By Robert W. Colby, Senior Analyst TraderPlanet.com

MELTDOWN?

Stocks were down big (4% to 7%) worldwide over this past weekend while the U.S. was on a 3-day holiday.

Look for a volatile session when U.S. markets open on Tuesday.

RSI-14 was already extremely oversold at 25 as of Friday’s close, but it could get worse. It was below 17 in 2001.

Prices may try an oversold bounce after a big gap down on the open.

But the first bounce can be brief, followed by further waves of selling and testing of whatever support may develop.

In times of global financial crisis, U.S. Treasury Bonds and the U.S. dollar can be temporary safe havens.

On Friday, major stock price indexes fell steeply on news of President Bush’s $145 billion tax relief proposal. Pundits said they were disappointed in its size and scope. Volume on the NYSE rose 3%, confirming the weak stock price trend.

Pundits had hoped for government help for the troubled financial sector, which has been sinking under the weight of new and overly complex instruments of financial mass destruction gone bad. Few ever really understood these instruments, but many bought and sold them anyway. After all, they had high credit ratings—until the assumptions proved wrong. And even if the U.S. government did come up with something for the financial sector, the trouble goes well beyond the U.S. because foreign financial institutions also bought securities containing repackaged mortgages that have gone sour. Global institutional capital has been lost. Normal lending activity has been impaired. The full extent of the worldwide credit problem is still unknown. Such uncertainty alone is impeding the normal flow of business. The latest news seems to indicate that the problem is much worse than most pundits thought.

Underlying fundamental trends appear hostile to stocks. More relatively weak economic and corporate earnings reports appear probable for the weeks ahead.

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

1.03% , IAH , Internet Architecture H, IAH
9.30% , XMSR , XM Satellite R
12.49% , XLNX , XILINX
1.95% , XSD , Semiconductor SPDR, XSD
11.51% , AMD , ADV MICRO DEV
5.20% , SIRI , Sirius Satellite
8.75% , WM , WASHINGTON MUT
7.04% , SEE , SEALED AIR
2.28% , IBM , IBM
3.29% , ALTR , ALTERA
2.21% , CA , COMPUTER ASSOC
1.59% , EZA , South Africa Index, EZA
2.21% , BMC , BMC SOFTWARE
1.97% , VPL , Pacific VIPERs, VPL
3.35% , KSU , Kansas City Southern, KSU
1.99% , MRVL , MARVELL TECHNOLOGY
3.19% , LPX , LOUISIANA PAC
3.29% , SRCL , Stericycle, SRCL
2.27% , PETM , PETsMART Inc
1.27% , EFG , Growth EAFE MSCI, EFG
4.89% , JCP , JC PENNEY
0.61% , PHW , Hardware & Electronics, PHW
1.96% , WWY , WM WRIGLEY JR
1.75% , SNPS , Synopsys Inc
4.69% , WYNN , Wynn Resorts L
5.42% , DRI , DARDEN REST
0.35% , PSJ , Software, PSJ
4.71% , LRCX , LAM RESEARCH CORP
2.49% , CTXS , CITRIX SYSTEMS
2.25% , MTB , M&T BANK
2.86% , EWT , Taiwan Index, EWT
1.45% , FAST , Fastenal Company
1.38% , AN , AUTONATION
4.57% , EXPD , Expeditors International WA
1.99% , IP , INTL PAPER
2.10% , AZO , AUTOZONE
1.76% , MWV , MEADWESTVACO
3.33% , FDO , FAMILY DLR STRS
3.15% , DDS , DILLARD STK A
1.76% , GR , GOODRICH CORP
2.10% , HAS , HASBRO
3.01% , CTB , COOPER TIRE
2.19% , VWO , Emerging VIPERs, VWO
0.50% , MKC , MCCORMICK
2.34% , ISIL , INTERSIL CORP
0.22% , IGE , Natural Resource iS GS, IGE
3.24% , GT , GOODYEAR TIRE
2.09% , RIG , TRANSOCEAN
2.11% , ADI , ANALOG DEVICES
3.31% , GE , GENERAL ELECTRIC

