Market Internals: Stocks have been trading mixed during the latest week of trading (through Thursday, August 07, 2003). While the Dow Jones Industrial Average ($INDU) has risen during three of the past four days, the Nasdaq Composite Index ($COMPQ) has fallen during the past five trading sessions. Despite the relative strength in the Dow Jones Industrial Average, market internals continue to deteriorate on both the New York Stock Exchange and the Nasdaq Stock Market. As we can see from the table above, the ratio of advancing to declining issues on the NYSE has been approximately two-to-one negative during three of the past five trading sessions. On the Nasdaq, the advance decline ratio has been negative five days in a row. Meanwhile, the up-to-down volume statistics clearly show the sellers are beginning to dominate trading, especially on the Nasdaq.
Sentiment Data: Deteriorating market internals are causing levels of market angst to rise, which should continue to pressure stocks if the market anxiety and bearishness continue to rise. Most traders probably noticed the spike in the CBOE Volatility Index ($VIX)—aka the market’s “fear gauge”—during the first few days of August. It rose from under 21% on July 30 to almost 25.88% this week, which was its highest reading since April. Meanwhile, its sister index, the Nasdaq 100 Volatility Index ($VXN) rose from a late-July low of 30% to a high of 36%. In sum, the market’s fear barometers have been showing increasing levels of market angst and, as they rise, stocks tend to fall.
There are other signs that investors are becoming more anxious emerging from the options market. For instance, during the past five trading sessions, the CBOE put-to-call ratio has averaged .94. It spiked up to 1.02 Thursday, which was the highest reading from this indicator since mid-May. Generally, readings above 1.00 are considered extreme and a sign of excessive bearish sentiment because it means that there was more put than call volume on the Chicago Board Options Exchange [CBOE]—i.e. a relatively infrequent occurrence.
Other indicators have been pointing to rising levels of investor bearishness and angst. The Trader’s Index ($TRIN) spiked up to 2.36 Tuesday and that is a sign of aggressive panic-type selling into the close. Meanwhile, NYSE TICK ($TICK), which measures upticks minus downticks on the New York Stock Exchange, has been producing extreme negative readings. After falling to a low of –1,016 Monday, TICK approached –900 Tuesday and Wednesday. The extreme negative readings from TICK are a sign of mini-bouts of panic selling. Finally, the surveys of investor sentiment are also showing increasing bearish sentiment. According to the widely watched Investor’s Intelligence survey, bullish sentiment has fallen to 51.2% from 56.5% last week. Meanwhile, bearish sentiment eased up to 20.8% from 19.6% the week before.
Gold stocks performed well during the first week of August. XAU is testing its July highs around 84.5. A successful break higher sets up a possible test of the 2002 highs near the 90 level.
Oil service stocks were one of the worst performers last month, but appear to be gaining strength in August. OSX rising up along long-term trendline.
Natural gas are also recovering some of the losses incurred last month. XNG closes near the highs of the week and appears to have more fuel in the tank. Resistance at 190.
Commodity-related stocks are the best performers so far during the first week of august. Transportation, tech, retailers, cyclicals, healthcare, and financials have all suffered losses.
Internet stocks are among the week’s worst performers. INX is falling from seriously overbought levels and closed near the lows of the week.
Biotechs wreck and BTK is oversold on the short-term chart. Looking for support around 420. If it fails, look for increasing momentum to the downside.
Disk Drive which one of last month’s best gainers has been the market’s biggest loser so far in August. Short-term oversold, but weekly chart hints at lower prices ahead.
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