 200-day SMA every day since 8/30/11.
Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) whipsawed back below its 200-day SMA on 2/10/12, thereby suggesting a possible downside correction. Longer term, JJC’s 50-day SMA has remained bearishly below the 200-day SMA every day since 8/8/11.
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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
0.88% , PBJ , Food & Beverage, PBJ
6.08% , HSP , HOSPIRA
4.36% , XRX , XEROX
2.85% , GPS , GAP
4.09% , WPI , WATSON PHARM
6.24% , MU.O , MICRON TECH
0.10% , PWO , OTC Dynamic PS, PWO
4.68% , ESRX , EXPRESS SCRIPTS
0.37% , SOXX , Semiconductor iS IGW, SOXX
2.92% , CIEN.O , CIENA
1.97% , SRCL , Stericycle, SRCL
3.30% , SHLD , SEARS HOLDINGS
2.18% , AET , AETNA
1.59% , WLP , WELLPOINT HEALTH
2.89% , LIZ , LIZ CLAIRBORNE
0.98% , PXE , Energy Exploration & Prod, PXE
1.88% , TIF , TIFFANY
2.13% , FII , FED INVESTORS STK B
1.94% , TER , TERADYNE
0.38% , TIN , TEMPLE INLAND
1.32% , HSY , HERSHEY FOODS
1.34% , NKE , NIKE STK B
2.13% , STJ , ST JUDE MEDICAL
1.13% , CHRW.O , CH Robinson Worldwide Inc, CHRWD
1.61% , NOV , NATIONAL OILWELL VARC0
1.92% , DVN , DEVON ENERGY
1.04% , EWH , Hong Kong Index, EWH
1.11% , COH , COACH
0.27% , RFG , Growth MidCap S&P 400, RFG
0.56% , K , KELLOGG
1.05% , SLE , SARA LEE
0.36% , IYW , Technology DJ US, IYW
1.28% , SWY , SAFEWAY
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-4.68% , YHOO , YAHOO
-7.71% , KWT , Solar Energy MV, KWT
-5.15% , GT , GOODYEAR TIRE
-1.37% , EWP , Spain Index, EWP
-12.09% , MAS , MASCO
-1.11% , PIC , Insurance, PIC
-1.57% , IYM , Basic Materials DJ US, IYM
-0.85% , ADRU , Europe 100 BLDRS, ADRU
-3.81% , FCX , FREEPRT MCMORAN STK B
-1.35% , RWR , REIT Wilshire, RWR
-0.40% , XSD , Semiconductor SPDR, XSD
-1.61% , EWK , Belgium Index, EWK
-2.81% , PSTL , Steel Global PS ETF, PSTL
-0.64% , FDV , Value 40 Large Low P/E FT DB, FDV
-0.97% , EWD , Sweden Index, EWD
-3.98% , X , US STEEL CORP
-2.25% , MAR , MARRIOTT INTL STK A
-0.58% , RFV , Value MidCap S&P 400, RFV
-0.62% , EWL , Switzerland Index, EWL
-1.07% , EWQ , France Index, EWQ
-1.87% , HBAN , HUNTINGTON
-1.25% , VAW , Materials VIPERs, VAW
-2.23% , EMR , EMERSON ELECTRIC
-1.16% , EPU , Peru MSCI iS, EPU
-0.38% , RZV , Value SmallCap S&P 600, RZV
-1.64% , BK , BANK OF NEW YORK
-0.63% , EWU , United Kingdom Index, EWU
-1.94% , EQR , EQUITY RESIDENT BEN INT
-0.21% , IWW , Value LargeCap Russell 3000, IWW
-0.21% , IWS , Value MidCap Russell, IWS
-1.30% , LAMR , Lamar Advertising Company
-1.73% , THC , TENET HEALTHCARE
-2.00% , XME , Metals & Mining SPDR, XME
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
1.04% Hong Kong Index, EWH
0.53% Bond, 20+ Years Treasury, TLT
0.42% Health Care SPDR, XLV
0.39% Oil, Crude, U.S. Oil Fund, USO
0.37% Semiconductor iS IGW, SOXX
0.36% Technology DJ US, IYW
0.29% India Earnings WTree, EPI
0.28% Energy DJ, IYE
0.27% Oil Fund PowerShares, DBO
0.27% Energy VIPERs, VDE
0.26% Growth MidCap 400 B, IJK
0.25% QQQ Nasdaq 100 Trust, QQQ
0.24% Consumer Staples SPDR, XLP
0.21% Bond, 10 Year Treasury, IEF
0.18% Technology SPDR, XLK
0.18% Energy SPDR, XLE
0.16% Bond EmrgMkt JPM iS, EMB
0.15% Growth VIPERs, VUG
0.14% Growth S&P 500/BARRA, IVW
0.12% Info Tech VIPERs, VGT
0.10% Value LargeCap Dynamic PS, PWV
0.10% Networking, IGN
0.08% Bond, Aggregate, AGG
0.08% Bond, Corp, LQD
0.06% Financial Preferred, PGF
0.05% DIAMONDS (DJIA), DIA
0.05% Bear, Short S&P 500, SH
