By Robert W. Colby, Senior Analyst TraderPlanet.com

Small Caps Turn Upward

Small Caps sharply outperform Large Caps and signal a short-term uptrend. Energy stocks make new high. Materials, Industrial, and Technology are strong. Financial, Consumer, Utilities, and Health Care underperform. Japanese yen falling.

Stocks rebounded strongly over the past three trading sessions.

Trading volume rose, on both on the NYSE and NASDAQ, at least in part reflecting trades related to expiration of options and futures.

The Advance-Decline balance was Bullish on the NYSE, but breadth was less impressive on the NASDAQ, where it has been lagging for years.

The Standard & Poor’s 500 cash index (SPX: 1,532.91) has recovered most of its June loss and now is approaching Potential Resistance near old highs: 1,540.56, which is the intraday high of 6/1/2007, and 1,553.11, the intraday high of 3/24/2000. Traders will be watching these numbers to judge the strength of this rebound.

Spotlight on event stocks: Here is a stock screen I designed to pick out potential “event” stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.

Bullish Stocks: Rising Price and Rising Volume
% Price Change, Symbol, Name

1.10% , IXN , Technology Global, IXN
1.96% , EKH , Europe 2001 H, EKH
1.40% , XSD , Semiconductor SPDR, XSD
4.45% , PPL , PPL
4.23% , PCL , PLUM CREEK TIMB
2.30% , SHW , SHERWIN WILLIAMS
2.25% , EWG , Germany Index, EWG
3.24% , FE , FIRSTENERGY
3.12% , BMY , BRISTOL MYERS
4.55% , NVDA , NVIDIA
6.18% , SIRI , Sirius Satellite
2.45% , MON , MONSANTO
1.00% , PBW , WilderHill Clean Energy PS, PBW
0.99% , PZJ , SmallCap PS Zacks, PZJ
3.14% , STJ , ST JUDE MEDICAL
4.35% , INTC , INTEL
3.16% , SNDK , SanDisk Corporation
2.91% , ERTS , ELECTRONIC ARTS
2.20% , CKFR , Checkfree Corp.
3.01% , PMTC.O , PARAMETRIC
0.71% , PXQ , Networking, PXQ
2.47% , TROW , T ROWE PRICE GP
1.61% , LXK , LEXMARK INTL STK A
2.32% , LIZ , LIZ CLAIRBORNE
2.25% , SYK , STRYKER
1.49% , CEPH , Cephalon Inc
2.19% , MMC , MARSH & MCLENNAN
2.28% , EEM , Emerging Markets, EEM
1.46% , UIS , UNISYS
1.07% , PHO , Water Resources, PHO
1.07% , VB , Small Cap VIPERs, VB
1.75% , IACI , IAC/INTERACTIVCORP
0.63% , HHH , Internet H, HHH
2.72% , MRO , MARATHON OIL
2.11% , EWT , Taiwan Index, EWT
1.33% , PBE , Biotech & Genome, PBE
2.09% , CSCO , CISCO SYSTEMS
3.00% , F , FORD MOTOR
2.14% , NIHD , NII Holdings, Inc.
2.01% , WOR , WORTHINGTON INDS
1.58% , IPG , INTERPUBLIC GRP
1.21% , EFV , Value EAFE MSCI, EFV
1.10% , VNQ , REIT VIPERs, VNQ
0.94% , NYC , LargeCap Blend NYSE Composite iS, NYC
1.67% , SPLS , STAPLES
0.51% , IYC , Consumer Cyclical DJ, IYC
0.79% , BBH , Biotech H, BBH
1.42% , TBH , Telebras H, TBH
1.92% , DD , DU PONT
1.42% , NI , NISOURCE

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name

-0.84% , PBJ , Food & Beverage, PBJ
-2.75% , ADBE , ADOBE SYS
-2.25% , DISH , EchoStar Communications Corporation
-1.19% , ABC , AMERISOURCEBERGN
-1.02% , HUM , HUMANA
-0.94% , NWS.A , NEWS CORP STK A
-1.58% , LBTYA , Liberty Global Inc. (LBTYA)
-1.12% , CVG , CONVERGYS
-1.07% , KMB , KIMBERLY CLARK
-0.89% , OMC , OMNICOM
-0.85% , PSQ , Short 100% QQQ, PSQ
-0.83% , BA , BOEING
-0.93% , QLGC , QLOGIC
-0.29% , CCU , CLEAR CHANNEL
-1.43% , ETFC.O , E*TRADE FINANCIAL
-0.77% , CLX , CLOROX
-0.73% , EXPD , Expeditors International WA
-1.08% , RFMD , RF Micro Devices Inc
-0.77% , CTX , CENTEX
-0.45% , FLEX , Flextronics International Ltd
-0.58% , EFX , EQUIFAX
-0.44% , CAH , CARDINAL HEALTH
-0.36% , ACS , AFFILIATED COMPUTER
-0.41% , DOG , Short 100% Dow 30, DOG
-0.44% , WWY , WM WRIGLEY JR
-0.78% , URBN , Urban Outfitters Inc.
-0.61% , CTXS , CITRIX SYSTEMS
-1.48% , KSS , KOHLS
-0.71% , AET , AETNA
-0.69% , T , AT&T Corp., T
-0.89% , BNI , BURLINGTON NORTH
-0.33% , A , AGILENT TECH
-0.63% , XRX , XEROX
-1.21% , TAP , ADOLPH COORS STK B, TAP
-0.51% , FEZ , Euro STOXX 50, FEZ
-0.33% , CB , CHUBB
-0.57% , MYY , Short 100% MidCap 400, MYY
-0.10% , SWH , Software H, SWH
-0.37% , FRE , FREDDIE MAC
-0.23% , ALL , ALLSTATE
-0.26% , SLR , SOLECTRON
-1.09% , AMD , ADV MICRO DEV
-0.34% , CPWR , COMPUWARE
-0.31% , PEP , PEPSICO
-0.38% , ITW , ILLINOIS TOOL
-0.64% , LNCR , Lincare Holdings Inc
-0.23% , WLP , WELLPOINT HEALTH
-0.67% , IFF , INTL FLAV & FRAG
-0.20% , BIG , BIG LOTS
-0.46% , MCK , MCKESSON CORP

