By Robert W. Colby, Senior Analyst

Stocks rise but volume falls.
Fed rate cut already discounted?

Technology stock sector Relative Strength made a new 7-month low.

Gold Futures made another new all-time high, again confirming the major uptrend.

The U.S. dollar fell below the lows of the previous 7 trading days, confirming the short-term downtrend.

The stock market remains vulnerable to bad news, and further waves of selling could hit at any time.

On Monday, major stock price indexes recovered Friday’s loss but volume did not confirm the price reversal to the upside. Volume on the NYSE fell 16%, suggesting uncertainty and hesitation.

Investors anticipated another 50 basis point rate cut to be announced by the Fed at 2:15 p.m. on Wednesday. Fed funds futures indicated an 88% chance of such a cut. It is already discounted, and so a smaller cut would disappoint. Some pundits are skeptical that another rate cut would help much anyway.

Major underlying technical trends remain Bearish for stocks. In addition, underlying fundamental trends appear difficult, at best. There is a sense that problems are already baked into the cake, in the pipeline. Trouble is coming, and it is too late to prevent it, no matter what governments or the Fed may do.

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

9.27% , ACV , Alberto-Culver Co.
2.70% , PIC , Insurance, PIC
9.62% , NYT , NY TIMES STK A
1.25% , UTH , Utilities H, UTH
0.68% , PEJ , Leisure & Entertainment, PEJ
2.37% , RFG , Growth MidCap S&P 400, RFG
6.57% , SIRI , Sirius Satellite
1.86% , PUI , Utilities, PUI
1.70% , ISI , LargeCap Blend S&P 1500 iS, ISI
1.89% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
1.36% , PWT , Growth SmallCap Dynamic PS, PWT
2.87% , PXN , Nanotech Lux, PXN
1.15% , IIH , Internet Infrastructure H, IIH
6.09% , ROH , ROHM & HAAS
3.13% , EWI , Italy Index, EWI
2.73% , EWN , Netherlands Index, EWN
1.98% , VOX , Telecom Services VIPERs, VOX
5.94% , AZO , AUTOZONE
4.70% , EWK , Belgium Index, EWK
2.27% , VBR , Value SmallCap VIPERS, VBR
2.92% , KCE , Capital Markets KWB ST, KCE
2.19% , VCR , Consumer D. VIPERs, VCR
1.19% , PWJ , Growth Mid Cap Dynamic PS, PWJ
2.25% , IWS , Value MidCap Russell, IWS
3.14% , VFH , Financials VIPERs, VFH
2.45% , PHJ , Dividend Growth PS, PHJ
1.69% , TMW , Wilshire 5000 ST TM, TMW
2.03% , IXP , Telecommunications Global, IXP
1.68% , PXQ , Networking, PXQ
3.57% , BMS , BEMIS
2.37% , JKJ , SmallCap Core iS M, JKJ
1.66% , JKK , Growth SmallCap iS M, JKK
0.65% , IXC , Energy Global, IXC
3.41% , ICF , Realty Cohen & Steers, ICF
0.75% , PSJ , Software, PSJ
2.04% , VO , MidCap VIPERs, VO
1.42% , EWP , Spain Index, EWP
1.98% , VB , Small Cap VIPERs, VB
4.10% , K , KELLOGG
1.99% , JKG , MidCap Blend Core iS M, JKG
1.17% , IWZ , Growth LargeCap Russell 3000, IWZ
6.14% , BBY , BEST BUY
2.70% , PWV , Value LargeCap Dynamic PS, PWV
1.74% , IWP , Growth MidCap Russell, IWP
2.24% , TTH , Telecom H, TTH

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

-5.60% , MCD , MCDONALDS
-2.43% , NOVL , NOVELL
-2.29% , TNB , THOMAS & BETTS
-1.13% , HHH , Internet H, HHH
-3.85% , SSCC , Smurfit-Stone Container Corporation
-1.16% , HOLX , Hologic, Inc., HOLX
-5.29% , YHOO , YAHOO
-1.63% , YUM , YUM BRANDS
-1.39% , IP , INTL PAPER
-1.78% , MCO , MOODYS CORP
-1.12% , EWS , Singapore Index, EWS
-1.00% , CHKP , Check Point Software Technologies Ltd
-0.74% , RX , IMS HEALTH
-0.24% , IVGN , Invitrogen Corporation
-0.05% , ASH , ASHLAND
-0.12% , TIP , Bond, TIPS, TIP
-0.13% , EWO , Austria Index, EWO
-0.14% , BDK , BLACK & DECKER
-0.77% , DOV , DOVER
-0.20% , CVS , CVS
-0.03% , LQD , Bond, Corp, LQD
-0.41% , HSIC , Henry Schein Inc
-0.20% , EWC , Canada Index, EWC
-0.56% , LLL , L-3 COMMS HLDGS

Sectors: among the 9 major U.S. sectors, all 9 rose.
Major Sectors Ranked for the Day
% Price Change, Sector

3.57% Financial
2.27% Energy
1.98% Materials
1.65% Consumer Discretionary
1.57% Utilities
1.48% Industrial
1.27% Health Care
0.79% Consumer Staples
0.44% Technology

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

Energy (XLE) Bullish, Overweight. Price hit a new 5-month low on 1/22/08. 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.