0.05% Growth MidCap Russell, IWP
0.04% Utilities VIPERs, VPU
0.03% Utilities SPDR, XLU
0.02% Bond, 1-3 Year Treasury, SHY
0.02% Growth 1000 Russell, IWF
0.00% Preferred Stock iS, PFF
0.00% Bond, TIPS, TIP
0.00% Bond, High-Yield Corporate, HYG
0.00% Bond Treasury Short-Term iS, SHV
-0.04% Commodity Tracking, DBC
-0.04% MidCap S&P 400 iS, IJH
-0.05% MidCap S&P 400 SPDRs, MDY
-0.05% Energy & Nat Res iS GS, IGE
-0.07% LargeCap 1000 R, IWB
-0.07% Bond Ex-US Treas, BWX
-0.07% Indonesia MV, IDX
-0.08% China 25 iS, FXI
-0.08% LargeCap Blend S&P 100, OEF
-0.09% Dividend Appreciation Vipers, VIG
-0.10% LargeCap VIPERs, VV
-0.10% Bond, High-Yield Junk, JNK
-0.11% S&P 500 iS LargeCap Blend, IVV
-0.12% Consumer Discretionary SPDR, XLY
-0.12% LargeCap Blend Russell 3000, IWV
-0.13% S&P 500 SPDRs LargeCap Blend, SPY
-0.14% Blend Total Market VIPERs, VTI
-0.16% MidCap Russell, IWR
-0.16% LargeCap Blend S&P=Weight R, RSP
-0.19% Value 1000 Russell, IWD
-0.20% Dividend International, PID
-0.21% Agriculture DB PS, DBA
-0.21% Value MidCap Russell, IWS
-0.21% Dividend High Yield Equity PS, PEY
-0.22% Energy Global, IXC
-0.23% Telecom DJ US, IYZ
-0.23% Gold Shares S.T., GLD
-0.24% Dividend DJ Select, DVY
-0.24% Bond Muni ATM-Free S&P iS, MUB
-0.25% Growth BARRA Small Cap 600, IJT
-0.26% Growth SmallCap VIPERs, VBK
-0.29% Dividend SPDR, SDY
-0.30% Chile MSCI iS, ECH
-0.31% Value VIPERs, VTV
-0.31% Japan Index, EWJ
-0.31% Pacific VIPERs, VPL
-0.31% Singapore Index, EWS
-0.32% Value S&P 500 B, IVE
-0.33% Growth SmallCap R 2000, IWO
-0.35% Industrial SPDR, XLI
-0.39% Small Cap VIPERs, VB
-0.39% Canada Index, EWC
-0.40% India PS, PIN
-0.40% Semiconductor SPDR, XSD
-0.41% Value MidCap S&P 400 B, IJJ
-0.44% Global 100, IOO
-0.45% SmallCap Russell 2000, IWM
-0.46% Value SmallCap VIPERS, VBR
-0.46% SmallCap S&P 600, IJR
-0.47% Microcap Russell, IWC
-0.49% China LargeCap Growth G D H USX PS, PGJ
-0.50% Value SmallCap Russell 2000, IWN
-0.60% Growth EAFE MSCI, EFG
-0.60% Value SmallCap S&P 600 B, IJS
-0.60% Taiwan Index, EWT
-0.62% Switzerland Index, EWL
-0.63% United Kingdom Index, EWU
-0.64% Silver Trust iS, SLV
-0.68% Thailand MSCI iS, THD
-0.68% Frontier Markets Guggenheim , FRN
-0.70% Global ex US ACWI iS, ACWX
-0.71% Small Cap EAFE MSCI iS, SCZ
-0.72% Capital Markets KWB ST, KCE
-0.73% Water Resources, PHO
-0.73% Emerging VIPERs, VWO
-0.73% Pacific ex-Japan, EPP
-0.74% EAFE Index, EFA
-0.75% South Korea Index, EWY
-0.76% Malaysia Index, EWM
-0.80% Value EAFE MSCI, EFV
-0.81% Emerging Markets, EEM
-0.82% Italy Index, EWI
-0.85% Germany Index, EWG
-0.87% Transportation Av DJ, IYT
-0.87% Financial DJ US, IYF
-0.89% Europe 350 S&P Index, IEV
-0.92% Emerging 50 BLDRS, ADRE
-0.94% Financial Services DJ, IYG
-0.95% Russia MV, RSX
-0.95% Financial SPDR, XLF
-0.97% EMU Europe Index, EZU
-0.97% Sweden Index, EWD
-0.99% Real Estate US DJ, IYR
-1.00% South Africa Index, EZA
-1.02% REIT VIPERs, VNQ
-1.06% European VIPERs, VGK
-1.07% France Index, EWQ
-1.11% Financials VIPERs, VFH
-1.13% Homebuilders SPDR, XHB
-1.15% Netherlands Index, EWN
-1.29% Materials SPDR, XLB
-1.34% Mexico Index, EWW
-1.35% Realty Cohen & Steers, ICF
-1.35% REIT Wilshire, RWR
-1.35% Australia Index, EWA
-1.37% Spain Index, EWP
-1.45% Brazil Index, EWZ
-1.55% Latin Am 40, ILF
-1.57% Basic Materials DJ US, IYM
-1.58% Biotech SPDR, XBI
-1.61% Belgium Index, EWK
-1.94% Austria Index, EWO
-2.00% Metals & Mining SPDR, XME
-2.02% Turkey MSCI iS, TUR
-2.42% WilderHill Clean Energy PS, PBW
