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The Amex Oil Index (XOI) made a new high on 8-11.
In the current market, we recommend a copy of "
Technical Summary:
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Some Wear And Tear Now Evident
Stocks managed to hold above key intermediate term support levels last week. The majoraverages remained above their 50 day moving averages.
But market breadth has started to shrink, and the number of stocks making new highs isstarting to shrink, as the number of stocks making new lows is starting to rise. This is aclear sign of slow and steady selling.
More interesting is the fact that the put/call ratios are rising, even as stocks are undersome distribution. This is not a good sign, as you want to see put options being bought asthe market rises, meaning that there is a bullish wall of worry rising. What we’reseeing now, is selling, while insurance policies are being bought, likely by biginstitutions that are expecting to sell some more.
So we’re still in noman’s land. We’ll see if Wall Street can deliver something convincing to the upside in the next couple of days. If this kind of action continues, though, this rallymight have seen its best days.
What To Do Now
Remain patient. Buy only exceptional strength. Take this market one day at a time, and beready for reversals.
Consider some short sales, if you’re aggressive. See our health, technology, andbiotech areas for short selling ideas.
Check all our sections daily. See tech, biotech, Fallen Angels, and timing systems forthe latest adjustments. Our ETF trading systems for energy, Spyders, Small Caps, andtechnology have also been updated.
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Huge Imbalances Again
There is a new ritual on Wall Street as the weekend approaches, getting hedged to thegills.
Again, this past Friday, the Put/Call ratios shot up, with much of the action being in theindex options, a sign that institutions are getting edgy.
Our own sentiment indicators are still negative . MASI delivered another sell signal on8-5, its third sell signal since June. MAGI remained negative after its 6-17 sell signal.This remains a shadow over the markets.
The CBOE Put/Call ratio rose to 1.28 on 8-12 exceeding the reading of 1.15 on 8-5. Aconsistent string of low readings can be a sign of excessive optimism and often signals atop in the markets. Readings below 0.5 are of concern, but not as serious as readingsbelow 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to beevaluated on a closing basis.
The CBOE P/C ratio for indexes rose to 2.80 on 8-12, following the 2.02 on 8-11, a fairlybullish number, after rising to 2.77 on 8-5. There was a 2.37 reading on 8-4, a reading2.13 on 8-1 and a nice 2.30 on 7-21. It was not quite the 2.89 on 7-18 ,or the 2.50 on 7-6or 2.10 on 7.1. But, four such readings in a space of a few weeks, explain the currentrally quite nicely. Readings below 0.9 suggest too much bullish sentiment, just asreadings above 2 are usually required to mark major bottoms.
The VIX and VXN had readings of 12.74 and 15.63 on 8-12. When these indexes begin to rise,it is a sign of concern as rising volatility indexes suggest that an acceleration of theprevalent trend is on its way. A fall near or below 20 on VIX and 30-40 on VXN isconsidered negative, a fact that is usually confirmed when the volatility indexes begin torise. Readings above 40 and 50, respectively, are often signs that a bottom may be closeto developing.
The futures traders polled by Market Vane registered a 65% Bullish consensus We are stillon a sell signal here.
Our Big Trend Model fell to a reading of 40, after its oversold reading of 32.5% on 7-1.The index had a very accurate oversold reading of 12.5, delivered on 4-29-05, a correctcall on the recent bottom. Readings near or below 40% often precede market bounces, butmay initially be signs of caution when markets have had a rally. Readings above 80% areusually bearish. The Big Trend Model is composed of technical and monetary indicators andupdates automatically on a weekly basis.
Our MASI indicator is negative. MAGI gave a buy signal on 4-22, which is now reversedafter 6-17. When these two indicators agree, the market usually follows in the directionof the signals. MAGI is based on the weekly data provided by Investor’sIntelligence’s poll of newsletter writers, a group that has been bullish for severalyears, and stayed bullish, and wrong throughout the bear market. When both indicatorsagree, there is a high degree of correlation with a significant market move. When theseindicators disagree, it is often a sign that the market is about to go nowhere but thatvolatility is on the verge of increasing. MASI buy signals when MAGI is bearish are rarelyworth acting on. MAGI is an intermediate term indicator with an excellent predictiverecord. The best market bottoms occur when both of these indicators are both on buysignals, a telling sign of intense fear on the part of investors. MASI and MAGI aresentiment indicators that are up dated on a weekly basis.
The NYSE insiders were less bullish, as they were strong buyers of stock on the weekending July 29. Still that was three weeks of buying, clear change from their priorbehavior. They had been heavy sellers of stock for eleven out of thirteen weeks until7-22. We’ll see if it lasts. Short selling by NYSE specialists remains near all timelows by historical standards, since we‘ve been keeping this indicator. This indicatoris very positive when short selling by the specialists is low as the same time that theyare net buyers of stock. The heavy amount of selling over the last few months has turnedthis indicator neutral. This is a set of very smart investors, and when they turn positiveor negative, it is just a matter of time before the market follows. Spec data is releasedto the public with a two week lag, so is not useful as a market timing tool, but isexcellent background and confirmatory information.
Market Moves
Valero Energy Eclipses Exxon As Oil Bellwether
Exxon Mobil (NYSE: XOM) and Valero Energy (NYSE: VLO) seem to have switched roles in theenergy complex.
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Exxon Mobil has missed the recent rally in the oil stocks. This raises the question ofwhether the stock is now a valid bellwether for the integrated oil sector.
As the Amex Oil Index (XOI) made several new highs last week, Exxon begrudgingly closedabove 60, weakly confirming the new highs in the sector.
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Meanwhile, Valero has led the way.
The key seems to be the refining and retail operations, where Valero makes its money,while Exxon's more diversified operations, and thus higher risk from geopoliticalsituations may be dampening investor enthusiasm toward the stock.
Conclusion
We may have witnessed a rather anticlimactic passing of the baton in the oil stocks.
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The Amex Biotech Index (BTK) held its own on 8-12.. The index delivered a major break outon 7-20, but could have some difficulty in the short term. On 7-18 and 7-19, it remainedthe strongest sector int the curren market closing above 600. The 570-590 area is nowsupport. Visit our health and biotech area for more details as new stocks have been addedour buy list.
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The Amex Pharmaceuticals Index (DRG) is testing the 330 area, but looks to be building abase. For a full description of the ins and outs of investing in biotech andpharmaceutical stocks check out our book "
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The Philadelphia Semiconductor Index (SOX) is having trouble rising above the 470 area. Asustained close above 480 would be very bullish for the chip stocks. For trading info ontechnology stocks visit our Stock of the Day and Technology timing sections.
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Small stocks are trying to hold up, and are trying to re-establish their leadershipposition. The tinies got clobbered on 8-6 after dropping on 8-4 and 8-5, a negative forthe markets. For trading suggestions in the small cap arena visit our S & P tradingpage featuring our ETF trading model for small caps.
