by Robert W. Colby, Senior Analyst,

Stock Market: prices recovered a normal fraction of Monday’s steep loss. But volume fell.

Big directional price moves are typically followed by reactions in the opposite direction.

All significant trends remain Bearish.

With financialrescue news still pending, look for sudden changes in days ahead, perhaps in one direction, then in another.

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

It remains an uncertain, high-risk tradingenvironment.

Focus on capital preservation.

On Tuesday, major stocks indexes opened higher and continued to work their way irregularly higher throughout the trading session. Stocks recovered a normal fraction of Monday’s steep loss. Prices closed near their best levels of the day. The Standard & Poor’s 500 cash index (1,166.36) closed up 59.97 points, or 5.42%. Total NYSE volume fell 19%, indicating diminished interest in trading stocks.

An astute reader asked, “What are the signs of a selling climax?” I think that Monday’s action was A selling climax…but perhaps not THE selling climax. Monday saw the biggest percentage price drop in the S&P 500 since the Crash of ’87 on 10/19/87, record high VIX, more than 9 to 1 ratios of Declines to Advances and Down Volume to Up Volume, and a fair increase in total volume. Still, I would have liked to have seen much greater total volume, much higher put/call ratios, and maybe some kind of trading halt due to overwhelming sell orders hitting the market. While Monday’s action qualified as a moderate selling climax, but I doubt that was IT. Sometimes, bottoms are made after multiple selling climaxes. This could be one of those times.

All trends remain Bearish. 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.

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

3.97% , FDV , Value 40 Large Low P/E FT DB, FDV
11.07% , TBH , Telebras HOLDRS, TBH*
7.87% , VWO , Emerging VIPERs, VWO
13.96% , EZA , South Africa Index, EZA
4.12% , JKH , MidCap Growth iS M, JKH
6.56% , EWK , Belgium Index, EWK
3.77% , VBR , Value SmallCap VIPERS, VBR
4.05% , JKE , Growth LargeCap iS M, JKE
2.94% , ROH , ROHM & HAAS
17.89% , PWER , POWER ONE
1.11% , PUI , Utilities, PUI
24.70% , F , FORD MOTOR
5.77% , TNB , THOMAS & BETTS
4.91% , CR , CRANE
4.31% , DGT , Global Titans, DGT
22.73% , BHH , Internet B2B H, BHH
6.83% , IXC , Energy Global, IXC
2.13% , PHJ , Dividend Growth PS, PHJ
10.44% , AIV , APT INV MNGMT
2.31% , PSJ , Software, PSJ
3.76% , PKB , Building & Construction, PKB
7.20% , IIH , Internet Infrastructure H, IIH
6.32% , EWU , United Kingdom Index, EWU
3.57% , QLGC , QLOGIC
2.76% , ABI , Applera Corp-Applied Biosystems Group (ABI)
3.92% , VB , Small Cap VIPERs, VB
8.61% , PDCO , Patterson Dental Company
2.18% , IBM , IBM
3.67% , KSU , Kansas City Southern, KSU
9.64% , PTEN , Patterson-UTI Energy Inc
12.60% , FMCN , Focus Media, FMCN
6.09% , IWN , Value SmallCap Russell 2000, IWN

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

-7.43% , CTB , COOPER TIRE
-4.02% , SVU , SUPERVALU
-5.17% , PSQ , Short 100% QQQ, PSQ
-2.65% , LNCR , Lincare Holdings Inc
-4.44% , SH , Short 100% S&P 500, SH
-5.86% , GNTX , Gentex Corporation
-8.06% , SIRI , Sirius Satellite
-2.93% , PWY , Value SmallCap Dynamic PS, PWY
-1.70% , RHT , Red Hat Inc.
-10.39% , GOOG , Google
-1.72% , TIP , Bond, TIPS, TIP
-1.17% , SRCL , Stericycle, SRCL
-1.28% , BLL , BALL
-0.74% , ERIC.O , LM Ericsson Telephone Company
-0.97% , AZO , AUTOZONE
-3.26% , MYY , Short 100% MidCap 400, MYY
-2.96% , BIG , BIG LOTS
-1.20% , DLTR , Dollar Tree Stores Inc
-0.07% , PMR , Retail, PMR
-1.41% , SANM , SANMINA
-1.15% , SYY , SYSCO
-2.54% , FPL , FPL GROUP INC
-1.37% , CEPH , Cephalon Inc
-1.16% , GRMN , GARMIN LTD
-0.60% , PTV , PACTIV
-0.13% , WAG , WALGREEN
-0.03% , EXPD , Expeditors International WA

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

7.11% Financial SPDR, XLF
6.12% Energy SPDR, XLE
4.47% Technology SPDR, XLK
3.53% Consumer Staples SPDR, XLP
2.20% Consumer Discretionary SPDR, XLY
2.14% Materials SPDR, XLB
1.56% Utilities SPDR, XLU
0.98% Industrial SPDR, XLI
-0.33% Health Care SPDR, XLV

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 9/29/08, the XLV/SPY Relative Strength Ratio moved up to a new 4-year high, confirming a long-term uptrend.