Sectors: among the nine major U.S. sectors, seven rose, while Consumer Staples and Financials fell. Energy was the biggest gainer.

Energy (XLE) outperformed again, made a new all-time high, and XLE’s major trend is Bullish. XLE has been relatively strong compared to the S&P since 3/12/03. Overweight.

Materials (XLB) outperformed again, and XLB’s major trend is Bullish. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight for the long term.

Industrial (XLI) outperformed, and XLI’s major trend is Bullish. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.

Technology (XLK) outperformed again, but XLK’s major trend appears less certain. XLK has been relatively strong compared to the S&P most of the time since 4/20/07, but XLK has been relatively weak compared to the S&P since 3/10/00. Marketweight until XLK makes up its mind.

Financial (XLF) sharply underperformed again, confirming XLF’s major relative strength trend as Bearish. XLF has been relatively weak compared to the S&P since 3/23/04. Underweight.

Consumer Staples (XLP) sharply underperformed again, and XLP’s major trend is Bearish. XLP has been relatively weak compared to the S&P since 10/9/02. Underweight.

Utilities (XLU) outperformed since 6/8/07, but XLU’s major trend is Bearish. XLU has been relatively weak compared to the S&P since 9/20/01. Underweight.

Health Care (XLV) slightly outperformed, but XLV’s major trend is Bearish. XLV has been relatively weak compared to the S&P since 10/9/02. Underweight.

Consumer Discretionary (XLY) slightly outperformed, but XLY’s major trend is Bearish. XLY has been relatively weak compared to the S&P since 1/5/05. Underweight.

Foreign Stocks outperformed strongly, after underperforming from 4/12/07 to 6/13/07. Long term, the EAFE (international developed country stock markets, ex the U.S. and Canada) outperformed the S&P 500 since 3/19/03. Conflicting trends in different time frames adds up to uncertainty for the short term.

NASDAQ outperformed, but NASDAQ’s relative strength major trend is Bearish. The NASDAQ Composite has been relatively weak compared to the S&P since 3/10/00. Underweight.

Growth outperformend Value. The trend of the ratio of Growth stocks relative to Value stocks has been choppy and sideways this year, 2007. The major trend of Growth/Value has been mostly Bearish for seven years.

Small Caps sharply outperformed Large Caps and signaled a short-term uptrend. The ratio of Small Cap stocks relative to Large Caps (Russell 2000/Russell 1000) jumped up to a new six-week high. But longer-term, the trend is not clear since the relative strength peak on 4/19/06.

Semiconductors have outperformed in June but appear uncertain longer term. The Semiconductor HOLDERS (SMH) have been rising on below average volume. SMH may find resistance near the 38.35 high of 5/14/07. Long term, SMH has been underperforming the S&P 500 for more than seven years, since 3/10/00.

Crude Oil rose to new six-week highs on above average volume. But from a longer perspective, USO has been chopping up and down in a trading range since February, and it is still stuck in that range. Previous lows at 47.30-47.39 appear to be offering technical support. Resistance appears in the 51-52 zone. The USO cyclical trend has been Bearish since USO peaked at 73.29 on 7/13/06. The U.S. OIL FUND ETF (AMEX: USO) is a good indicator for the market price of crude oil futures.

Energy Stocks rose more than SPY and more than USO. Generally, since 3/2/07, the stocks of the oil companies have been much stronger than oil as a commodity, not every day but most of the time, and that still looks like an important continuing trend. XLE is the Energy Select Sector SPDR ETF.

Gold price rose three days in a row, but that does not make a significant trend. Trading volume on the rally was low, suggesting a lack of strong buying power. On 6/8/07, GLD price broke below April-May lows, confirming again an ongoing and significant downside correction. StreetTRACKS Gold Trust ETF (NYSE: GLD), which reflects the market price of gold futures, topped out at 70.2 on 5/12/06, and so has been relatively week for 13 months.