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

-24.81% , S , SPRINT NEXTEL
-2.75% , PIC , Insurance, PIC
-8.40% , HGSI , Human Genome Sciences Inc
-3.65% , TTH , Telecom H, TTH
-2.02% , RZV , Value SmallCap S&P 600, RZV
-3.62% , SLB , SCHLUMBERGER
-2.08% , XBI , Biotech SPDR, XBI
-9.49% , CFC , COUNTRYWIDE FNCL
-8.14% , FNM , FANNIE MAE
-1.07% , DSV , Value Small Cap DJ, DSV
-1.42% , UTH , Utilities H, UTH
-4.78% , A , AGILENT TECH
-4.15% , WAT , WATERS
-4.45% , VZ , VERIZON COMMS
-4.13% , WEN , WENDYS INTL
-1.23% , IYK , Consumer Non-Cyclical, IYK
-1.77% , PTE , Telecommunications & Wireless, PTE
-3.70% , CEG , CONSTELL ENERGY
-1.48% , IDU , Utilities DJ, IDU
-1.23% , PEJ , Leisure & Entertainment, PEJ
-4.21% , AFL , AFLAC
-4.06% , HIG , HARTFORD FINL
-1.91% , PUI , Utilities, PUI
-4.13% , GNTX , Gentex Corporation
-2.97% , MIL , MILLIPORE
-5.18% , JCI , JOHNSON CONTROLS
-2.34% , VFH , Financials VIPERs, VFH
-1.01% , JKK , Growth SmallCap iS M, JKK
-1.48% , VPU , Utilities VIPERs, VPU
-0.66% , JKJ , SmallCap Core iS M, JKJ
-2.70% , TDC , Teradata Corporation, TDC
-1.37% , JKL , Value SmallCap iS M, JKL
-3.19% , T , AT&T Corp., T
-0.95% , DSG , Growth Small Cap DJ, DSG
-3.31% , CZN , CITIZENS COMMS STK B
-4.42% , CB , CHUBB
-1.80% , BBH , Biotech H, BBH
-5.10% , PRU , PRUDENTIAL FINL
-6.08% , HBAN , HUNTINGTON
-1.99% , BUD , ANHEUSER BUSCH
-2.69% , LNC , LINCOLN NATL
-1.73% , IWC , Microcap Russell, IWC
-1.28% , ODP , OFFICE DEPOT
-2.67% , MHP , MCGRAW HILL
-4.73% , DISCA , Discovery Holding Co.
-2.05% , SBUX , STARBUCKS
-1.09% , IWD , Value 1000 Russell, IWD
-1.73% , NBR , NABORS
-4.09% , AIG , AMER INTL GROUP
-4.88% , FRE , FREDDIE MAC

Sectors: among the 9 major U.S. sectors, 2 rose and 7 fell.

Major Sectors Ranked for the Day
% Price Change, Sector

1.14% Materials
0.51% Energy
-0.20% Industrial
-0.47% Consumer Discretionary
-1.16% Financial
-1.45% Consumer Staples
-1.48% Utilities
-1.62% Health Care
-1.74% Technology

Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):

Utilities (XLU) Bullish, Overweight. This defensive sector performs best when investors worry about a recession. Relative Strength made a new all-time high on 1/9/08, and Price made a new all-time high on 12/10/07.

Energy (XLE) Bullish, Overweight. Price hit a new 4-month low on 1/17/08. On 1/3/08, both XLE Price and Relative Strength made new all-time highs. XLE has been strong compared to the S&P since 3/12/03.

Health Care (XLV) Bullish, Overweight. XLV price moved up to a new 6-month high on 12/3/07. Relative Strength moved up to a new 26-month high on 1/17/08.

