by Robert W. Colby, Senior Analyst,

Stock Market: Deal Or No Deal?

Join fellow Deal or No Deal fans around the world to guess what the public servants in charge might do next!

With news pending (or not!) look for sudden changes in days ahead.

Volatility seems likely to remain high, as the future could be full of surprises.

It remains an uncertain, high-risk trading environment.

Focus on capital preservation.

On Thursday, major stocks indexes opened higher and rose to a peak around 1:00 p.m. on hopes that the troubled Treasury bailout plan might soon win Congressional approval. Prices settled down in the afternoon as traders decided it might be safer to wait and see. Still, stocks managed to hold onto most of their early gains. The Standard & Poor’s 500 cash index (1,209.18) closed up 23.31 points, or 1.97%.

Total NYSE volume rose 22% but is still well below the previous week’s levels. Traders understandably may be reluctant to trade, not knowing how the rules of “free market capitalism” might change next. The banning of short sales on nearly 900 financial stocks removes normal short-covering buying demand for stocks when prices fall. Business as usual is suspended, and traders naturally don’t like it.

Uncertainties surrounding reports, rumors, speculation, and news about companies in the deeply troubled financial sector and the Treasury bailout plan have been causing volatile, disorderly, unpredictable market behavior this month. The chaos seems likely to continue. Understandably, traders may be reluctant to trade, resulting in thinner, relatively inactive markets with bigger spreads, bigger volatility, and sudden reversals.

I’ll call the short-term trend unsettled, or even undefined, since I have never seen the market so disrupted in my 39-years of market analysis.

The established intermediate-term trend remains clearly Bearish. Long-term, the S&P 500 has been in a Primary Tide Bear Market since the intraday high of 1,576.09 on 10/11/2007, as this daily update has consistently pointed out.

For the general stock market indexes, seasonal tendencies for the month of September are unfavorable. Reward/Risk tradeoffs still appear unattractive. It seems more appropriate than ever to focus on capital preservation.

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

3.10% , TTH , Telecom H, TTH
1.70% , ISI , LargeCap Blend S&P 1500 iS, ISI
5.46% , TBH , Telebras HOLDRS, TBH*
2.67% , TMW , Wilshire 5000 ST TM, TMW
9.68% , NKE , NIKE STK B
0.72% , PEJ , Leisure & Entertainment, PEJ
2.28% , SDY , Dividend
11.49% , FNM , FANNIE MAE

3.21% , FEZ , Euro STOXX 50, FEZ
4.49% , EWW , Mexico Index, EWW
2.74% , DGT , Global Titans, DGT
0.82% , FPX , IPOs, First Tr IPOX-100, FPX
3.60% , EWD , Sweden Index, EWD
7.03% , ACE , ACE
2.68% , IDU , Utilities DJ, IDU
1.77% , IYK , Consumer Non-Cyclical, IYK
5.68% , VRSN , VeriSign Inc
2.40% , RPV , Value S&P 500, RPV
8.74% , MBI , MBIA
3.05% , EWY , South Korea Index, EWY
1.19% , JKK , Growth SmallCap iS M, JKK
3.14% , EWP , Spain Index, EWP
6.89% , EMC , EMC
1.72% , IWV , LargeCap Blend Russell 3000, IWV
2.81% , VGK , European VIPERs, VGK
5.14% , EEM , Emerging Markets, EEM
3.96% , HGSI , Human Genome Sciences Inc
1.45% , PSI , Semiconductors, PSI
3.23% , VIA.B , VIACOM STK B

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

-4.24% , BHH , Internet B2B H, BHH
-7.75% , TDC , Teradata Corporation, TDC
-8.36% , CMI , CUMMINS
-7.24% , MHP , MCGRAW HILL
-8.55% , RHT , Red Hat Inc.
-2.39% , RX , IMS HEALTH
-2.30% , DE , DEERE & CO
-3.44% , SLM , SLM CORP
-1.80% , PAYX , PAYCHEX
-2.88% , MON , MONSANTO