Materials (XLB) Bullish, Overweight. Price touched a new 5-month low on 1/23/08. The XLB/SPY Relative Strength Ratio made a new all-time high on 1/14/08. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.

Consumer Staples (XLP) Bullish, Overweight. Price touched a new 15-month low on 1/22/08. Price made a new all-time high on 12/10/07, and Relative Strength made a new 3-year high on 1/17/08.

Utilities (XLU) Bullish, Overweight. Price touched a new 12-month low on 1/22/08. Relative Strength made a new all-time high on 1/9/08, and Price made a new all-time high on 12/10/07.

Health Care (XLV) Bullish, Overweight. Price touched a new 18-month low on 1/22/08. Relative Strength moved up to a new 26-month high on 1/17/08.

Industrial (XLI) Bearish, Underweight. Price touched a new 16-month low on 1/22/08. On 1/11/08, Relative Strength made a new 6-month low. XLI/SPY has underperformed since 8/3/07.

Technology (XLK) Bearish, Underweight. Price touched a new 17-month low on 1/22/08. On 1/28/08, Relative Strength made a new 7-month low. XLK/SPY has underperformed since 11/5/07.

Consumer Discretionary (XLY) Bearish, Underweight. Price touched a new 4-year low on 1/22/08. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years.

Financial (XLF) Bearish, Underweight. Price touched a new 4-year low on 1/22/08. 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. EFA price fell to a new 17-month low on 1/23/08. 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 touched a new 15-month low on 1/23/08. Relative Strength underperformed the S&P since 11/7/07.

Growth Stock/Value Stock Relative Strength Ratio has underperformed since the peak on 11/7/07. The Growth/Value ratio (IWF/IWD) appears to be in an intermediate-term correction phase.

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 rose again, confirming the short-term uptrend. Oil found support just above December’s low at 85.82. Oil is down steeply from 100.09 on 1/6/08. 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.

Gold Futures made another new all-time high, again confirming that all of Gold’s trends remain Bullish.

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

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

Inflation expectations have stabilized since the low on 12/5/07, based on the behavior of the ratio of two ETFs, TIP/IEF.

U.S. Treasury Bond prices eased slightly lower but look Bullish. Bonds were strongly Bullish from 12/26/07 to 1/23/08, and the major 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 fell below the lows of the previous 7 trading days, confirming the short-term downtrend. The dollar could retest support down toward 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 1/23/08, there were 41.6% Bulls and 31.5% Bears. The ratio of Bullish advisors to Bearish advisors fell to 1.32 to 1, which below its 38-year median at 1.47. The ratio’s 38-year range is 0.28 to 17.51.

VIX “Fear Index”, now at 27.78 and falling, is relatively normal by Bear Market standards (around 20 to 40) but relatively high by Bull Market standards (around 10 to 20). 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 32.56 and falling, is relatively low by Bear Market standards (around 35 to 80) but relatively high by Bull Market standards (around 12 to 26). 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 have been 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:

4.70% Belgium
3.78% Broker Dealers
3.62% Banks
3.57% Financial
3.52% REITs
3.38% Airlines
3.13% Italy
3.00% Retailers
2.73% Netherlands
2.70% Germany
2.65% Insurance
2.32% S&P Mid Caps
2.27% Energy
2.22% Commodity Related
2.20% Chemicals
2.14% Hardware
2.12% Value Line
2.12% Natural Gas
2.05% S&P Small Caps
2.02% Oil Services
2.00% Russell 2000
1.98% Materials
1.83% Russell 3000
1.81% Russell 1000
1.81% Network
1.81% France
1.77% Wilshire 5000
1.75% S&P 500
1.75% Biotechs
1.72% Australia
1.71% NYSE Composite
1.69% Drugs
1.65% Consumer Discretionary
1.64% S&P 100
1.59% Sweden
1.58% Gold Mining
1.57% Utilities
1.53% Health Care
1.48% Industrial
1.48% Semiconductors
1.45% Dow Industrial
1.42% Spain
1.41% Malaysia
1.40% Dow Utilities
1.40% Mexico
1.39% Disk Drives
1.33% Dow Composite
1.32% Hospitals
1.27% Health Care
1.26% Oil
1.19% Health Care Products
1.08% Dow Transports
1.02% Nasdaq Composite
0.97% Australian Dollar
0.89% Nasdaq 100
0.87% Switzerland
0.80% Hong Kong
0.79% Consumer Staples
0.77% Euro Index
0.67% Swiss Franc
0.44% Technology
0.39% Internet
0.27% DOT
0.25% Canadian Dollar
0.24% Brazil
0.21% British Pound
0.15% AMEX Composite
0.15% United Kingdom
0.11% Japanese Yen
0.08% 30Y T-Bond
0.04% Computer Tech
-0.13% Austria
-0.20% Canada
-0.22% Paper
-0.36% Taiwan
-0.53% US Dollar Index
-0.56% Japan
-0.92% South Korea
-1.12% Singapore