Consumer Staples (XLP) Bullish, Overweight. This defensive sector performs best when investors worry about a recession. Price made a new all-time high on 12/10/07, and Relative Strength made a new 3-year high on 1/17/08.

Materials (XLB) Bullish, Overweight. The XLB/SPY Relative Strength Ratio made a new all-time high on 1/14/08. Price hit a new 5-month low on 1/17/08 but made new all-time high on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.

Technology (XLK) Bearish, Underweight. On 1/18/08, price made a new 10-month low. On 1/16/08, Relative Strength made a new 4-month low. XLK/SPY has underperformed since 11/5/07.

Industrial (XLI) Bearish, Underweight. On 1/17/08, price made a new 10-month low. On 1/11/08, Relative Strength made a new 6-month low. XLI/SPY has underperformed since 8/3/07.

Consumer Discretionary (XLY) Bearish, Underweight. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years. On 1/18/08, XLY price made a new 41-month low. Relative Strength has been trending down since 1/5/05.

Financial (XLF) Bearish, Underweight. On 1/18/08, price fell to a new 4-year low. On 1/8/08, Relative Strength fell to a new 7-year low. These confirmed a Bearish major trend.

Foreign stock indexes remain in downtrends. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) underperformed since 11/27/07. Previously, EFA outperformed from 2002 to 11/27/07.

NASDAQ Composite price fell to a new 14month low on 1/18/08. Relative Strength underperformed the S&P since 11/7/07.

Growth Stock/Value Stock Relative Strength Ratio has underperformed moderately since the peak on 11/7/07. It may be an intermediate-term consolidation or correction phase. The Growth/Value ratio (IWF/IWD) was in a rising trend from 8/8/06 to 1/7/07.

The Small Cap/Large Cap Relative Strength Ratio broke down to a new 2.5-year low on 1/11/07. It has been trending down since 4/19/06. The main long-term trend is Relatively Bearish for Small Caps.

Crude Oil Futures remain in a downtrend and could test December’s low at 85.82. Oil is down steeply from 100.09 on 1/6/08, and it’s short-term trend might be approaching oversold. The 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 has underperformed Crude Oil since 12/10/07.

February Gold Futures fell to a 2-week low. A minor correction could extend further. Gold’s main trend remains obviously Bullish.

Silver’s main trend is Bearish compared to Gold. The iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.

The Gold Miners ETF (GDX) has underperformed Gold futures since 10/31/07.

Inflation expectations have been heading down. They have been weak since the peak on 11/12/07, based on the behavior of the ratio of two ETFs, TIP/IEF.

U.S. Treasury Bond prices moved to new 4.5-year highs. Bonds’ short-term trend has been Bullish since 12/26/07, and the main long-term trend remains Bullish. Bonds remain reactive to news about the credit crisis: the worse the credit crisis, the higher the Bond prices; the better the credit crisis, the lower the Bond prices.

The U.S. dollar might be a safe haven. It broke out to a new 4-week high while the U.S. markets were on holiday on Monday. On 1/15/08, the dollar seemed to find support above the oversold low at 74.65 set on 11/23/07. There could be overhead resistance at the 77.86 high of 12/20/07. The main trend remains Bearish.

The Art of Contrary Thinking: The mood has been moving away from optimism as stock prices move lower. Sentiment is far from a level associated with extreme pessimism. So, crowd psychology could get more Bearish before it is over. The business and financial news has flipped from Bearish to Bullish and back again. Investors’ moods and stock volatility have jumped up and down abruptly with the latest news. When everything shifts so dramatically from one day to the next, risk control becomes more important than aggressive profit seeking. Stay flexible.

Sentiment/Contrary Opinion: Bullish opinion is moderately below normal. According to the weekly Investors Intelligence newsletter survey as of 1/16/08, there were 45.6% Bulls and 26.7% Bears. The ratio of Bullish advisors to Bearish advisors fell to 1.71 to 1, which below its 4-year simple moving average at 2.14 and its 4-year median at 2.17. The ratio’s 4-year range is 1.00 to 3.46.