-2.81% , PMCS , PMC SIERRA
-4.40% , PWER , POWER ONE
-3.55% , APD , AIR PRODS & CHEM
-2.73% , AA , ALCOA
-2.05% , COH , COACH
-2.54% , YUM , YUM BRANDS
-1.03% , MTB , M&T BANK
-1.36% , PSQ , Short 100% QQQ, PSQ
-2.58% , DD , DU PONT
-2.98% , DXD , Short 200% Dow 30 PS, DXD
-0.46% , SLV , Silver Trust iS, SLV

Sectors: among the 9 major U.S. sectors, 8 rose and 1 fell.
Major Sectors Ranked for the Day
% Price Change, Sector ETF, Symbol

2.76% Financial SPDR, XLF
2.47% Consumer Staples SPDR, XLP
2.45% Energy SPDR, XLE
1.98% Utilities SPDR, XLU
1.81% Health Care SPDR, XLV
1.79% Consumer Discretionary SPDR, XLY
1.72% Technology SPDR, XLK
0.79% Industrial SPDR, XLI
-0.28% Materials SPDR, XLB

Primary Tide Trends for the 9 major sectors last for years. Here are my up-to-date Relative Strength Rankings, as measured with emphasis on these long-term Primary Tide Trends (listed in order of long-term relative strength):

Consumer Staples (XLP) Neutral, Market Weight. On 9/15/08, XLP/SPY Relative Strength Ratio rose to another new 5-year high, again confirming that the long-term trend is up. On 9/8/08, XLP absolute price rose to a new 8-month high, indicating significant price trend strength.

Health Care (XLV) Neutral, Market Weight. On 9/17/08, the XLV/SPY Relative Strength Ratio moved up to a new 3-year high, confirming a long-term uptrend.

Energy (XLE) Bearish, Underweight. On 9/16/08, the XLE absolute price fell to a new 8-month intraday low, indicating significant trend weakness.

Consumer Discretionary (XLY) Bearish, Underweight. On 7/15/08, XLY absolute price fell to its lowest level in 5 years. Since 1/5/05, the XLY/SPY Relative Strength Ratio has underperformed substantially.

Materials (XLB) Bearish, Underweight. On 9/18/08, the XLB absolute price hit a new 8-month intraday low, indicating significant trend weakness.

Utilities (XLU) Bearish, Underweight. On 9/17/08, the XLU absolute price fell to a new 2-year low, indicating long-term trend weakness. On 9/22/08, the XLU/SPY Relative Strength Ratio broke down to a new 6-month low.

Technology (XLK) Bearish, Underweight. On 9/17/08, the XLK absolute price fell to a new 3-year low, indicating long-term trend weakness.

Industrial (XLI) Bearish, Underweight. On 9/18/08, the XLI absolute price hit a new 2-year intraday low, indicating long-term trend weakness. On 9/24/08, the XLI/SPY Relative Strength Ratio broke down to a new 3-month low.

Financial (XLF) Bearish, Underweight. On 9/19/08, the XLF absolute price hit a new 3-month intraday high, reflecting dramatic government intervention. On 9/18/08, the XLF absolute price hit a new 2-month intraday low, indicating intermediate-term trend weakness. With the rules changing day by day, trading these stocks would seem to be extraordinarily risky.

Foreign stock index EFA Relative Strength Ratio has outperformed the S&P 500 since 8/16/08 . EFA absolute price fell to a new 34-month low on 9/17/08 and has been in a falling trend since 5/23/08. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.

NASDAQ Composite remains Bearish. On 9/18/08, absolute price broke down to another new 2-year intraday low, indicating long-term trend weakness. Relative Strength Ratio has been in a declining trend since 8/14/08.

NASDAQ 100 Index absolute price broke down to a new 2-year intraday low on 9/18/08.

Growth Stock/ Value StockRelative Strength Ratio fell to a new 5-month low on 9/19/08. The short-term trend appears relatively weak. Longer term, this ratio (IWF/IWD) has been in an uptrend since 8/8/06, and it rose to a new 4-year high on 7/15/08.

