Analysis Of Several Major Markets

Major stock price indexes have been declining for the recent trading sessions.

S&P 500 (SPX) Cash Index tested Potential Support: 1089.99 is the Gann 12.5% retracement of the 2009-2010 range, and 1089.86 is the actual low of Tuesday, 1/26/2010. ISEE Call/Put Ratio fell to 0.67 on 1/26/10, down from 1.68 on 1/11/10, indicating a shift to pessimism from optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16. Recently, some market indicators got oversold enough to support a bounce to the upside.

9 major U.S. stock sectors ranked in order of long-term relative strength:

Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) rose above 16-day highs on 1/26/10. XLY/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLY fell below 6-week lows on 1/25/10 and remains below its 50-day simple moving average. Support 28.73 and 28.29. Resistance 30.38, 30.54, 31.95 and 33.76.

Health Care (XLV) Bullish, Overweight. The Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/22/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV traded above its highs of the previous 15 months on 1/20/10. Support 31.07 and 30.88. Resistance 33.16, 33.37 and 33.74.

Technology (XLK) Neutral, Market Weight. The Relative Strength Ratio (XLK/SPY) fell below the lows of the previous 7 weeks on 1/22/10, signaling a downside correction. XLK /SPY fell below its 50- day simple moving average but remains above its rising 200-day simple moving average. Absolute price of XLK fell below 8-week lows and broke down below its 50-day simple moving average but remains above its rising 200-day simple moving average. Support 21.46 and 20.46. Resistance 22.59, 22.87, and 23.05.

Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) and the absolute price both fell below the lows of the previous 8 days on 1/21/10. XLI/SPY remains above rising 50-day and 200-day simple moving averages. Support 27.67 and 27.46. Resistance 29.61, 30.56 and 32.00.

Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) rose above the highs of the previous 5 weeks and above its 50-day simple moving average on 1/22/10. XLP/SPY remains below its falling 200-day simple moving average. Absolute price of XLP fell below the lows of the previous 5 weeks on 1/26/10. Support 25.96 and 25.77. Resistance 27.04, 27.18 and 29.29.

Materials (XLB) Neutral, Market Weight. The Relative Strength Ratio (XLB/SPY) ) plunged below the lows of the previous 11 weeks on 1/26/10, confirming a price correction. XLB/SPY fell below both 50- and 200-day simple moving averages on 1/21/10 and have continued to decline. Absolute price of XLB also fell below the lows of the previous 11 weeks on 1/26/10. Support 31.00 and 28.95. Resistance 33.73 and 34.52.

Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) fell below the lows of the previous 3 weeks on 1/26/10. XLE/SPY fell below its 50-day and 200-day simple moving averages. Absolute price of XLE fell below the lows of the previous 5 weeks on 1/26/10. Support 55.88 and 54.17. Resistance 58.52 and 59.90.

Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) may be attempting to stabilize since probing 2-year lows on 11/18/09. XLU/SPY moved above its 50-day simple moving average on 1/26/10 but remains below its falling 200-day simple moving average. Absolute price of XLU fell below the lows of the previous 8 weeks on 1/25/10. Support 29.37 and 28.10. Resistance 31.30, 31.64 and 32.08.

Financial (XLF) Bearish, Underweight. The Relative Strength Ratio (XLF/SPY) has been in a downward correction since 10/14/09 and fell below the lows of the previous 3 weeks on 1/26/10. XLF/SPY is in a weak position, below both 50- and 200-day simple moving averages. Absolute price of XLF has been in a correction/consolidation phase since 10/14/09 and fell below the lows of the previous 5 weeks on 1/22/10. Support 13.78 and 13.62. Resistance 14.68, 15.40 and 15.76.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell below the lows of the previous 4 months on 1/26/10. EEM/SPY fell below its 50-day simple moving average on 1/21/10 but remains above its rising 200-day simple moving average. Absolute price of EEM fell below the lows of the previous 12 weeks on 1/26/10. EEM has underperformed the SPY since 10/14/09.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below the lows of the previous 4 weeks on 1/21/10. EFA /SPY fell below its 50-day simple moving average on 1/21/10 but remains above its rising 200-day simple moving average. Absolute price of EFA fell below the lows of the previous 11 weeks on 1/22/10. EFA has underperformed the SPY since 9/9/09.

NASDAQ Composite/S&P 500 Relative Strength Ratio rose above its highs of the previous 8-years on 1/4/10 and remains above its rising 50- and 200-day simple moving averages. Absolute price fell below its 50-day simple moving average on 1/22/10 but remains above its rising 200-day simple moving average.

Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) has been performing sideways/neutral for most of the past 10 months, since March 2009. Longer term, IWF/IWD has been bullish since 8/8/06.

Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) has been performing sideways/neutral for most of the past 8 months, since May 2009. Longer term, IWD/SPY has been bearish since 3/22/07, and we assume that major trends continue--until proved otherwise.

The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) rose further above previous 6-year highs on 1/8/10. RSP/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of RSP rose to a new 15-month closing price high on 1/8/10, then broke down below 5-week lows on 1/26/10.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below the lows of the previous 3 months on 12/22/09. OEX/SPX remains below its falling 50- and 200-day simple moving averages.

The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose to a new 3-month high on 1/22/10 and remains above both its 50- and 200-day simple moving averages. Absolute price of IWM fell below 5-week lows on 1/26/10 after rising above 15-month highs on 1/8/10, indicating a short-term correction within a long-term uptrend.

The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) rose above the highs of the previous 4 months on 1/22/10. MDY/SPY remains above its 50- and 200-day simple moving averages. Absolute price of MDY rose above 15-month highs on 1/11/10, then broke down below 5-week lows on 1/25/10.

CRB Index of commodity prices fell below 5-week lows on 1/26/10.

Crude Oil nearest futures contract price fell below 5-week lows on 1/26/10, confirming a minor correction. Oil is below its 50-day simple moving average but well above its rising 200-day simple moving average. Support 73.52, 72.72, 72.45, 68.59, and 65.05. Resistance 77.06, 79.47, 80.36, 83.95, 85.82 and 98.65.

Gold nearest futures contract price broke down below 4-week lows on 1/22/10, confirming a minor correction. Gold is below its 50-day simple moving average but well above its rising 200-day simple moving average. Support 1075.2 and 1028.0. Resistance 1163.0, 1170.2, 1196.8 and 1226.4.

Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell to a 6-month low on 1/23/10 after falling below both 50- and 200-day simple moving averages on 1/15/10. The gold mining stocks have underperformed gold bullion since 9/17/09.

Silver/Gold Ratio fell sharply since 1/19/10, breaking below both 50- and 200-day simple moving averages, suggesting new doubts about prospects for the world economy.

Copper nearest futures contract price broke down below 4-week on 1/22/10 and consolidated since. Falling copper prices suggest doubts about global economic prospects. Support 3.2475, 3.06 and 2.966. Resistance 3.47, 3.544, 3.5625, 3.5625, and 3.79.

U.S. Treasury Bond nearest futures contract price rose above 5-week highs on 1/26/10, confirming the short-term trend as bullish. The Bond is above its 50-day simple moving average but is still below its 200-day simple moving average. Support 118.02, 116.22, 115.24, 114.16, 113.04 and 112.15. Resistance 119.08 and 120.08.

Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) fell below the lows of the previous 6 weeks on 1/22/10, signaling a downside correction. JNK/LQD has been testing its 50- day simple moving average and remains above its rising 200-day simple moving average. Absolute price of JNK fell below 6-week lows and broke down below its 50-day simple moving average on 1/22/10 but remains above its rising 200-day simple moving average.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) rose to another new 15-month high on 1/7/10, again confirming a bullish long-term trend. TIP/IEF remains above rising 50- and 200-day simple moving averages. Bond investors may be growing increasingly concerned about the inflation outlook, despite assurances of tame inflation by economists.

The U.S. dollar nearest futures contract price rose above 3-month highs on 1/21/10 and has consolidated gains since. USD has been holding above its rising 50-day simple moving average and is challenging its falling 200-day simple moving average. Support 78.20, 76.74 and 75.90. Resistance 79.00 and 79.695.

The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.

Advisory Service Sentiment: There were 52.2% Bulls versus 18.9% Bears as of 1/20/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio fell to 2.76, down from 3.36 on 1/13/10, which was the highest ratio of bullish sentiment in 6 years. The 20-year range of the ratio is 0.41 to 3.74, the median is 1.50, and the mean is 1.57.

VIX Fear Index jumped to 27.31 on 1/22/10, up from 17.55 on 1/11/10, which was its lowest level in 26 months. VIX is down from a closing high of 80.86 set on 11/20/08. 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.

VXN Fear Index jumped to 28.37 on 1/22/10, up from 17.73 on 1/14/10, which was its lowest level in 26 months. VXN is down from a closing high of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.

ISEE Call/Put Ratio fell to 0.67, down from 1.68 on 1/11/10, indicating a shift to pessimism from optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16.

CBOE Put/Call Ratio rose to 0.65, up from 0.49 on 1/8/10, a reversion to the mean. The ratio’s 6-year mean is 0.66, its median is 0.64, and its range is 0.35 to 1.35.

The Dow Theory last confirmed a Bullish Major Trend on 1/11/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 14 months. The Dow Theory signaled the current 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. That 7/23/09 signal reversed the previous signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.