by Robert W. Colby, Senior Analyst,

Stock Market: well-established trends continue. There is no change in my analysis.

Shock and Fear rule the markets at this time.

All significant trends remain Bearish. It remains a high-risk trading environment. Focus on capital preservation.

Like King Canute, all the governments in the world may not be able stop the PRIMARY TIDE.

Viewed in the context of historical boom-bust capitalist cycles, the current situation is entirely normal and not unexpected. Bull Markets are followed by Bear Markets, and Bear Markets are followed by Bull Markets. There is nothing new under the sun.

The cycle always plays out in TIME. It could take many more months.

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

iShares Lehman TIPS Bond (TIP) ETF Relative Strength Ratio (TIP/TLT) broke down to another new multi-year low, again confirming that all trends all are Bearish. This implies deflation.

On Tuesday, major stocks indexes opened higher but soon turned down. Dominance of selling pressure was evident for most of the very weak session. Prices closed sharply lower and near their lowest levels of the day. The Standard & Poor’s 500 cash index (996.23) closed down 60.66 points, or 5.74%, making a new 5-year low and reconfirming Bearish trends in all time frames. Nasdaq Composite (1,754.88) fell 108.08 points, or 5.80%, making a new 4-year low and reconfirming Bearish trends in all time frames. Total NYSE volume fell 11%.

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. There is nothing new under the sun. The Dow Theory described this type of market many decades ago. From my book, The Encyclopedia of Technical Market Indicators, Second Edition: “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

4.96% , SWY , SAFEWAY
1.87% , LQD , Bond, Corp, LQD
3.74% , AES , AES
2.82% , IAU , Gold COMEX iS, IAU
0.02% , SHY , Bond, 1-3 Year Treasury, SHY

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

-5.62% , RZV , Value SmallCap S&P 600, RZV
-30.37% , SANM , SANMINA
-6.67% , SWH , Software H, SWH
-4.28% , VOX , Telecom Services VIPERs, VOX
-27.14% , AIV , APT INV MNGMT
-4.94% , TMW , Wilshire 5000 ST TM, TMW
-9.14% , AZO , AUTOZONE
-10.84% , RKH , Bank Regional H, RKH
-3.89% , EWQ , France Index, EWQ
-12.62% , MI , MARSHAL & ILSLEY
-4.16% , VPU , Utilities VIPERs, VPU
-7.14% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
-6.32% , PWV , Value LargeCap Dynamic PS, PWV
-6.76% , IGE , Natural Resource iS GS, IGE
-10.63% , HRB , H&R BLOCK
-10.20% , BIG , BIG LOTS
-8.08% , XRX , XEROX
-19.03% , DYN , DYNEGY
-4.30% , KLD , LargeCap Blend Socially Responsible iS, KLD
-3.84% , EWL , Switzerland Index, EWL
-11.80% , TBH , Telebras HOLDRS, TBH*
-7.72% , DOV , DOVER
-6.11% , JKK , Growth SmallCap iS M, JKK
-4.59% , VIA , VIACOM INC. (New)
-5.29% , IWZ , Growth LargeCap Russell 3000, IWZ
-20.87% , F , FORD MOTOR
-6.95% , XLG , LargeCap Rydex Rus Top 50, XLG

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

-2.42% Health Care SPDR, XLV
-3.18% Consumer Staples SPDR, XLP
-3.32% Industrial SPDR, XLI
-4.09% Utilities SPDR, XLU
-5.11% Technology SPDR, XLK
-5.16% Materials SPDR, XLB
-5.48% Energy SPDR, XLE
-6.42% Consumer Discretionary SPDR, XLY
-10.56% Financial SPDR, XLF

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 10/7/08, 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 10/7/08, the XLV/SPY Relative Strength Ratio moved up to another new 4-year high, reconfirming a long-term uptrend.

Utilities (XLU) Bearish, Underweight. On 10/7/08, the XLU absolute price fell to another new 2-year low, reconfirming long-term trend weakness. On 9/22/08, the XLU/SPY Relative Strength Ratio broke down to a new 6-month low.

Consumer Discretionary (XLY) Bearish, Underweight. On 10/7/08, XLY absolute price fell to its lowest level in 5 years, reconfirming long-term trend weakness. Since 1/5/05, the XLY/SPY Relative Strength Ratio has underperformed substantially.

Industrial (XLI) Bearish, Underweight. On 10/6/08, the XLI absolute price hit another new 47-month low, indicating long-term trend weakness. On 10/3/08, the XLI/SPY Relative Strength Ratio broke down to a new 15-month low.

