Wednesday, November 21, 2007

Market Themes for a Wednesday


* Tale of Two Sectors - We continue to see a major divergence between Consumer Staples stocks within the S&P 500 universe (XLP) and Consumer Discretionary issues (XLY). With the threat of economic slowdown, investors are gravitating to issues that are likely to hold their earnings during difficult times.

* New Lows Continue to Expand - Tuesday saw an expansion of new 20-day lows to 2739, against 237 new highs. New 65-day lows jumped to 1944, against 154 new highs. It is proving difficult to sustain an upmove while investors continue to dump those housing, banking, semiconductor, and consumer discretionary shares.

* Concern for the Bulls - Perhaps most worrisome for the bulls is that we saw new 52-week lows among NYSE common stocks rise to 324, against 31 new highs. This is an expansion of new lows beyond the level registered in August, setting up a situation of weaker highs but also weaker lows. My primary scenario has been one of market correction, rather than outright bear market, but I do follow my indicators and don't buy markets when we see expanding new lows. Interestingly, new 52-week lows among S&P 500 stocks soared to 102 on Tuesday (against 12 new highs), also well beyond the August readings. That tells us that broadening weakness is not limited to small cap issues. Weakness is expanding, not contracting, ever since late last week and that has to be concern for the bulls.

* Sentiment Measure - The Treasuries have become excellent sentiment measures, reflecting the flight to safety both with respect to risky credit and to stocks. The yield on the 10-year Treasury note fell to 4.054% on Tuesday, a multi-month low and also well below the August lows. Similarly, banking stocks have become sentiment measures for the health of the financial system. Note the new lows in such stocks as FNM, C, BSC, and JPM, as well as the new low in the $BKX banking index. We'll need to see some confidence from these measures to put the brakes on the bear.

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8 comments:

Johan said...

Hi Brett!

The number of NYSE stocks hitting of 52-week lows in August was over 1100 according to Stockcharts.com http://stockcharts.com/h-sc/ui?c=$nylow

So we have NOT exceeded the August number yet.

Or did you mean something else?

Thanks!
Johan

Anatrader said...

Brett

You said in the past about new highs:

My next look will be at money flows to see if institutions are truly putting fresh capital to work in this recent rise. We are trading above the value area from a long flat correction that goes back to May. I believe we'll need to see expanded participation in the rally or risk a move back into that value region. Unquote

Now we all are seeing new lows each trading day.

Will money flow apply to indicate to us how to read new lows?

StockMarketTechnician said...

Sometimes I like to look within an Index to see what is hot and what is not.

Here are some interesting observations of the Consumer Staples and Discretionary Indexes:

For Consumer Staples since the beginning of July, Personal Product companies have raised the index. Procter & Gamble (PG : +18%) and Colgate-Palmotive (CL : +20%) have been the stellar performers. Soft beverages are a close second with Coca-Cola (KO : +18%) and Pepsi (PEP : +15%) leading the way. Liquor and cigarettes have been laggards with Anheuser - Busch (BUD : -4%) and Altria (MO: +3%) being relatively weak.

Drug stores are a mixed bag with CVS gaining +12%, while Walgreen (WAG) lossing -9%.

Wal-Mart (WMT) is in the Staples index, while Target (TGT) is in Discretionary. Both have trended down since July, but WMT with a -6% loss has shown less weakness than TGT with a -15% loss.

The other top ten stock in the index holding the index down is Kraft (KFT) with a -6% loss.


In the Discretionary Index, the big lossers are Home Improvement and Entertainment:

Time Warner (TWX) -22%
Comcast (CMCSA) -32%
Home Depot (HD) -28%
Lowe's (LOW) -27%

Target (TGT) is down -15%, however, Amazon (AMZN) and McDonald's (MCD) are both up +14%. Relatively modest lossers are Disney (DIS) -9%, News Corp (NWS) -9% and Viacom (VIA) -5%.

Charles

Brett Steenbarger, Ph.D. said...

Hi Johan,

My count of new lows is limited to common stocks traded on NYSE, so it eliminates many funds, preferred issues, etc.

Brett

Brett Steenbarger, Ph.D. said...

Hi AnaTrader,

My source of money flow data has not been reliable as of late so I am in the process of reworking that research. Thanks--

Brett

Brett Steenbarger, Ph.D. said...

Hi Charles,

Thanks much for that information; that drill-down within sectors is quite useful--

Brett

Tim said...

Hi Brett,

I'm new to your blog ... found it through a link at Daclon Fallon's blog.

"My count of new lows is limited to common stocks traded on NYSE, so it eliminates many funds, preferred issues, etc."

I recall Stan Weinstein's book recommends looking at the common only H-L stats. Is there a free source for common only stats?

Thanks,

Tim

Brett Steenbarger, Ph.D. said...

Hi Tim,

I know of no free source for the data. I recommend Decision Point as a source for these and other useful data.

Brett