The following is excerpted from our "Market Trends Diary" in the beginning of August 2007, a time of unusual volatility in the market.  The idea is to give potential subscribers a sense of our market coverage.  Of late, we've gotten in the habit of updating on a daily basis, though we reserve the right to post on a less frequent basis.  "Distillations" of some of the subjects we've covered are included in the table above.  Non-subscribers can view the "seasonal charts" page...the other links are password-protected.

Aug 11 (Sat):  Just to drill home the point that Friday's big movers related not to industries, but to their recent gains and losses, take a look at the table below.  We picked out the 99 stocks with the worst "momentum" (out of about 2400).  Look at Friday's % gains!  39 of these stocks had gains greater than 12%.  Only four had losses of greater than 5%.  Note also that the big gains aren't correlated with particular industries.

Aug 10:  The Dow lost .2%, Nasdaq .4%.  Our own take on the market had it up .5%...that may seem odd, but we note that the Russell 2000 gained about .5%.  Separation between groups was a massive 16.5%!

We wish we had followed our own advice below (Aug 9)...stocks with large losses over the last week averaged 10.4% gains!  Wednesday's big losers were particularly strong, with Thursday's following.  The statistical significance of these moves was very high...4.6 standard deviation units off what you'd expect based on chance.  If a mere handful of stocks with extraordinary gains were biasing our results, we wouldn't see these levels of significance.

On the losing side, stocks with strong momentum lost as much as 6%.  Those with large gains over the last month followed.  . 

Looking at ETF's, small-cap funds fared well...on the order of 3-5% gains.  Losers were led by funds loaded with European stocks...down as much as 3.5%.  These gains and losses, however, are nothing near those mentioned above, so it shouldn't be surprising that no industry groups were found in our tables.

Despite the extraordinary buffeting we saw, the above trends must be considered neutral for the next session.  Don't expect stocks with large recent gains and losses to stay in place, however.

Aug 9:  The Dow lost 2.8%, Nasdaq 2.2%.  Our own take on the market had it down 1.7%.  Separation between groups was 5.9%.

Despite today's ugliness, we did see some winning groups, led by stocks with big gains over the last week...up 1.2%.  Yesterday's big winners continued gaining. 

On the losing side, some of our proprietary indicators predicted losses as high as 4.7%.  Stocks with big yearlong losses continued downward.  Yesterday's big losers were particularly weak.

Looking at ETF's, a number of specialized biotechs (e.g. cardio-related) gained as much as 1.8%.  ETF's specializing in basic materials lost as much as 5%...but again, note that our broader list of yearlong losers was nearly as weak.

The above trends should be considered slightly negative for the next session.  We say "slightly" because we like the fact that volatile stocks did not get singled out for monster losses.  Also, reversals have a habit of occurring on Fridays...whether the general market wins or loses, we wouldn't be surprised to see some changes in the underlying patterns of the recent market (e.g. we could see some nice, if only temporary, gains in stocks with large recent losses).

Aug 8:  The Dow gained 1.1%, Nasdaq 2%.  Our own take on the market had it up 2.5%.  Separation between groups was a monstrous 7.8%.

Finally, we saw a reversal in stocks with large longterm losses...big yearlong losers (with losses greater than 43%) gained as much as 7.8%!  Big losers over the last month to quarter were strong as well.  Volatiles fared well. 

We only identified one group that finished with losses...stocks trading well above their 3rd most prominent resistance level were essentially flat.  Yearlong winners failed to impress.  Non-volatiles underperformed.  Stocks that closed near their lows in the previous session were weak.

No industry groups were seen in our tables...the market is being driven by forces that don't relate strongly to particular industries.  Of course, our own methods don't narrow down industries in especially specific ways.  Occasionally, we look to the gains and losses in ETF's to get a feeling for some of the narrow industry trends that our own approach may miss.  Today's strongest ETF is extremely specialized...one that focuses only on biotech operations involved in autoimmune diseases.  This ETF, holding just a handful of companies, gained the same 7.8% as the far more general "stocks with big yearlong losses" group mentioned above.

The above trends are positive for the next session.

Aug 7:  The Dow gained .3%, Nasdaq .6%.  Separation between groups was 5%.

Stocks with big gains in the previous session led the way today...up 2.8%.  Stocks with large gains over the last week followed closely.  Biotechs finished with gains.

On the losing side, stocks with strongly negative momentum were hit hard...down 2.2%.  Last Friday's losers were particularly weak.  Volatiles suffered.  Cheap stocks failed to gain at all.  Stocks trading well below their prominent resistance levels were hurt.

Ultimately, picking on stocks merely because they are cheap, volatile, or are on a losing streak, is irrational.  At some point, this behavior will reverse, and some very nice profits will be available.  Our best guess is that we may have to wait until October to see these reversals, however.  Historically, bottom fishing has not been a strong strategy in the summer months.

The above trends are neutral for the next session....the general gains are nice, but the profit-taking in volatiles is bothersome.