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.

Utilities (XLU) Bearish, Underweight. On 9/29/08, the XLU absolute price fell to another 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.

Industrial (XLI) Bearish, Underweight. On 9/29/08, the XLI absolute price hit a new 35-month low, indicating long-term trend weakness. On 9/24/08, the XLI/SPY Relative Strength Ratio broke down to a new 3-month low.

Energy (XLE) Bearish, Underweight. On 9/29/08, the XLE absolute price fell to a new 18-month intraday low, indicating significant trend weakness.

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

Materials (XLB) Bearish, Underweight. On 9/29/08, the XLB absolute price hit a new 23-month intraday low, indicating significant trend weakness.

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 underperformed the S&P 500 since 11/27/07. EFA absolute price fell to a new 3-year low on 9/29/08 and has been in a falling trend since 10/31/07. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.

NASDAQ Composite remains Bearish. On 9/29/08, absolute price broke down to a new 3-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 9/29/08.

Growth Stock/Value Stock Relative 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 rebounded part-way back. The short-term trend looks more Bearish than Bullish. 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 5/30/07.

Gold futures contract price moved below previous 6-day lows, reflecting an opposite reaction to the stock rally. 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 fell steeply, erasing all of Monday’s steep gain. Bonds seem difficult to predict short term. 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 price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows on 9/29/08. All trends remain Bearish. Bond investors appear to be seriously concerned about the economic outlook.

iShares Lehman TIPS Bond (TIP) ETF fell steeply. All trends remain relatively weak. On 9/30/08, 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 moved above previous 8-day highs, reflecting a flight to cash. Still, the short-term trend appears questionable. On 9/22/08, the dollar fell steeply to its lowest level in 6 weeks.

The Art of Contrary Thinking: Tradersneed 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 39.39, has fallen from the all-time high peak at 46.72 set on 9/29/08. 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 42.59, has fallen from the 6-year peak at 49.56 set on 9/29/08. 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 0.73, which indicates Bearish 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 reconfirmed a Primary Tide Bear Market on 9/29/08, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their lowest closing prices of March through September, 2008. These two Averages originally confirmed a Primary Tide Bear Market on 11/21/07, when both closed below their closing price lows of August, 2007.

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 9/29/08, 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 (1,166.36):

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
1,220.03, high of 9/25/2008

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 (1,166.36):

