Daily Stock Market Commentary – 10/02/2007

On Monday, major stock price indices opened little changed but soon began a strong and steady rise that lasted until the final hour, when there was a modest dip reflecting normal profit taking. Breadth confirmed: Advances/Declines were 3 to 1 Bullish, and Up/Down Volume was 5 to 1 Bullish. Short-term momentum indicators moved sharply higher.

New Highs/New Lows ratios were about 3.5 to 1 Bullish on the NYSE.

Excessive strength begets weakness. Temporary minor sinking spells are to be expected in any uptrend. The stock market has absorbed 1- to 4-day bouts of normal profit taking with minimal damage and with resilience since the low on 8/16/07. That indicates underlying demand and a Bullish intermediate-term trend for stocks. Finally, the long-term Primary Tide Trend remains Bullish, according to the Dow Theory.

Seasonal tendencies are only mildly Bullish for the next couple of days ahead. The full month of October has suffered some notable downside shakeouts in past history, so we definitely do not want to get complacent in October. Be alert and flexible.

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

0.95% , IYH , Healthcare DJ, IYH
0.97% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
2.42% , HSIC , Henry Schein Inc
1.21% , XBI , Biotech SPDR, XBI
0.83% , ITF , Japan LargeCap Blend TOPIX 150, ITF
2.57% , PSI , Semiconductors, PSI
1.39% , FDV , Value 40 Large Low P/E FT DB, FDV
1.31% , IJJ , Value MidCap S&P 400 B, IJJ
2.37% , COL , ROCKWELL COLLINS
1.53% , XLV , Health Care SPDR, XLV
2.43% , VNQ , REIT VIPERs, VNQ
1.29% , IJK , Growth MidCap 400 B, IJK
1.59% , EWN , Netherlands Index, EWN
2.53% , EWA , Australia Index, EWA
2.81% , PZJ , SmallCap PS Zacks, PZJ
8.67% , PHM , PULTE HOMES
2.26% , IYG , Financial Services DJ, IYG
1.55% , PPH , Pharmaceutical H, PPH
1.90% , DSV , Value Small Cap DJ, DSV
1.77% , RWR , REIT Wilshire, RWR
3.43% , STT , STATE STREET
2.40% , IJS , Value SmallCap S&P 600 B, IJS
6.92% , HAS , HASBRO
1.56% , VAW , Materials VIPERs, VAW
3.84% , VWO , Emerging VIPERs, VWO
1.44% , KLD , LargeCap Blend Socially Responsible iS, KLD
3.22% , XHB , Homebuilders SPDR, XHB
8.63% , PWER , POWER ONE
2.16% , EPP , Pacific ex-Japan, EPP
3.75% , SCHW.O , CHARLES SCHWAB
2.25% , IWC , Microcap Russell, IWC
2.24% , IJT , Growth BARRA Small Cap 600, IJT
1.37% , JKG , MidCap Blend Core iS M, JKG
1.66% , PXN , Nanotech Lux, PXN
2.25% , C , CITIGROUP
1.63% , PXE , Energy Exploration & Prod, PXE
3.21% , EK , EASTMAN KODAK
1.06% , VHT , Health Care VIPERs, VHT
6.00% , FCX , FREEPRT MCMORAN STK B
4.29% , CSC , COMPUTER SCIENCE
5.90% , LRCX , LAM RESEARCH CORP
2.77% , RX , IMS HEALTH
1.29% , EZU , EMU Europe Index, EZU
3.63% , MER , MERRILL LYNCH
2.33% , RKH , Bank Regional H, RKH
3.98% , ERTS , ELECTRONIC ARTS
2.63% , DDM , Ultra Dow30 Double, DDM
0.93% , DGT , Global Titans, DGT
0.88% , IXN , Technology Global, IXN
1.32% , PEJ , Leisure & Entertainment, PEJ