Aug 6:  The Dow gained 2.2%, Nasdaq 1.4%.  Our own take on the market had it up 1.2%.  Separation between groups was 6.7%.

Regional banks topped our list of winners...up 4.1%.  REIT's fared well.  Naturally, then, big dividend payers were also strong.  Market leaders...stocks whose gains or losses seem to presage gains or losses in the market as a whole...were strong.  This is undoubtedly true because the up/down action of banks has been a strong predictor of the next day's market of late.  Interestingly, non-volatiles racked up nice gains...it's rare that we see non-volatiles appear on the winning side of our tables on strongly positive market sessions.

On the negative side,  cheap stocks were pummeled...down 2.6%.  In fact, if you look at the 570 cheapest stocks in our database, there's a net loss on a day when the Dow gained 2.2%!  Stocks with negative book value got beaten up.    Volatiles and small caps lost.  Stocks with large losses over the last month continued to lose.  Stocks with weak recent volume did not impress.

Given the above trends, it would appear that folks are really shifting their money around, with an emphasis on safety.  The above trends are hugely mixed...in the end, they're only slightly positive as indicators of the direction of tomorrow's market.

Aug 3:  The Dow lost 2.1%, Nasdaq 2.5%.  Separation between groups was 4.2%.

As might be expected, stocks with low recent volatility were strongest...down 1.1%.  Biotechs resisted massive losses.  Stocks that have shown strength over the last month continued to do so.

Stocks with large losses over the last month were weakest...down as much as 5.3%!  In fact, losers of just about every shade were victimized....Tuesday's losers, losers over the last week, three months, and one year.

The above trends are negative for the next session.

Aug 2:  The Dow gained .8%, Nasdaq .9%.  Separation between groups was 2.8%.

REIT's fared well, for the first time in a long while...up 1.8%.  Stocks trading well over resistance levels were strong.  Stocks with heavy volume yesterday gained nicely.  Volatiles outperformed.

Stocks trading well under resistance levels continued dropping...down 1%.  Stocks with a tendency to gain in the afterhours were weak.  Cheap stocks failed to advance.

The above trends are positive for the next session.

Aug 1:  The Dow gained 1.1%, Nasdaq .3%.  Our own take on the market actually had it down .1%.  Separation between groups was a big 5.5%. 

Utilities were clearly the strongest group today...up 2%.  Stocks that closed near yesterday's lows fared well. 

The excitement was on the negative side of the market, however.  Here, stocks with big three month losses continued getting beaten up...down 3.6%!  July's big losers followed closely behind.  Volatiles tended to lose big money.  Late July losers and yearlong losers were quite weak.  Cheap stocks suffered.  

The above trends are negative for the next session.

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We have our data for the second half of July.  Our own take on the market had it down a whopping 8.3% over the period.

We didn't identify a single group that actually made money.  Outside of staying entirely out of the market (our advice, actually, in our "trader's portfolio"), the best long strategy was simply to buy non-volatiles, which lost as little as 3.6%.  Healthcare stocks and utilities held up well.  Free agents and small/illiquid stocks outperformed.  Stocks trading over their prime resistance levels beat the market.

Losers were led by stocks with big losses (at least 14%) over the previous month...down a hefty 13.5%.  Stocks trading well under their prime resistance levels were hit hard.  Stocks falling into the "investor services" or "consumer services" categories were quite weak.  Volatiles were victimized.

In both our 2 week and 1 month (below) summaries of the market, it's interesting to note that banks and REIT's showed up in only our "risk-adjusted" tables (as big losers, of course).  Despite all the hoopla about losses in these groups, there may have been market forces that were quietly more potent than the concerns around "subprime borrowing".  Looking at stocks with large losses from the middle of June to the middle of July (the best predictor of July h2 losses), we see a goodly quantity of biotechs, retails, and stocks in the entertainment sector, as well as the expected REIT's, banks, and construction outfits.

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We've got our data for the month of July.  Our own take on the market had it down 6.5%.

We didn't identify any groups that actually made money, though a few nearly broke even.  Stocks that came into the month having strongly outperformed their best trading partner in June lost 1.3%.  Stocks with large gains in June, or over the previous year, held up well.  Semiconductors performed surprisingly well.  Healthcare (not drugs or biotech) fared well.  Large caps and expensive stocks outperformed.

The excitement was on the losing side, of course.  Here, stocks that entered July trading well below their 20 day averages lost an average of 17%.  Naturally, stocks with big June losses followed closely behind.  Stocks with big losses on the last day of June were weak.  Stocks with high recent volatility faltered.

The trend toward continued strength in long term winners is not unusual for this time of year.  Nor is the general malaise in the market.  Assuming that the market evolves in stereotypical fashion, then, one should not expect any amazing reversals in market behavior...those are more likely to arrive in October or November.  The historical data shows that this is not a time for bottom-fishing, though stocks that got hammered at the end of July (as opposed to the full month) might be worth a look.

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