Potential Support
1106.39, low of 9/29/2008
1060.72, low of 8/13/2004

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

22.73% Internet B2B H, BHH
13.96% South Africa Index, EZA
11.63% China 25 iS, FXI
11.16% Latin Am 40, ILF
10.43% Brazil Index, EWZ
10.39% Ultra QQQ Double, QLD
9.77% Bond, Corp, LQD
8.84% Value LargeCap Dynamic PS, PWV
8.82% Growth EAFE MSCI, EFG
8.78% Emerging 50 BLDRS, ADRE
8.10% Emerging Markets, EEM
7.91% Dividend Achievers PS, PFM
7.87% Emerging VIPERs, VWO
7.32% Ultra MidCap400 Double, MVV
7.31% Dividend International, PID
7.30% Technology MS sT, MTK
7.24% India Earnings WTree, EPI
7.20% Internet Infrastructure H, IIH
7.11% Financial SPDR, XLF
6.95% Lg Cap Growth PSD, PWB
6.86% Internet H, HHH
6.83% Energy Global, IXC
6.80% South Korea Index, EWY
6.56% Belgium Index, EWK
6.53% Value SmallCap S&P 600, RZV
6.50% Realty Cohen & Steers, ICF
6.45% Value EAFE MSCI, EFV
6.45% Hong Kong Index, EWH
6.41% Taiwan Index, EWT
6.38% Oil, Crude, U.S. Oil Fund, USO
6.37% Financial Services DJ, IYG
6.32% United Kingdom Index, EWU
6.14% Financials Global LargeCap Value, IXG
6.12% Energy SPDR, XLE
6.09% Value SmallCap Russell 2000, IWN
6.07% EAFE Index, EFA
6.02% Pacific ex-Japan, EPP
5.90% Mexico Index, EWW
5.89% Ultra S&P500 Double, SSO
5.81% Financial DJ US, IYF
5.75% Broadband H, BDH
5.75% Singapore Index, EWS
5.55% Metals & Mining SPDR, XME
5.44% Oil Services H, OIH
5.42% China LargeCap Growth G D H USX PS, PGJ
5.38% Networking, IGN
5.35% Growth S&P 500, RPG
5.33% Semiconductor H, SMH
5.29% Netherlands Index, EWN
5.23% Semiconductors, PSI
5.22% IPOs, First Tr IPOX-100, FPX
5.16% EMU Europe Index, EZU
5.12% Oil & Gas, PXJ
5.00% Growth Mid Cap Dynamic PS, PWJ
4.86% France Index, EWQ
4.86% Real Estate US DJ, IYR
4.86% Dividend High Yield Equity PS, PEY
4.82% Energy Exploration & Prod, PXE
4.80% Growth LargeCap NASDAQ Fidelity, ONEQ
4.78% LargeCap Blend Russell 3000, IWV
4.78% Wilshire 5000 ST TM, TMW
4.77% Networking, PXQ
4.75% Telecommunications Global, IXP
4.72% Malaysia Index, EWM
4.67% Asia 50 BLDRS, ADRA
4.66% Software, IGV
4.61% Biotech H, BBH
4.60% Value MidCap S&P 400 B, IJJ
4.57% Capital Markets KWB ST, KCE
4.54% SmallCap Russell 2000, IWM
4.47% Technology SPDR, XLK
4.40% Europe 350 S&P Index, IEV
4.38% European VIPERs, VGK
4.31% Global Titans, DGT
4.25% Value LargeCap Euro STOXX 50 DJ, FEU
4.25% Global 100, IOO
4.17% Dividend SPDR, SDY
4.14% S&P 500 SPDRs LargeCap Blend, SPY
4.12% MidCap Growth iS M, JKH
4.10% Japan Index, EWJ
4.05% Growth LargeCap iS M, JKE
4.04% Technology GS, IGM
3.98% S&P 500 iS LargeCap Blend, IVV
3.97% Value 40 Large Low P/E FT DB, FDV
3.97% Technology DJ US, IYW
3.96% Growth BARRA Small Cap 600, IJT
3.95% Semiconductor iS GS, IGW
3.92% Small Cap VIPERs, VB
3.92% Growth 1000 Russell, IWF
3.90% Growth SmallCap iS M, JKK
3.89% MidCap Blend Core iS M, JKG
3.88% Europe 100 BLDRS, ADRU
3.88% Growth S&P 500/BARRA, IVW
3.85% Value LargeCap NYSE 100 iS, NY
3.83% MidCap VIPERs, VO
3.83% Info Tech VIPERs, VGT
3.82% Bank Regional H, RKH
3.81% Energy DJ, IYE
3.78% MidCap S&P 400 SPDRs, MDY
3.77% Value SmallCap VIPERS, VBR
3.76% Building & Construction, PKB
3.74% Australia Index, EWA
3.73% Euro STOXX 50, FEZ
3.68% Developed 100 BLDRS, ADRD
3.67% Value SmallCap S&P 600 B, IJS
3.66% Water Resources, PHO
3.62% Energy VIPERs, VDE
3.61% Pacific VIPERs, VPL
3.59% Value MidCap Russell, IWS
3.58% LargeCap VIPERs, VV
3.57% Growth VIPERs, VUG
3.55% Switzerland Index, EWL
3.53% Industrials VIPERs, VIS
3.53% Consumer Staples SPDR, XLP
3.51% Natural Resource iS GS, IGE
3.46% Value S&P 500 B, IVE
3.43% LargeCap 1000 R, IWB