The Small Cap/Large Cap Relative Strength Ratio eased lower since 9/19/08. The ratio jumped up to a 21-year high on 9/19/08, confirming a major uptrend. The long-term trend has been Bullish most of the time since 4/8/99.

Crude Oil futures November contract price recovered modestly but still faces resistance in the 110-120 zone. The intermediate-term trend remains Bearish. U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil, although it generally moves in the same direction.

The Energy stock sector underperformed Crude Oil since 9/16/08.

Gold futures contract price fell below the lows of the previous 2 trading days. Gold is a safe haven in times of great stress. Gold seems likely to fluctuate inversely to the financial news and the broad-based stock indexes in days ahead. Gold has been in an intermediate-term downtrend since the peak of 1033.90 on 3/17/08.

Gold Mining stocks continue to underperform Gold futures on a major trend basis.

U.S. Treasury Bond futures contract price hit a new 6-week low, confirming a short-term downtrend. Bonds have been in an intermediate-term uptrend since 6/13/08. Long term, Bonds have been in a neutral sideways trend since June 2003.

iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF recovered slightly, but all trends remain Bearish. On 9/17/08, LQD/TLT Relative Strength Ratio broke down to another new multi-year low, again confirming that the short-term, intermediate-term, and long-term trends all are Bearish. Bond investors appear to be seriously concerned about the economic outlook.

iShares Lehman TIPS Bond (TIP) ETF fell again, and all trends remain relatively weak. On 9/19/08, TIP/TLT Relative Strength Ratio broke down to another new multi-year low, again confirming that the short-term, intermediate-term, and long-term trends all are Bearish. This implies that Bond investors may be anticipating deflation.

The U.S. dollar recovered modestly but remains vulnerable to decline. On 9/22/08, the dollar fell steeply to its lowest level in 6 weeks. The short-term trend appears to be vulnerable to further downside action.

The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood. The business and financial news has flipped from fear to hope and back again this year, creating higher levels of volatility. Investors might be wise to focus on risk control.

Sentiment/Contrary Opinion: There were 37.5% Bulls versus 40.9% Bears as of 9/24/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.92, and it was 0.92 the previous week. The Bull/Bear ratio low of 0.57 on 7/16/08 was the lowest level of the ratio since 1994. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47.

VIX Fear Index, now at 32.82, retreated from its recent peak of 36.22 set on 9/17/08, which was the highest level of Fear since 10/11/02. Previously, VIX fell from a peak of 32.64 on 3/17/08 to a low of 16.30 on 5/15/08, indicating decreasing Fear. The all-time high was 45.74 on 10/8/98. The all-time low was 9.89 on 1/24/07. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

VXN Fear Index, now at 34.86, backed off its recent peak of 36.52 set on 9/23/08, which was the highest level of Fear since 4/14/03. Previously, VXN fell from a peak of 35.63 on 1/22/08 to a low of 20.00 on 5/16/08, indicating decreasing Fear. The all-time high was 114.23 on 10/8/98. The all-time low was 12.61 on 7/29/05. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.

CBOE Put/Call Ratio is 0.62, which indicates Neutral sentiment. Its 4-year mean and median are 0.62, and its 4-year range is 0.35 to 1.28.

ISEE Call/Put Ratio is 1.14, which indicates Bearish sentiment. The ratio’s 4-year mean is 1.50, 4-year median is 1.47, and 4-year range is 0.51 to 3.16.

Fundamentals: The 2003-2007 Bull Market was fed by abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises. The unfolding fallout from the subprime credit market crisis has derailed that engine. Economic statistics and corporate earnings have weakened and seem likely to weaken further over the next several months.

The Dow Theory confirmed a Primary Tide Bear Market on 11/21/07 when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their respective closing price lows of August, 2007.