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

-14.99% , WAG , WALGREEN
-10.19% , GRMN , GARMIN LTD
-6.26% , CVS , CVS
-49.20% , NOV , NATIONAL OILWELL VARC0
-3.71% , MXIM , MAXIM INTEGRATED
-6.13% , SVU , SUPERVALU
-0.77% , SLR , SOLECTRON
-0.75% , AGG , Bond, Aggregate, AGG
-1.58% , FDO , FAMILY DLR STRS
-2.53% , MZZ , Short 200% MidCap 400 PS, MZZ
-3.31% , MHS , MEDCO HEALTH
-1.10% , LQD , Bond, Corp, LQD
-1.18% , SH , Short 100% S&P 500, SH
-1.29% , MCK , MCKESSON CORP
-1.96% , DXD , Short 200% Dow 30 PS, DXD
-1.93% , ESRX , EXPRESS SCRIPTS
-1.37% , ANDW , ANDREW
-0.27% , SHY , Bond, 1-3 Year Treasury, SHY
-1.36% , MYY , Short 100% MidCap 400, MYY
-2.33% , SDS , Short 200% S&P 500 PS, SDS
-0.90% , ABC , AMERISOURCEBERGN
-0.29% , XLP , Consumer Staples SPDR, XLP
-1.25% , DOG , Short 100% Dow 30, DOG
-3.06% , F , FORD MOTOR
-1.19% , CZN , CITIZENS COMMS STK B
-0.82% , PSQ , Short 100% QQQ, PSQ
-0.42% , COH , COACH
-0.25% , IEF , Bond, 10 Year Treasury, IEF
-1.51% , NUE , NUCOR
-1.85% , HGSI , Human Genome Sciences Inc
-0.49% , MRVL , MARVELL TECHNOLOGY
-0.29% , RTH , Retail H, RTH
-0.30% , MLNM , Millennium Pharmaceuticals Inc
-0.78% , CAH , CARDINAL HEALTH
-0.86% , RHT , Red Hat Inc.
-0.13% , CC , CIRCUIT CITY STR
-0.43% , COP , CONOCOPHILLIPS
-0.40% , BUD , ANHEUSER BUSCH
-1.40% , CBS , CBS CORP.
-0.42% , CSCO , CISCO SYSTEMS
-1.96% , ITW , ILLINOIS TOOL
-0.51% , LAMR , Lamar Advertising Company
-0.40% , QCOM , QUALCOMM
-0.09% , OMX , OFFICEMAX INC., OMX
-0.17% , DGX , QUEST DIAG
-0.19% , TIP , Bond, TIPS, TIP
-0.11% , K , KELLOGG
-0.07% , SLV , Silver Trust iS, SLV
-0.27% , CPB , CAMPBELL SOUP
-0.07% , LUV , SOUTHWEST AIRLS

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

1.98% Financial
1.88% Materials
1.62% Energy
1.53% Health Care
1.36% Utilities
1.30% Consumer Discretionary
1.27% Industrial
1.08% Technology
-0.29% Consumer Staples

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

Energy (XLE) Bullish, Overweight. XLE made an all-time closing price high on 10/1/07. Relative strength made a new all-time high on 9/21/07. XLE has been strong compared to the S&P since 3/12/03.

Materials (XLB) Bullish, Overweight. Relative strength made a new 10-week high on 10/1/07. The relative strength trend strongly outperformed since the price shakeout low on 8/16/07, and its long term trend has been Bullish since 9/27/2000.

Technology (XLK) Bullish, Overweight. XLK hit a new 6-year closing price high on 10/1/07, and relative strength made a new 2-year high on 9/26/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.

Industrial (XLI) Bullish, Overweight. Industrial stock sector price made an all-time price high on 10/1/07, and relative strength made a new 8-week high on 10/1/07. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06.

Utilities (XLU) Bearish, Underweight. This defensive sector’s relative strength made a new 8-week low on 9/28/07.

Consumer Staples (XLP) Downgrade to Bearish, Underweight. This defensive sector’s relative strength broke down to a new 9-week low on 10/1/07.

Health Care (XLV) Bearish, Underweight. Relative strength has been trending down since 10/9/02, and it made a new 5-year low on 7/19/07, thereby confirming a major downtrend.

Consumer Discretionary (XLY) Bearish, Underweight. Price hit a new 10-month low on 8/16/07. Relative strength made another new 6-year low on 9/27/07.