Technology (XLK) Bearish, Underweight. On 10/7/08, the XLK absolute price fell to another new 41-month low, reconfirming long-term trend weakness.

Energy (XLE) Bearish, Underweight. On 10/6/08, the XLE absolute price fell to another new 18-month low, indicating significant trend weakness.

Materials (XLB) Bearish, Underweight. On 10/6/08, the XLB absolute price hit another new 26-month intraday low, indicating significant trend weakness.

Financial (XLF) Bearish, Underweight. On 10/7/08, the XLF absolute price hit a new 10-year low, reconfirming long-term 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 4-year low on 10/7/08 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 10/7/08, absolute price broke down to another new 3-year low, reconfirming 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 another new 2-year low on 10/7/08, reconfirming long-term trend weakness.

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 tried to recover but was not impressive. On 10/6/08, oil broke down below previous 6-month lows. The short-term and intermediate-term trends remain 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 out above the previous 3-days highs. Gold is a traditional store of value that benefits from financial panic. Still, 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 consolidated with an Inside Day. On 10/6/08, Bonds broke out above previous 11-day highs, a Bullish confirmation for the short term. 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 13-month low on 10/7/08, implying deflation. All trends remain relatively weak. On 10/7/08, 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 reversed to the downside, breaking below the previous days’ low. This is not significant, and it raises only a very small question mark for the short-term. Most trends remain Bullish, except perhaps 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 53.68, broke out to a new all-time high. 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 58.51, broke out to a new 6-year high. 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 0.95, 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 0.89, 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 10/7/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 24-month lows, reconfirming 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 (996.23):

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
1,077.08, Fibonacci 61.8% of 2002-2007 upmove

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 (996.23):

Potential Support
970.50, Gann 75.0% of 2002-2007 upmove
941.43, Fibonacci 78.6% of 2002-2007 upmove
869.56, Gann 87.5% of 2002-2007 upmove
768.63, low of 10/10/2002

