by Robert W. Colby, Senior Analyst,

Stock Market: Shock and Fear.

The Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 22-month lows, confirming that the major breadth trends remain Bearish.

For the stock market in general, all significant trends remain Bearish.

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

It remains a high-risk tradingenvironment.

It seems more appropriate than ever to focus on capital preservation.

On Thursday, major stocks indexes opened lower and continued to fall all day. The Standard & Poor’s 500 cash index (1,114.28) closed down 46.78 points, or 4.03%. Nasdaq Composite (1976.72) fell 92.68 points, or 4.48%. Total NYSE volume rose 10%, indicating rising selling pressure.

All trends remain Bearish. Reward/Risk tradeoffs still appear unattractive. 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.

Shock and Fear. From my book: “The second Bear phase is marked by a sudden mood change, from optimism and hope to shock and fear. One day, the public wakes up and sees, much to its surprise, that “the emperor has no clothes”. Actual fundamental business conditions are not panning out to be as positive as previously hoped. In fact, there may be a little problem. The smart money is long gone, and there is no one left to buy when the public wants out. Stock prices drop steeply in a vacuum. Fear quickly replaces greed. Repeated waves of panic may sweep the market. Transactional volume swells as the unsophisticated investor screams, “Get me out at any price!” Sharp professional traders are willing to bid way down in price for stocks when prices drop too far too fast. The best that can be expected, however, is a dead-cat bounce that recovers only a fraction of the steep loss.”

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

11.38% , SLM , SLM CORP
11.25% , MZZ , Short 200% MidCap 400 PS, MZZ
9.35% , QID , Short 200% QQQ PS, QID
2.26% , ACV , Alberto-Culver Co.
1.89% , HRB , H&R BLOCK
3.25% , SNDK , SanDisk Corporation
5.29% , MYY , Short 100% MidCap 400, MYY
1.48% , CLX , CLOROX
6.07% , DXD , Short 200% Dow 30 PS, DXD
0.58% , CL , COLGATE
2.89% , GAS , NICOR
2.59% , SH , Short 100% S&P 500, SH
1.50% , SANM , SANMINA
0.80% , KR , KROGER
0.84% , HNZ , HJ HEINZ
1.45% , AOC , AON
0.06% , ACE , ACE
0.17% , XLV , Health Care SPDR, XLV
0.09% , HSIC , Henry Schein Inc
0.03% , XRAY , DENTSPLY International Inc

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

-16.18% , MON , MONSANTO
-4.30% , XSD , Semiconductor SPDR, XSD
-17.79% , KSU , Kansas City Southern, KSU
-8.30% , PXE , Energy Exploration & Prod, PXE
-14.21% , DE , DEERE & CO
-5.58% , DSG , Growth Small Cap DJ, DSG
-14.93% , MET , METLIFE
-4.41% , PTE , Telecommunications & Wireless, PTE
-15.83% , XME , Metals & Mining SPDR, XME
-12.41% , SLV , Silver Trust iS, SLV
-6.78% , FPX , IPOs, First Tr IPOX-100, FPX
-12.84% , WMB , WILLIAMS
-4.75% , EWG , Germany Index, EWG
-4.50% , PEJ , Leisure & Entertainment, PEJ
-8.32% , URBN , Urban Outfitters Inc.
-15.16% , DYN , DYNEGY
-11.03% , CSX , CSX
-9.94% , OIH , Oil Services H, OIH
-18.28% , STLD , Steel Dynamics, STLD
-6.72% , PWER , POWER ONE
-6.48% , EWY , South Korea Index, EWY
-6.02% , PHW , Hardware & Electronics, PHW
-5.50% , MYL , MYLAN LABS
-8.52% , IYT , Transportation Av DJ, IYT
-9.15% , MOLX , MOLEX
-4.54% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-4.53% , IYW , Technology DJ US, IYW
-10.72% , NIHD , NII Holdings, Inc.
-8.66% , IGE , Natural Resource iS GS, IGE
-8.23% , PBW , WilderHill Clean Energy PS, PBW

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

0.17% Health Care SPDR, XLV
-1.26% Consumer Staples SPDR, XLP
-1.45% Utilities SPDR, XLU
-3.62% Consumer Discretionary SPDR, XLY
-3.91% Technology SPDR, XLK
-4.98% Financial SPDR, XLF
-5.70% Energy SPDR, XLE
-5.99% Industrial SPDR, XLI
-7.18% 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 10/2/08, 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 10/2/08, 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 10/2/08, 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.