Silver outperformed Gold slightly for the day but has been mostly underperforming since 12/7/06. On an absolute price basis, the larger trend for iShares Silver Trust (AMEX: SLV) looks like a trading range since the top on 5/11/06.

The Gold Miners Index (XAU) outperformed GLD since 6/7/07 but underperformed since 5/31/1996. In cases of such time-frame conflict, the longer term trend usually wins.

Inflation expectations are in a rising trend. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes moved lower 6/15/07, after rising to another new nine-month high on 6/14/07. This ratio has been rising for six months, since 1/16/07, thereby indicating a trend toward rising inflation expectations.

Bonds recovered moderately within their steep downtrend. TLT hit a new three-year price low on 6/12/07, the lowest since June, 2004. That indicates a very serious price downtrend and yield uptrend. The main trend is clearly Bearish for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT).

U.S. dollar reversed to the downside. On 6/14/07, the dollar rose to a new two-month closing price high, confirming a two-month uptrend. But the long-term, six-year trend still points down. The dollar has been falling most of the time since its peak at 121.29 on 7/5/2001. In cases of such time-frame conflict, the longer term trend usually wins.

Japanese Yen fell again to its lowest level in more than four years, confirming a Bearish trend. The yen has been weak since its peak at 12,625 on 4/19/1995.

Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:

2.64% Brazil
2.25% Germany
2.11% Taiwan
1.74% Mexico
1.71% Semiconductors
1.65% Gold Mining
1.65% Oil
1.63% Canada
1.61% Paper
1.60% Disk Drives
1.60% Netherlands
1.57% Dow Utilities
1.42% Australia
1.38% Commodity Related
1.32% Russell 2000
1.29% Spain
1.24% Energy
1.22% Switzerland
1.21% S&P Small Caps
1.20% Oil Services
1.20% Italy
1.19% Chemicals
1.16% Biotechs
1.16% Natural Gas
1.13% Sweden
1.09% Network
1.09% REITs
1.05% Nasdaq Composite
1.03% South Korea
1.02% Computer Tech
0.99% France
0.98% Belgium
0.95% Drugs
0.93% Nasdaq 100
0.90% Japan
0.88% NYSE Composite
0.86% Value Line
0.86% Health Care Products
0.86% Austria
0.83% Hong Kong
0.76% Dow Composite
0.75% United Kingdom
0.74% Materials
0.73% Singapore
0.71% Russell 3000
0.71% Wilshire 5000
0.70% Insurance
0.70% Internet
0.68% Malaysia
0.68% Australian Dollar
0.67% S&P 100
0.66% Health Care
0.65% S&P 500
0.65% Russell 1000
0.65% Utilities
0.64% DOT
0.63% Dow Industrial
0.61% S&P Mid Caps
0.55% Hardware
0.55% Euro Index
0.53% Banks
0.51% Technology
0.50% 30Y T-Bond
0.46% Hospitals
0.42% Dow Transports
0.39% Broker Dealers
0.39% Swiss Franc
0.33% Consumer Discretionary
0.28% Industrial
0.27% British Pound
0.22% Health Care
0.20% AMEX Composite
0.17% Retailers
0.10% Canadian Dollar
-0.19% Financial
-0.31% US Dollar Index
-0.39% Japanese Yen
-0.40% Consumer Staples
-1.15% Airlines

To sum up the current position of the U.S. stock market:

Longer term, the U.S. stock market has shown impressive Bullish resilience since the major low on 10/10/02, more than four years ago. Stock prices have been buoyed by abundant global liquidly (following years of fiscal stimulation, rapid money supply growth, and rising corporate profits), M&A, and earnings comparisons above expectations.

Liquidity driven merger and acquisitions news has been helping to keep the old Bull alive. Both U.S. and foreign corporations hold excess cash after several years of rising profits, and so M&A speculation as well as leveraged buyouts and corporate stock buybacks have provided substantial Bullish stimulus to stock prices. In 2007, mergers and acquisitions are running about 60% ahead of 2006’s record pace, driven by rising stock prices and private-equity funds that raised more than $250 billion for takeovers since the start of 2006. Takeovers are on track to surpass 2006’s all-time high of $3.49 trillion, according to data compiled by Bloomberg.

Conservative earnings estimates also have been useful in keeping the old Bull alive. First quarter 2007 corporate earnings reflected a significant growth slowdown. Nevertheless, earnings were ahead of expectations, which had been lowered to very conservative levels in advance of actual reporting. Managements and Wall Street have learned that investors hate disappointments, so they simply don’t give them any–unless absolutely necessary.

Stocks generally are fully valued to over priced by long-term historical standards. Although that alone does not mean that stocks cannot continue to trend higher, nevertheless, it is good to remember that “no tree grows to the sky.” The cyclical nature of stock prices never really changes, although the turning points are not always easy to predict

.