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

12.43% Short 200% MidCap 400 PS, MZZ
10.15% Short 200% QQQ PS, QID
9.45% Short 200% S&P 500 PS, SDS
8.52% Short 200% Dow 30 PS, DXD
6.21% Short 100% MidCap 400, MYY
5.86% Silver Trust iS, SLV
5.63% Short 100% Dow 30, DOG
5.49% Short 100% S&P 500, SH
5.03% Short 100% QQQ, PSQ
3.55% Gold Shares S.T., GLD
1.87% Bond, Corp, LQD
1.75% Internet Infrastructure H, IIH
1.23% Commodity Tracking, DBC
1.23% Oil, Crude, U.S. Oil Fund, USO
0.02% Bond, 1-3 Year Treasury, SHY
-0.08% Bond, 10 Year Treasury, IEF
-0.23% Hardware & Electronics, PHW
-0.30% Bond, 20+ Years Treasury, TLT
-0.53% Australia Index, EWA
-0.85% Bond, TIPS, TIP
-0.97% Pacific ex-Japan, EPP
-1.76% Spain Index, EWP
-2.04% Utilities, PUI
-2.07% Bond, Aggregate, AGG
-2.10% Networking, PXQ
-2.31% Malaysia Index, EWM
-2.42% Health Care SPDR, XLV
-2.46% Pharmaceuticals, PJP
-2.63% Pacific VIPERs, VPL
-2.79% Japan LargeCap Blend TOPIX 150, ITF
-2.80% Food & Beverage, PBJ
-2.90% Singapore Index, EWS
-2.92% Biotech SPDR, XBI
-3.09% Telecommunications & Wireless, PTE
-3.09% Value LargeCap Euro STOXX 50 DJ, FEU
-3.17% Consumer Non-Cyclical, IYK
-3.18% Consumer Staples SPDR, XLP
-3.21% India Earnings WTree, EPI
-3.27% Consumer Staples VIPERs, VDC
-3.28% Healthcare DJ, IYH
-3.32% Industrial SPDR, XLI
-3.34% Health Care VIPERs, VHT
-3.42% Software, PSJ
-3.43% Leisure & Entertainment, PEJ
-3.44% Growth EAFE MSCI, EFG
-3.58% Growth MidCap S&P 400, RFG
-3.59% Broadband H, BDH
-3.63% Telecom H, TTH
-3.66% Telecommunications Global, IXP
-3.66% Japan Index, EWJ
-3.70% Aerospace & Defense, PPA
-3.71% Utilities H, UTH
-3.78% Healthcare Global, IXJ
-3.84% Switzerland Index, EWL
-3.89% Pharmaceutical H, PPH
-3.89% Euro STOXX 50, FEZ
-3.89% France Index, EWQ
-3.91% Value LargeCap NYSE 100 iS, NY
-3.97% Biotech H, BBH
-3.99% Dividend Appreciation Vipers, VIG
-4.01% Developed 100 BLDRS, ADRD
-4.02% United Kingdom Index, EWU
-4.05% Value MidCap S&P 400, RFV
-4.06% Asia 50 BLDRS, ADRA
-4.09% Utilities SPDR, XLU
-4.16% Utilities VIPERs, VPU
-4.18% Taiwan Index, EWT
-4.25% Utilities DJ, IDU
-4.27% Water Resources, PHO
-4.28% Telecom Services VIPERs, VOX
-4.30% LargeCap Blend Socially Responsible iS, KLD
-4.32% Europe 100 BLDRS, ADRU
-4.37% Germany Index, EWG
-4.40% Biotech & Genome, PBE
-4.48% S&P 500 SPDRs LargeCap Blend, SPY
-4.49% Insurance, PIC
-4.49% IPOs, First Tr IPOX-100, FPX
-4.51% Networking, IGN
-4.56% Hong Kong Index, EWH
-4.57% Retail H, RTH
-4.65% Value EAFE MSCI, EFV
-4.67% Building & Construction, PKB
-4.68% EAFE Index, EFA
-4.70% Industrial LargeCap Blend DJ US, IYJ
-4.72% Value MidCap Dynamic PS, PWP
-4.83% EMU Europe Index, EZU
-4.84% LargeCap Blend Core iS M, JKD
-4.87% European VIPERs, VGK
-4.94% Wilshire 5000 ST TM, TMW
-4.96% Netherlands Index, EWN
-4.99% Transportation Av DJ, IYT
-5.00% Europe 350 S&P Index, IEV
-5.02% Growth S&P 500/BARRA, IVW
-5.07% Value MidCap iS M, JKI
-5.08% Global 100, IOO
-5.11% OTC Dynamic PS, PWO
-5.11% Technology SPDR, XLK
-5.16% Materials SPDR, XLB
-5.18% MidCap S&P 400 iS, IJH
-5.18% Growth Large Cap, ELG
-5.21% SmallCap Core iS M, JKJ
-5.21% Growth VIPERs, VUG
-5.22% Italy Index, EWI
-5.22% Global Titans, DGT
-5.23% Growth Small Cap DJ, DSG
-5.25% Lg Cap Growth PSD, PWB
-5.26% Energy Global, IXC
-5.26% SmallCap PS Zacks, PZJ
-5.29% Growth LargeCap Russell 3000, IWZ
-5.29% Dividend Achievers PS, PFM
-5.31% South Korea Index, EWY
-5.31% Growth LargeCap iS M, JKE
-5.33% MidCap S&P 400 SPDRs, MDY
-5.34% MidCap Blend Core iS M, JKG
-5.37% Industrials VIPERs, VIS
-5.43% Semiconductors, PSI
-5.48% Technology Global, IXN
-5.48% Consumer Cyclical DJ, IYC
-5.48% Energy SPDR, XLE