Technology (XLK) Bearish, Underweight. On 10/2/08, the XLK absolute price fell to a new 41-month low, indicating long-term trend weakness.

Energy (XLE) Bearish, Underweight. On 10/2/08, the XLE absolute price fell to a new 18-month low, indicating significant trend weakness.

Industrial (XLI) Bearish, Underweight. On 10/2/08, the XLI absolute price hit a new 47-month low, indicating long-term trend weakness. On 10/2/08, the XLI/SPY Relative Strength Ratio broke down to a new 15-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.

Materials (XLB) Bearish, Underweight. On 10/2/08, the XLB absolute price hit a new 26-month intraday low, indicating significant trend weakness.

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 10/2/08, 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 low on 10/2//08.

Growth Stock/Value Stock Relative Strength Ratio fell to a new 6-month low on 10/2/08. 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 has been trending down since it peaked on 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 fell again. The short-term trend looks Bearish and 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 broke down below previous 8-day lows. The short-term trend is down. 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 rose again. Bonds benefit from fear, the flight to safety. 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 absolute price hit a new 12-month low on 10/1/08, implying deflation. All trends remain relatively weak. On 10/2/08, 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 13-month highs, reflecting a continuing shift to cash. Most trends are Bullish, except for the secular, which is more than one major cycle.

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 33.7% Bulls versus 47.2% Bears as of 10/1/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.71, down from 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 45.26, approached 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 42.53, approached 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 0.89, 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 0.87, 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 10/2/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 22-month lows, confirming that the 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 (1,114.28):

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 (1,114.28):