The Dow-Jones Transportation Average recovered a modest fraction of its loss on 9/24/08, when the absolute price fell to a new 10-week low and closed below a trend line connecting the lows of January and July, 2008. This suggested intermediate-term trend weakness.

The breadth of the market has been in a Bearish trend long term since June 2007. The number of New Lows has exceeded the number of New Highs most days for more than a year, since July 2007, and that is one sign of a Bear Market. On 9/17/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 22-month lows, so major breadth trends remain Bearish.

To discover the next Resistance, traders probably will be watching how the market acts at the following levels for the Standard & Poor’s 500 cash index (1,209.18):

Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15 high of 8/11/2008
1,274.42 high of 9/8/2008
1,255.09 high of 9/12/2008

To discover the next Support, traders probably will be watching how the market acts at the following levels for the S&P 500 cash index (1,209.18):

Potential Support
1,133.50, low of 9/18/2008

Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

5.38% Brazil Index, EWZ
5.14% Emerging Markets, EEM
4.49% Mexico Index, EWW
4.41% Internet Architecture H, IAH
3.84% Latin Am 40, ILF
3.72% Emerging VIPERs, VWO
3.63% Homebuilders SPDR, XHB
3.60% Sweden Index, EWD
3.52% Netherlands Index, EWN
3.44% Telecommunications & Wireless, PTE
3.42% Internet Infrastructure H, IIH
3.42% Value LargeCap Dynamic PS, PWV
3.28% Broadband H, BDH
3.21% Euro STOXX 50, FEZ
3.14% Spain Index, EWP
3.10% Value LargeCap Euro STOXX 50 DJ, FEU
3.10% Telecom H, TTH
3.06% South Africa Index, EZA
3.05% South Korea Index, EWY
3.02% Dividend International, PID
2.96% Emerging 50 BLDRS, ADRE
2.90% France Index, EWQ
2.84% Dividend Leaders, FDL
2.81% Energy Global, IXC
2.81% Developed 100 BLDRS, ADRD
2.81% European VIPERs, VGK
2.76% Financial SPDR, XLF
2.76% Value EAFE MSCI, EFV
2.74% Global Titans, DGT
2.74% Utilities H, UTH
2.72% Bank Regional H, RKH
2.72% Italy Index, EWI
2.71% China 25 iS, FXI
2.69% Hong Kong Index, EWH
2.69% Global 100, IOO
2.68% Utilities DJ, IDU
2.68% Asia 50 BLDRS, ADRA
2.68% Ultra Dow30 Double, DDM
2.67% Wilshire 5000 ST TM, TMW
2.64% Financials Global LargeCap Value, IXG
2.63% Telecommunications Global, IXP
2.63% Semiconductor H, SMH
2.51% China LargeCap Growth G D H USX PS, PGJ
2.50% Telecom DJ US, IYZ
2.48% Telecom Services VIPERs, VOX
2.47% Financial Services DJ, IYG
2.47% Consumer Staples SPDR, XLP
2.45% Ultra S&P500 Double, SSO
2.45% Energy SPDR, XLE
2.43% Europe 350 S&P Index, IEV
2.42% Energy Exploration & Prod, PXE
2.42% Biotech SPDR, XBI
2.40% Value S&P 500, RPV
2.40% Value Large Cap DJ, ELV
2.39% Europe 100 BLDRS, ADRU