-5.51% Value Small Cap DJ, DSV
-5.56% Telecom DJ US, IYZ
-5.62% Value SmallCap S&P 600, RZV
-5.63% MidCap Growth iS M, JKH
-5.65% Micro Cap Zachs, PZI
-5.66% Retail, PMR
-5.68% Growth SmallCap Dynamic PS, PWT
-5.71% China 25 iS, FXI
-5.73% LargeCap 1000 R, IWB
-5.77% Nanotech Lux, PXN
-5.78% Canada Index, EWC
-5.81% Growth MidCap Russell, IWP
-5.81% S&P 500 iS LargeCap Blend, IVV
-5.82% Growth BARRA Small Cap 600, IJT
-5.82% MidCap VIPERs, VO
-5.84% Growth Mid Cap Dynamic PS, PWJ
-5.86% Growth MidCap 400 B, IJK
-5.89% MidCap Russell, IWR
-5.91% Dividend International, PID
-5.93% Dividend SPDR, SDY
-5.97% LargeCap Blend Total Market DJ, IYY
-5.99% SmallCap S&P 600, IJR
-6.02% Growth SmallCap VIPERs, VBK
-6.05% Internet Architecture H, IAH
-6.05% Austria Index, EWO
-6.07% LargeCap Blend NYSE Composite iS, NYC
-6.09% Extended Mkt VIPERs, VXF
-6.10% Blend Total Market VIPERs, VTI
-6.11% Growth SmallCap iS M, JKK
-6.12% LargeCap Blend S&P 1500 iS, ISI
-6.14% Value S&P 500, RPV
-6.15% Info Tech VIPERs, VGT
-6.17% Value MidCap S&P 400 B, IJJ
-6.19% LargeCap Blend S&P 100, OEF
-6.19% Small Cap VIPERs, VB
-6.19% Consumer D. VIPERs, VCR
-6.22% China LargeCap Growth G D H USX PS, PGJ
-6.25% Materials VIPERs, VAW
-6.26% LargeCap VIPERs, VV
-6.27% Technology DJ US, IYW
-6.27% Energy VIPERs, VDE
-6.32% Value SmallCap Dynamic PS, PWY
-6.32% Value LargeCap Dynamic PS, PWV
-6.32% Value MidCap Russell, IWS
-6.34% Growth LargeCap NASDAQ 100, QQQQ
-6.38% Energy DJ, IYE
-6.39% Technology GS, IGM
-6.41% Growth 1000 Russell, IWF
-6.42% Consumer Discretionary SPDR, XLY
-6.43% Value SmallCap VIPERS, VBR
-6.44% Growth SmallCap R 2000, IWO
-6.45% Semiconductor SPDR, XSD
-6.52% Value LargeCap Russell 3000, IWW
-6.52% Semiconductor iS GS, IGW
-6.56% Microcap Russell, IWC
-6.56% SmallCap Russell 2000, IWM
-6.64% Semiconductor H, SMH
-6.67% Sweden Index, EWD
-6.67% Software H, SWH
-6.70% Technology MS sT, MTK
-6.71% Software, IGV
-6.72% Value Line Timeliness MidCap Gr, PIV
-6.73% Value Large Cap DJ, ELV
-6.73% LargeCap Blend S&P=Weight R, RSP
-6.73% Homebuilders SPDR, XHB
-6.76% Natural Resource iS GS, IGE
-6.76% Growth S&P 500, RPG
-6.76% Emerging VIPERs, VWO
-6.86% Dividend DJ Select, DVY
-6.87% Value LargeCap Fundamental RAFI 1000, PRF
-6.87% South Africa Index, EZA
-6.95% LargeCap Rydex Rus Top 50, XLG
-6.99% LargeCap Blend Russell 3000, IWV
-7.00% LargeCap Blend Dynamic PS, PWC
-7.02% Value 40 Large Low P/E FT DB, FDV
-7.02% Value SmallCap S&P 600 B, IJS
-7.08% Value SmallCap iS M, JKL
-7.13% Value VIPERs, VTV
-7.14% Growth LargeCap NASDAQ Fidelity, ONEQ
-7.15% Dividend Growth PS, PHJ
-7.25% Value 1000 Russell, IWD
-7.29% Emerging 50 BLDRS, ADRE
-7.31% Mexico Index, EWW
-7.33% Internet H, HHH
-7.36% Value LargeCap iS M, JKF
-7.41% REIT Wilshire, RWR
-7.46% Value S&P 500 B, IVE
-7.50% Basic Materials DJ US, IYM
-7.52% Value SmallCap Russell 2000, IWN
-7.63% Energy Exploration & Prod, PXE
-7.68% Financials Global LargeCap Value, IXG
-7.69% Internet B2B H, BHH
-7.78% Emerging Markets, EEM
-7.97% Metals & Mining SPDR, XME
-7.99% Capital Markets KWB ST, KCE
-8.34% Belgium Index, EWK
-8.45% Real Estate US DJ, IYR
-8.69% Oil & Gas, PXJ
-8.88% Dividend Leaders, FDL
-9.34% Ultra Dow30 Double, DDM
-9.45% Dividend High Yield Equity PS, PEY
-9.60% Oil Services H, OIH
-9.64% Latin Am 40, ILF
-9.93% Realty Cohen & Steers, ICF
-10.01% Ultra QQQ Double, QLD
-10.55% Brazil Index, EWZ
-10.56% Financial SPDR, XLF
-10.62% WilderHill Clean Energy PS, PBW
-10.75% Ultra S&P500 Double, SSO
-10.84% Financial DJ US, IYF
-10.84% Bank Regional H, RKH
-11.02% Financials VIPERs, VFH
-11.97% Ultra MidCap400 Double, MVV
-12.03% Financial Services DJ, IYG