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

11.25% Short 200% MidCap 400 PS, MZZ
9.35% Short 200% QQQ PS, QID
7.68% Short 200% S&P 500 PS, SDS
6.07% Short 200% Dow 30 PS, DXD
5.29% Short 100% MidCap 400, MYY
4.87% Short 100% QQQ, PSQ
2.59% Short 100% Dow 30, DOG
2.59% Short 100% S&P 500, SH
0.80% Bond, 20+ Years Treasury, TLT
0.56% Bond, 10 Year Treasury, IEF
0.39% Bond, Aggregate, AGG
0.22% Bond, 1-3 Year Treasury, SHY
0.17% Health Care SPDR, XLV
-0.21% Bond, TIPS, TIP
-0.63% Biotech H, BBH
-1.26% Consumer Staples SPDR, XLP
-1.31% Consumer Staples VIPERs, VDC
-1.31% Pharmaceutical H, PPH
-1.42% Health Care VIPERs, VHT
-1.45% Utilities SPDR, XLU
-1.45% Bond, Corp, LQD
-1.46% Belgium Index, EWK
-1.56% Dividend Leaders, FDL
-1.60% Healthcare DJ, IYH
-1.66% Healthcare Global, IXJ
-1.69% Telecom H, TTH
-1.85% Pharmaceuticals, PJP
-2.09% Switzerland Index, EWL
-2.15% Food & Beverage, PBJ
-2.27% Value LargeCap Dynamic PS, PWV
-2.28% Telecommunications Global, IXP
-2.43% Netherlands Index, EWN
-2.53% Utilities VIPERs, VPU
-2.57% Dividend SPDR, SDY
-2.65% Dividend Achievers PS, PFM
-2.66% Bank Regional H, RKH
-2.66% Consumer Non-Cyclical, IYK
-2.71% Value LargeCap iS M, JKF
-2.72% Global Titans, DGT
-2.84% Dividend Appreciation Vipers, VIG
-2.85% Retail, PMR
-2.88% Dividend International, PID
-2.90% Consumer Cyclical DJ, IYC
-2.96% Dividend High Yield Equity PS, PEY
-2.96% Telecom Services VIPERs, VOX
-2.97% Value 1000 Russell, IWD
-2.98% LargeCap Rydex Rus Top 50, XLG
-3.08% Utilities DJ, IDU
-3.14% Malaysia Index, EWM
-3.17% Dividend Growth PS, PHJ
-3.20% LargeCap Blend S&P 100, OEF
-3.21% Utilities H, UTH
-3.23% Networking, PXQ
-3.25% Biotech SPDR, XBI
-3.25% Financial ServicesDJ, IYG
-3.38% Dividend DJ Select, DVY
-3.40% Telecom DJ US, IYZ
-3.46% Value S&P 500, RPV
-3.54% Retail H, RTH
-3.54% Value LargeCap NYSE 100 iS, NY
-3.56% Global 100, IOO
-3.56% Software H, SWH
-3.57% Value VIPERs, VTV
-3.57% United Kingdom Index, EWU
-3.59% Financials VIPERs, VFH
-3.62% Consumer Discretionary SPDR, XLY
-3.63% Insurance
-3.63% S&P 500 SPDRs LargeCap Blend, SPY
-3.65% OTC Dynamic PS, PWO
-3.66% Broadband H, BDH
-3.68% S&P 500 iS LargeCap Blend, IVV
-3.74% LargeCap Blend Socially Responsible iS, KLD
-3.78% Utilities, PUI
-3.85% Software, PSJ
-3.90% Value LargeCap Fundamental RAFI 1000, PRF
-3.91% Technology SPDR, XLK
-3.92% Growth S&P 500/BARRA, IVW
-3.95% Value S&P 500 B, IVE
-3.98% Value Large Cap DJ, ELV
-4.00% Value LargeCap Russell 3000, IWW
-4.01% LargeCap Blend Core iS M, JKD
-4.06% Value EAFE MSCI, EFV
-4.07% Value LargeCap Euro STOXX 50 DJ, FEU
-4.07% LargeCap Blend S&P 1500 iS, ISI
-4.08% Microcap Russell, IWC
-4.11% Value MidCap iS M, JKI
-4.11% LargeCap Blend Total Market DJ, IYY
-4.16% Value Small Cap DJ, DSV
-4.16% Value MidCap Dynamic PS, PWP
-4.17% Micro Cap Zachs, PZI
-4.18% LargeCap 1000 R, IWB
-4.19% Financial DJ US, IYF
-4.19% Europe 350 S&P Index, IEV
-4.20% India Earnings WTree, EPI
-4.22% Value SmallCap iS M, JKL
-4.23% Value SmallCap Dynamic PS, PWY
-4.23% Gold Shares S.T., GLD
-4.24% Value SmallCap VIPERS, VBR
-4.27% Japan Index, EWJ
-4.29% Growth 1000 Russell, IWF
-4.29% Growth LargeCap NASDAQ Fidelity, ONEQ
-4.30% Semiconductor SPDR, XSD
-4.30% Aerospace & Defense, PPA
-4.32% European VIPERs, VGK
-4.32% Growth Large Cap, ELG
-4.32% Growth SmallCap Dynamic PS, PWT
-4.33% LargeCap VIPERs, VV
-4.33% Biotech & Genome, PBE
-4.33% Software, IGV
-4.35% Consumer D. VIPERs, VCR
-4.37% EAFE Index, EFA
-4.39% Growth S&P 500, RPG
-4.40% Wilshire 5000 ST TM, TMW
-4.41% LargeCap Blend S&P=Weight R, RSP
-4.41% Telecommunications & Wireless, PTE
-4.48% Growth EAFE MSCI, EFG