2.39% Value VIPERs, VTV
2.37% Utilities VIPERs, VPU
2.36% Germany Index, EWG
2.34% EMU Europe Index, EZU
2.30% EAFE Index, EFA
2.28% Dividend SPDR, SDY
2.22% Value 40 Large Low P/E FT DB, FDV
2.21% Energy DJ, IYE
2.19% Capital Markets KWB ST, KCE
2.16% Oil, Crude, U.S. Oil Fund, USO
2.14% Switzerland Index, EWL
2.14% Energy VIPERs, VDE
2.14% Technology DJ US, IYW
2.11% Taiwan Index, EWT
2.10% LargeCap Rydex Rus Top 50, XLG
2.10% REIT Wilshire, RWR
2.07% LargeCap VIPERs, VV
2.04% Utilities, PUI
2.03% Retail H, RTH
2.01% Financial DJ US, IYF
1.98% Utilities SPDR, XLU
1.95% Technology Global, IXN
1.95% Value LargeCap Fundamental RAFI 1000, PRF
1.92% Growth LargeCap iS M, JKE
1.88% Dividend Growth PS, PHJ
1.86% United Kingdom Index, EWU
1.85% Real Estate US DJ, IYR
1.85% Financials VIPERs, VFH
1.84% Malaysia Index, EWM
1.83% Internet H, HHH
1.81% Health Care SPDR, XLV
1.81% Healthcare DJ, IYH
1.81% Networking, IGN
1.80% Consumer D. VIPERs, VCR
1.79% Consumer Discretionary SPDR, XLY
1.79% Blend Total Market VIPERs, VTI
1.79% Info Tech VIPERs, VGT
1.78% Pharmaceuticals, PJP
1.77% Consumer Non-Cyclical, IYK
1.75% Ultra MidCap400 Double, MVV
1.74% Commodity Tracking, DBC
1.73% Industrial LargeCap Blend DJ US, IYJ
1.73% Japan Index, EWJ
1.72% Technology SPDR, XLK
1.72% LargeCap Blend Russell 3000, IWV
1.70% LargeCap Blend S&P 1500 iS, ISI
1.69% LargeCap Blend Total Market DJ, IYY
1.68% Technology GS, IGM
1.66% LargeCap Blend Socially Responsible iS, KLD
1.65% Healthcare Global, IXJ
1.64% Semiconductor SPDR, XSD
1.61% LargeCap 1000 R, IWB
1.61% Value MidCap Dynamic PS, PWP
1.60% Consumer Staples VIPERs, VDC
1.59% Growth LargeCap NASDAQ 100, QQQQ
1.59% Industrials VIPERs, VIS
1.59% Pacific VIPERs, VPL
1.57% Health Care VIPERs, VHT
1.57% Technology MS sT, MTK
1.56% S&P 500 SPDRs LargeCap Blend, SPY
1.56% Value LargeCap Russell 3000, IWW
1.55% LargeCap Blend S&P 100, OEF
1.54% Dividend DJ Select, DVY
1.54% LargeCap Blend Dynamic PS, PWC
1.53% Growth EAFE MSCI, EFG
1.49% Dividend Appreciation Vipers, VIG
1.49% Biotech & Genome, PBE
1.49% Consumer Cyclical DJ, IYC
1.49% LargeCap Blend NYSE Composite iS, NYC
1.48% Pharmaceutical H, PPH
1.48% Value S&P 500 B, IVE
1.47% S&P 500 iS LargeCap Blend, IVV
1.46% Japan LargeCap Blend TOPIX 150, ITF
1.46% Growth VIPERs, VUG
1.45% Australia Index, EWA
1.45% Semiconductors, PSI
1.44% Semiconductor iS GS, IGW
1.41% Growth LargeCap Russell 3000, IWZ
1.41% Biotech H, BBH
1.41% Growth MidCap S&P 400, RFG
1.37% SmallCap PS Zacks, PZJ
1.37% MidCap Russell, IWR
1.34% Lg Cap Growth PSD, PWB
1.34% Value MidCap S&P 400, RFV
1.32% Growth LargeCap NASDAQ Fidelity, ONEQ
1.30% Value MidCap Russell, IWS
1.29% Natural Resource iS GS, IGE
1.27% WilderHill Clean Energy PS, PBW