Financial (XLF) Bearish, Underweight. Relative strength broke down to a new 8 week low on 9/26/07, and the long-term trend of relative strength has been down since 2/20/07.

Foreign stocks rose to new highs even as the U.S. dollar stabilized. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is probably still Bullish. My Top 10 ETF Relative Strength Ranks are all Foreign (see below).

NASDAQ Composite index price made a new 6-year high. Relative strength rose each of the past 8 trading days and made a new 17-month high. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.

NASDAQ 100 index price hit another new 6-year high.

Growth stocks made a new 6-year high and substantially outperformed Value stocks since 9/19/07. Also, Growth has outperformed Value since 8/8/06. The main trend is Bullish.

Small Caps substantially underperformed Large Caps since 4/19/06. The main trend is Bearish.

Crude Oil futures fell sharply for the second consecutive session. Looks like a short-term correction of unknown extent and duration. Note that the U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil. The longer-term trends for both remain Bullish.

The Energy stock sector outperformed the USO and the SPY. Longer term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.

Gold rose to another new 28-year high but still underperformed the S&P 500. The Gold Trust ETF (NYSE: GLD) confirmed. These major trends remain Bullish.

Silver underperformed. Compared to Gold, the main trend has remained relatively Bearish for iShares Silver Trust (AMEX: SLV) since 12/7/06.

The Gold Miners ETF (GDX) rose again–but not to a new high. GDX has underperformed Gold since 9/20/07. Before 8/16/07, Gold Mining stocks substantially underperformed both Gold and the S&P 500 for more than 20 years.

Inflation expectations rose 4-days in a row, but appear choppy and uncertain since the 6/22/07.

U.S. Treasury Bond prices appear to be consolidating. Bonds lack momentum and volume and, therefore, are not impressive. Long-term, it seems possible that the iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) ended a normal oversold bounce in a Bearish trend on 9/10/07. 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.

U.S. dollar DID NOT plunge steeply to another new 34-year low—for a change. The dollar has fallen 16% over the past 23 months and its trend remains very Bearish.

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

5.17% Brazil
4.06% South Korea
3.51% Singapore
2.80% Taiwan
2.67% Broker Dealers
2.55% Gold Mining
2.53% Australia
2.39% Russell 2000
2.36% Insurance
2.28% S&P Small Caps
2.17% Banks
2.15% Italy
2.07% Airlines
1.98% Financial
1.93% Malaysia
1.88% Materials
1.85% REITs
1.85% Hong Kong
1.84% Mexico
1.72% Value Line
1.65% Natural Gas
1.64% France
1.63% Commodity Related
1.62% Energy
1.62% Retailers
1.59% Netherlands
1.59% United Kingdom
1.57% Oil Services
1.53% Health Care
1.51% Dow Transports
1.49% DOT
1.46% Nasdaq Composite
1.45% NYSE Composite
1.45% Dow Utilities
1.43% Dow Composite
1.41% Russell 3000
1.39% Wilshire 5000
1.39% Germany
1.38% Dow Industrial
1.38% Computer Tech
1.37% S&P Mid Caps
1.36% Utilities
1.34% Health Care Products
1.33% S&P 500
1.32% Russell 1000
1.30% S&P 100
1.30% Consumer Discretionary
1.30% Drugs
1.28% Internet
1.28% Canada
1.27% Industrial
1.27% Sweden
1.24% Nasdaq 100
1.22% Austria
1.20% Chemicals
1.19% Semiconductors
1.17% Health Care
1.12% Japan
1.11% Switzerland
1.08% Technology
0.96% Oil
0.85% Disk Drives
0.82% Network
0.78% Australian Dollar
0.76% Spain
0.60% Biotechs
0.57% Hardware
0.52% Hospitals
0.52% Paper
0.22% 30Y T-Bond
0.20% Belgium
0.19% US Dollar Index
0.14% Canadian Dollar
0.01% AMEX Composite
-0.09% British Pound
-0.25% Euro Index
-0.29% Consumer Staples
-0.52% Swiss Franc
-0.86% Japanese Yen