-4.49% Blend Total Market VIPERs, VTI
-4.50% China 25 iS, FXI
-4.50% Leisure & Entertainment, PEJ
-4.53% Technology DJ US, IYW
-4.54% Japan LargeCap Blend TOPIX 150, ITF
-4.55% Growth LargeCap NASDAQ 100, QQQQ
-4.55% LargeCap Blend NYSE Composite iS, NYC
-4.56% Sweden Index, EWD
-4.58% Technology GS, IGM
-4.59% Singapore Index, EWS
-4.63% Info Tech VIPERs, VGT
-4.65% EMU Europe Index, EZU
-4.66% LargeCap Blend Dynamic PS, PWC
-4.66% Pacific VIPERs, VPL
-4.67% Internet Architecture H, IAH
-4.69% LargeCap Blend Russell 3000, IWV
-4.69% Value MidCap S&P 400, RFV
-4.72% Developed 100 BLDRS, ADRD
-4.74% Oil, Crude, U.S. Oil Fund, USO
-4.74% Semiconductor H, SMH
-4.75% Spain Index, EWP
-4.75% Germany Index, EWG
-4.76% Technology MS sT, MTK
-4.77% Growth LargeCap iS M, JKE
-4.79% Growth LargeCap Russell 3000, IWZ
-4.80% Value SmallCap Russell 2000, IWN
-4.80% Networking, IGN
-4.81% Euro STOXX 50, FEZ
-4.86% Value 40 Large Low P/E FT DB, FDV
-4.88% Semiconductors, PSI
-4.89% Technology Global, IXN
-4.90% Financials Global LargeCap Value, IXG
-4.91% Capital Markets
-4.95% Small Cap VIPERs, VB
-4.97% SmallCap PS Zacks, PZJ
-4.97% Growth MidCap S&P 400, RFG
-4.97% Value SmallCap S&P 600, RZV
-4.97% Growth VIPERs, VUG
-4.98% Europe 100 BLDRS, ADRU
-4.98% Financial SPDR, XLF
-5.05% Value SmallCap S&P 600 B, IJS
-5.05% Value MidCap Russell, IWS
-5.12% SmallCap Core iS M, JKJ
-5.13% China LargeCap Growth G D H USX PS, PGJ
-5.13% SmallCap Russell 2000, IWM
-5.25% Growth BARRA Small Cap 600, IJT
-5.33% Value MidCap S&P 400 B, IJJ
-5.39% Taiwan Index, EWT
-5.40% Italy Index, EWI
-5.41% France Index, EWQ
-5.43% Growth SmallCap R 2000, IWO
-5.50% Internet H, HHH
-5.53% Commodity Tracking, DBC
-5.54% Australia Index, EWA
-5.55% MidCap Russell, IWR
-5.56% MidCap S&P 400 iS, IJH
-5.56% Asia 50 BLDRS, ADRA
-5.58% Growth Small Cap DJ, DSG
-5.64% MidCap Blend Core iS M, JKG
-5.66% SmallCap S&P 600, IJR
-5.70% Energy SPDR, XLE
-5.75% Growth MidCap 400 B, IJK
-5.76% Internet B2B H, BHH
-5.76% Growth SmallCap iS M, JKK
-5.83% Nanotech Lux, PXN
-5.84% Hong Kong Index, EWH
-5.93% MidCap VIPERs, VO
-5.95% MidCap S&P 400 SPDRs, MDY
-5.99% Industrial SPDR, XLI
-6.02% Pacific ex-Japan, EPP
-6.02% Hardware & Electronics, PHW
-6.05% Semiconductor iS GS, IGW
-6.16% Extended Mkt VIPERs, VXF
-6.19% Lg Cap Growth PSD, PWB
-6.30% Ultra Dow30 Double, DDM
-6.30% Growth SmallCap VIPERs, VBK
-6.32% Industrial LargeCap Blend DJ US, IYJ
-6.36% Value Line Timeliness MidCap Gr, PIV
-6.41% Growth MidCap Russell, IWP
-6.44% Energy DJ, IYE
-6.48% South Korea Index, EWY
-6.56% Energy Global, IXC
-6.58% Growth Mid Cap Dynamic PS, PWJ
-6.62% Real Estate US DJ, IYR
-6.67% Austria Index, EWO
-6.69% Industrials VIPERs, VIS
-6.73% MidCap Growth iS M, JKH
-6.78% IPOs, First Tr IPOX-100, FPX
-7.03% Internet Infrastructure H, IIH
-7.10% REIT Wilshire, RWR
-7.10% Mexico Index, EWW
-7.18% Materials SPDR, XLB
-7.19% Energy VIPERs, VDE
-7.39% Emerging VIPERs, VWO
-7.56% Homebuilders SPDR, XHB
-7.57% Realty Cohen & Steers, ICF
-7.87% Emerging 50 BLDRS, ADRE
-7.90% Water Resources, PHO
-8.06% Ultra QQQ Double, QLD
-8.10% Building & Construction, PKB
-8.18% Canada Index, EWC
-8.20% Ultra S&P500 Double, SSO
-8.23% WilderHill Clean Energy PS, PBW
-8.30% Energy Exploration & Prod, PXE
-8.52% Transportation Av DJ, IYT
-8.66% Natural Resource iS GS, IGE
-8.76% Emerging Markets, EEM
-8.87% Materials VIPERs, VAW
-9.16% Basic Materials DJ US, IYM
-9.78% Oil & Gas, PXJ
-9.90% Latin Am 40, ILF
-9.94% Oil Services H, OIH
-10.43% South Africa Index, EZA
-11.87% Ultra MidCap400 Double, MVV
-12.07% Brazil Index, EWZ
-12.41% Silver Trust iS, SLV
-15.83% Metals & Mining SPDR, XME