VIX “Fear Index”, now at 27.18, up from 18.47 on 12/21/08, is relatively normal by Bear Market standards (around 20 to 40), but relatively high by Bull Market standards (around 10 to 20). VIX peaked at 31.09 on 11/12/07 and bottomed at 18.47 on 12/21/07. Longer term, VIX has been in a rising trend since it hit a 13-year low of 9.89 on 1/24/07. The all-time high was 45.74 on 10/8/98. 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 30.23, up from 20.90 on 12/21/08, is relatively low by Bear Market standards (around 35 to 80), but relatively high by Bull Market standards (around 12 to 26). VXN peaked at 34.94 on 11/12/07 and bottomed at 20.90 on 12/21/07. Longer term, VXN has been in a rising trend since it hit its all-time low of 12.61 on 7/29/05. The all-time high was 114.23 on 10/8/98. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.

CBOE Put/Call Ratio rose to 1.05 on 1/15/07, indicating pessimistic sentiment. It is above its 4-year simple moving average and median at 0.62. That means there was more trading activity in put options and less in call options than normal. Its 4-year range is 0.35 to 1.28.

ISEE Call/Put Ratio fell to 0.60 on 1/17/07, indicating pessimistic sentiment. It is below its 4-year simple moving average at 1.50 and its 4-year median at 1.47. That means customers opened fewer long call options and more long put options than normal. Its 4-year range is 0.51 to 3.04.

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 are weakening.

The Primary Tide Major Trend turned Bearish, and that is a strong force. The Dow Theory

confirmed a Primary 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. On 11/7/07, the Transports closed below their August low. Then on 11/21/07, the Dow-Jones Industrial Average closed below its 8/16/07 closing price low of 12,845.78, thereby turning the Primary Tide Bearish.

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

3.53% Hong Kong
2.86% Taiwan
2.63% Japan
2.58% South Korea
2.43% Semiconductors
1.93% Mexico
1.56% Brazil
1.48% Australia
1.43% Chemicals
1.14% Materials
1.09% Gold Mining
0.99% Singapore
0.96% Oil
0.95% Dow Transports
0.88% Austria
0.79% Retailers
0.57% Commodity Related
0.55% Paper
0.51% Energy
0.45% Computer Tech
0.39% Malaysia
0.33% Airlines
0.33% Sweden
0.33% Switzerland
0.32% United Kingdom
0.31% Canadian Dollar
0.27% Hardware
0.24% Spain
0.20% US Dollar Index
0.11% Nasdaq 100
0.10% DOT
0.05% Network
-0.06% Internet
-0.07% Swiss Franc
-0.09% Japanese Yen
-0.11% Canada
-0.12% Natural Gas
-0.14% France
-0.20% Industrial
-0.23% Italy
-0.27% NYSE Composite
-0.29% Nasdaq Composite
-0.30% Dow Composite
-0.33% AMEX Composite
-0.33% Australian Dollar
-0.34% Germany
-0.36% S&P Mid Caps
-0.36% Euro Index
-0.42% 30Y T-Bond
-0.47% Consumer Discretionary
-0.49% Dow Industrial
-0.56% Russell 1000
-0.60% S&P 500
-0.60% Russell 3000
-0.61% Wilshire 5000
-0.63% Value Line
-0.65% Oil Services
-0.75% S&P 100
-0.78% S&P Small Caps
-0.82% Broker Dealers
-0.86% British Pound
-1.09% Russell 2000
-1.11% Drugs
-1.16% Financial
-1.16% Netherlands
-1.24% REITs
-1.39% Insurance
-1.45% Consumer Staples
-1.46% Dow Utilities
-1.47% Banks
-1.48% Utilities
-1.48% Health Care Products
-1.51% Belgium
-1.58% Disk Drives
-1.59% Health Care
-1.62% Health Care
-1.66% Hospitals
-1.74% Technology
-2.90% Biotechs