1.23% Growth Small Cap DJ, DSG
1.22% Value Small Cap DJ, DSV
1.20% Growth 1000 Russell, IWF
1.20% SmallCap Core iS M, JKJ
1.19% Growth SmallCap iS M, JKK
1.19% Oil & Gas, PXJ
1.19% MidCap Blend Core iS M, JKG
1.18% Value LargeCap NYSE 100 iS, NY
1.17% Value LargeCap iS M, JKF
1.14% Dividend Achievers PS, PFM
1.12% Oil Services H, OIH
1.11% Value 1000 Russell, IWD
1.11% Growth Large Cap, ELG
1.09% Aerospace & Defense, PPA
1.07% Retail, PMR
1.05% Extended Mkt VIPERs, VXF
1.04% Value Line Timeliness MidCap Gr, PIV
1.03% MidCap VIPERs, VO
1.02% Ultra QQQ Double, QLD
0.98% MidCap Growth iS M, JKH
0.94% Growth SmallCap R 2000, IWO
0.92% Micro Cap Zachs, PZI
0.90% Small Cap VIPERs, VB
0.89% Growth MidCap 400 B, IJK
0.87% Transportation Av DJ, IYT
0.83% Growth S&P 500, RPG
0.82% IPOs, First Tr IPOX-100, FPX
0.82% Software H, SWH
0.82% Value SmallCap VIPERS, VBR
0.82% Value SmallCap Dynamic PS, PWY
0.80% MidCap S&P 400 SPDRs, MDY
0.79% Industrial SPDR, XLI
0.79% Dividend High Yield Equity PS, PEY
0.74% Growth S&P 500/BARRA, IVW
0.72% Leisure & Entertainment, PEJ
0.68% Singapore Index, EWS
0.66% Software, PSJ
0.61% Microcap Russell, IWC
0.61% Growth BARRA Small Cap 600, IJT
0.60% MidCap S&P 400 iS, IJH
0.59% OTC Dynamic PS, PWO
0.58% Growth SmallCap VIPERs, VBK
0.58% Food & Beverage, PBJ
0.56% Insurance, PIC
0.54% LargeCap Blend Core iS M, JKD
0.51% SmallCap Russell 2000, IWM
0.51% Software, IGV
0.48% Growth MidCap Russell, IWP
0.47% Realty Cohen & Steers, ICF
0.43% Bond, Corp, LQD
0.43% Networking, PXQ
0.43% Growth Mid Cap Dynamic PS, PWJ
0.42% Value SmallCap S&P 600, RZV
0.39% Growth SmallCap Dynamic PS, PWT
0.38% Value MidCap S&P 400 B, IJJ
0.37% Value SmallCap S&P 600 B, IJS
0.31% Pacific ex-Japan, EPP
0.26% SmallCap S&P 600, IJR
0.24% Austria Index, EWO
0.14% Basic Materials DJ US, IYM
0.04% Value MidCap iS M, JKI
0.00% Building & Construction, PKB
-0.04% Bond, TIPS, TIP
-0.10% LargeCap Blend S&P=Weight R, RSP
-0.13% Materials VIPERs, VAW
-0.18% Bond, 1-3 Year Treasury, SHY
-0.18% Bond, Aggregate, AGG
-0.19% Canada Index, EWC
-0.19% Belgium Index, EWK
-0.20% Bond, 20+ Years Treasury, TLT
-0.20% Value SmallCap Russell 2000, IWN
-0.28% Metals & Mining SPDR, XME
-0.28% Materials SPDR, XLB
-0.30% Gold Shares S.T., GLD
-0.30% Bond, 10 Year Treasury, IEF
-0.38% Nanotech Lux, PXN
-0.46% Silver Trust iS, SLV
-0.46% Water Resources, PHO
-0.48% Value SmallCap iS M, JKL
-0.51% Short 200% QQQ PS, QID
-1.05% Short 100% MidCap 400, MYY
-1.22% Hardware & Electronics, PHW
-1.36% Short 100% QQQ, PSQ
-1.67% Short 200% MidCap 400 PS, MZZ
-1.78% Short 100% Dow 30, DOG
-2.00% Short 100% S&P 500, SH
-2.98% Biotechnology, IBB
-2.98% Short 200% Dow 30 PS, DXD
-3.29% Short 200% S&P 500 PS, SDS
-4.24% Internet B2B H, BHH