More newsletters are bearish than bullish on the market

The weekly Investors Intelligence Survey of newsletter writers saw bullish sentiment fall -6.7% to 36.30. Historically, 35% or lower has coincided with market bottoms. Bearish sentiment also moved higher, to 37.4%, an increase of 4.8%. Historically, 50% or higher has been the percentage area where markets have bottomed. Over the past decade however, bearish in the 45% range has marked turning points.

It is not common for there to be more newsletters bearish on the market than bullish so this is a good development from a contrarian point of view.

Investor fear rising

There are a number of sentiment indicators pointing towards in an increase in investor pessimism. This is a good sign and not surprising given that the markets have pulled back over the past week and are threatening to retest the March lows.

The most recent AAII (American Association of Individual Investors) survey showed a 16% increase in bearishness and a 12% decline in bullishness among members. Currently, 54% of AAII members are bearish which is near the March 2008 levels.

The weekly Investors Intelligence Survey of newsletter writers has bullish sentiment at 43%. Bearish sentiment is at 32.6%. When only 35% of the newsletters show bullish sentiment, it has tended to historically coincide with market bottoms so this is positive from a contrarian point-of-view.

Other positive indicators that are bullish for stocks include;

• High Short Interest on the Nasdaq and NYSE
• Corporate Insider Buying is still positive
• Public Short Selling (by smaller investors)
• Liquidity Premium is high (investors look towards ETF's instead of individual stocks) since they are nervous

Insurance Brokers, Oil and Gas, and Steel Producers lead

The Dow recovered a little bit of Fridays decline. The Nasdaq continued to fall. Bank stocks along with Internet and e-commerce companies were hit today. Banks can't seem to catch any type of a break lately but are showing signs of selling capitulation. Solar energy stocks got hit hard again today despite the rise in the price of oil.

Oil and Gas stocks were among the strong performers today. Chemical stocks and steel producers also fared well. U.S. Oil and Gas exploration stocks had some of the biggest volume gainers.

The market obviously isn't quite ready to move higher. However it seems like a lot of the bad news out there is priced into the market already and there certainly isn't an overwhelming amount of optimism for the market which is also a plus if you are a contrarian investor.

Stocks surge on jobs data. Oil stocks rebound.

The market got off to a good start today and closed near the highs. Oil stocks, which had struggled recently rebounded sharply.

The S&P Small-cap 400, Russell 2000, NASDAQ and S&P Small-cap 600 are all above their respective 200-day moving averages acting very well. Especially the Mid cap 400. The Dow Jones Industrial Average and S&P 500 are lagging. This could mean that if the market continues to improve, you will see small company stocks take the lead which is what you want in a healthy market.

Balchem (BCPC) broke out to a new high today on a 79% increase in trading volume. Solera Holdings (SLH) rebounded after selling off on news that they were going to be selling more shares. Gafisa (GFA) snapped back today as well. The stock had declined the previous three trading sessions. LKQ Corporation (LKQX) fell for the fourth straight day. The stock has struggled since GM announced they were closing four truck plants. The stock is still above it's longer term trend-line however and I plan on keeping it for now.

Trading volume was good today and so were the markets internals. I don't think we are going to head straight back up to the old highs (at least the Dow and S&P 500) probably won't but I'm not ruling out the possibility that the indexes comprised of small and medium sized market cap companies won't continue to outperform.
Arthur Daret

Are oil stocks breaking down?

Today was not a good day for many energy related stocks. When I look at the charts of some of these companies, their price and volume action is not very good. They are either posting multiple reversal days (where the stock opens, moves higher and closes near the low end of its trading range), or simply rolling over on increasing trading volume.

Here are some charts that do not look good;

• Helmerich & Payne (HP) 3 reversal days in a row on good trading volume near its 52 week high.
• Joy Global (JOYG) 2 days closing in the middle of its trading range near its 52 week high.
• Halliburton (HAL) rolling over and possibly headed to $42.
• Atlas America (ATLS) struggline and heading lower
• National Oilwel (NOV) Multiple reversal days and potential exhaustion gaps
• Apache Petroleum (APA) heavy volume down days
• Carrizo Oil and Gas (CRZO) big down volume day followed by big volume up day with little price movement
• Arena Resources (ARD) wide and loose price action with reversals off the high
• Stone Energy (SGY) Big drop on heavy trading volume from $67 to $62

Many of these stocks had great moves but are looking very tired. Oil has also fallen in price and many mutual funds have large holdings in energy stocks. They are going to need to unload them at some point and at the least, I would hold off buying any until they begin to show some signs of stabalization or the price of oil stabalizes.

Tele Norte (TNE) and Open Text (OTEX)

Tele Norte (TNE) has rebounded from its previous sell off. The company provides telecommunication services in South America and Brazil in particular. The stock recently bounced off of its 200-day moving price average (blue line). You can also see that it found support in this area in November and December 2007. The stock could back off a bit from here but that would be healthy.

Open Text is consolidating nicely after its' recent breakout. It is currently resting on its 50-day moving price average (not shown). Open Text develops, markets, sells, and supports Enterprise Content Management (ECM) solutions. The company's ECM solutions help customers manage their business content along with revisions and approvals to archiving, and compliance with regulatory requirements.


Disclosure: I own shares of all three of these and so do some clients. Please do your own research before buying any of these stocks and make sure that they are suitable for your investing goals and risk tolerance.

Strong sectors and stocks week ending May 30th, 2008

As of June 1, 2008. Industry groups that have been demonstrating strength over the past and individual companies in these groups that have good fundamentals (earnings, sales, return on equity, institutional accumulation) and/or technicals (bullish looking chart patterns).

Machinery General and Industrial
Nordson (NDSN), Sun Hydraulics (SNHY), Fuel Systems Holdings (FSYS), Altra Holdings (AIMC).

Transportation Equipment Manufacturing
Wabtec (WAB), Trinity Industries (TRN), Greenbrier Companies (GBX), Portec Rail Products (PRPX)

Retail Home Furnishings
Aaron Rents (RNT), Pier 1 Imports (PIR), Rent-a-center (RCII), Leon’s Furniture (LNF) trades on the Canadian Exchange.

Containers
Owens Illinois (OI), UFP Technology (UFPT), Crown Holdings (CCK), Northern Technology Holdings (NTI).

Electronic Semiconductor Manufacturing
Netlogic (NETL), Microsemi MSCC), PMC Sierra (PMCS), Monolithic Power Systems (MPWR)

Commercial Services and Leasing
GATX Corp. (GMT), TAL International Group (TAL), Ryder Systems (R), CAI International (CAI), Mobile Mini (MINI).

Computer Software Design
Ansys (ANSS), Ansoft (ANST), Dassault Systems (DASTY), Parametric Technology (PMTC),

Telecom Wireless
Research In Motion (RIMM), Trimble Navigation (TRMB), Qualcomm (QCOM)