3.43% Basic Materials DJ US, IYM
3.39% SmallCap Core iS M, JKJ
3.39% Growth MidCap Russell, IWP
3.34% Internet Architecture H, IAH
3.34% Spain Index, EWP
3.34% Growth MidCap 400 B, IJK
3.33% Leisure & Entertainment, PEJ
3.31% Value MidCap iS M, JKI
3.27% Industrial LargeCap Blend DJ US, IYJ
3.24% Value VIPERs, VTV
3.23% Software H, SWH
3.22% Technology Global, IXN
3.22% Extended Mkt VIPERs, VXF
3.20% Value 1000 Russell, IWD
3.20% Germany Index, EWG
3.17% Value Line Timeliness MidCap Gr, PIV
3.15% Value LargeCap Russell 3000, IWW
3.14% Value MidCap S&P 400, RFV
3.12% Pharmaceuticals, PJP
3.11% Value LargeCap iS M, JKF
3.09% Value LargeCap Fundamental RAFI 1000, PRF
3.08% Sweden Index, EWD
3.05% Ultra Dow30 Double, DDM
3.00% Value Small Cap DJ, DSV
2.98% Microcap Russell, IWC
2.98% Materials VIPERs, VAW
2.96% Value S&P 500, RPV
2.90% Growth SmallCap VIPERs, VBK
2.89% Hardware & Electronics, PHW
2.88% Growth LargeCap NASDAQ 100, QQQQ
2.83% Telecom DJ US, IYZ
2.81% MidCap S&P 400 iS, IJH
2.81% LargeCap Blend Total Market DJ, IYY
2.79% LargeCap Blend S&P=Weight R, RSP
2.79% Commodity Tracking, DBC
2.79% Transportation Av DJ, IYT
2.79% Growth MidCap S&P 400, RFG
2.77% Growth LargeCap Russell 3000, IWZ
2.76% LargeCap Rydex Rus Top 50, XLG
2.74% Japan LargeCap Blend TOPIX 150, ITF
2.73% LargeCap Blend S&P 1500 iS, ISI
2.73% Growth Small Cap DJ, DSG
2.71% LargeCap Blend Dynamic PS, PWC
2.66% Homebuilders SPDR, XHB
2.66% Blend Total Market VIPERs, VTI
2.64% SmallCap PS Zacks, PZJ
2.57% Austria Index, EWO
2.56% Healthcare Global, IXJ
2.54% Growth SmallCap R 2000, IWO
2.53% LargeCap Blend Socially Responsible iS, KLD
2.53% Micro Cap Zachs, PZI
2.34% Value Large Cap DJ, ELV
2.34% SmallCap S&P 600, IJR
2.31% Software, PSJ
2.27% Consumer D. VIPERs, VCR
2.24% Value SmallCap iS M, JKL
2.20% Consumer Discretionary SPDR, XLY
2.19% Semiconductor SPDR, XSD
2.19% Retail H, RTH
2.18% Consumer Cyclical DJ, IYC
2.18% REIT Wilshire, RWR
2.16% LargeCap Blend NYSE Composite iS, NYC
2.14% Materials SPDR, XLB
2.14% Growth Large Cap, ELG
2.13% Dividend Growth PS, PHJ
2.09% Canada Index, EWC
2.09% Dividend DJ Select, DVY
2.08% LargeCap Blend S&P 100, OEF
2.07% OTC Dynamic PS, PWO
2.04% MidCap Russell, IWR
1.98% Value MidCap Dynamic PS, PWP
1.94% Italy Index, EWI
1.91% Dividend Appreciation Vipers, VIG
1.87% Consumer Non-Cyclical, IYK
1.85% Aerospace & Defense, PPA
1.85% Insurance, PIC
1.84% LargeCap Blend Core iS M, JKD
1.83% Health Care VIPERs, VHT
1.81% Healthcare DJ, IYH
1.68% Dividend Leaders, FDL
1.58% Consumer Staples VIPERs, VDC
1.56% Utilities SPDR, XLU
1.37% Financials VIPERs, VFH
1.36% Growth SmallCap Dynamic PS, PWT
1.18% Utilities VIPERs, VPU
1.16% Telecom H, TTH
1.11% Utilities, PUI
0.98% Industrial SPDR, XLI
0.93% Utilities H, UTH
0.84% Pharmaceutical H, PPH
0.64% Biotech SPDR, XBI
0.38% Food & Beverage, PBJ
0.37% Telecommunications & Wireless, PTE
0.34% Bond, Aggregate, AGG
0.33% Nanotech Lux, PXN
0.31% Telecom Services VIPERs, VOX
0.00% Biotech & Genome, PBE
-0.07% Retail, PMR
-0.13% WilderHill Clean Energy PS, PBW
-0.33% Health Care SPDR, XLV
-0.39% Bond, 1-3 Year Treasury, SHY
-0.78% Utilities DJ, IDU
-1.32% Bond, 10 Year Treasury, IEF
-1.72% Bond, TIPS, TIP
-2.44% Bond, 20+ Years Treasury, TLT
-2.93% Value SmallCap Dynamic PS, PWY
-3.26% Short 100% MidCap 400, MYY
-3.62% Short 100% Dow 30, DOG
-4.44% Short 100% S&P 500, SH
-5.02% Gold Shares S.T., GLD
-5.17% Short 100% QQQ, PSQ
-7.47% Short 200% Dow 30 PS, DXD
-8.06% Short 200% MidCap 400 PS, MZZ
-8.10% Short 200% S&P 500 PS, SDS
-8.49% Silver Trust iS, SLV
-11.02% Short 200% QQQ PS, QID