by Robert W. Colby, Senior Analyst,

Stock Market: fear is rising.

The VIX “Fear Index”, now at 70.33, broke out to a new closing 18-year high.

The market remains oversold by ordinary standards—but these are not ordinary times.

Investors appear unsettled and pessimistic—not without reason.

Government intervention into markets and privately-owned companies may offer risks and opportunities that are difficult to estimate. Some “experts” express confidence, while others say the intervention may not be enough to turn the tide.

The depth of the credit abyss appears to be hidden in fog. Does anyone really know where the bottom might be?

What we do know is the direction of the Primary Tide Trend, which remains Bearish. The Primary Tide Trend is an extremely powerful force.

Sometimes the best offense is a strong defense. Focus on capital preservation.

On Friday, major stock price indexes again saw large swings in both directions, up and down. Stocks opened lower, reversed to a plus side peak at about 1:35 p.m., but reversed again to close down on the day. The Standard & Poor’s 500 cash index (940.55) closed down 5.88 points, or 0.62%. Total NYSE volume fell 18%, confirming diminished demand for stocks.

CATS is short. CATS Simulated Cumulative Equity has soared by 73% to new all-time highs since 9/8/08, assuming 50% margin and zero transaction costs. CATS is the Colby Algorithmic Timing System. (Click here for a graph of simulated performance.)

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

3.57% , RFV , Value MidCap S&P 400, RFV
6.67% , FPX , IPOs, First Tr IPOX-100, FPX
8.27% , ADRD , Developed 100 BLDRS, ADRD
5.17% , PWO , OTC Dynamic PS, PWO
12.78% , BHH , Internet B2B H, BHH
2.35% , PZJ , SmallCap PS Zacks, PZJ
1.12% , PHW , Hardware & Electronics, PHW
1.48% , DGT , Global Titans, DGT
13.12% , SLE , SARA LEE
2.03% , IAH , Internet Architecture H, IAH
61.51% , CIT , CIT GROUP
2.19% , ADRU , Europe 100 BLDRS, ADRU
4.06% , PHJ , Dividend Growth PS, PHJ
0.92% , IIH , Internet Infrastructure H, IIH
3.42% , UST , UST
2.90% , XSD , Semiconductor SPDR, XSD
0.33% , DSV , Value Small Cap DJ, DSV
0.33% , PIC , Insurance, PIC
0.82% , FDV , Value 40 Large Low P/E FT DB, FDV
1.65% , KLD , LargeCap Blend Socially Responsible iS, KLD
4.81% , PSJ , Software, PSJ
1.76% , UTH , Utilities H, UTH
8.01% , DLX , DELUXE
0.76% , RPG , Growth S&P 500, RPG
1.33% , PTE , Telecommunications & Wireless, PTE
8.26% , ALL , ALLSTATE
0.86% , VPU , Utilities VIPERs, VPU
0.70% , JKH , MidCap Growth iS M, JKH
2.72% , TE , TECO ENERGY
2.06% , DSG , Growth Small Cap DJ, DSG
7.84% , EP , EL PASO
6.35% , MYL , MYLAN LABS
3.96% , GILD , Gilead Sciences Inc
0.51% , VCR , Consumer D. VIPERs, VCR
4.44% , MBI , MBIA

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

-1.24% , FEZ , Euro STOXX 50, FEZ
-3.05% , EWK , Belgium Index, EWK
-14.31% , PMCS , PMC SIERRA
-12.28% , LEG , LEGGETT & PLATT
-14.13% , TMK , TORCHMARK
-9.68% , ZION , ZIONS
-9.57% , SANM , SANMINA
-4.68% , SYK , STRYKER
-3.14% , PEY , Dividend High Yield Equity PS, PEY
-2.40% , PWY , Value SmallCap Dynamic PS, PWY
-1.48% , VIS , Industrials VIPERs, VIS
-5.98% , PWER , POWER ONE
-3.98% , EWD , Sweden Index, EWD
-8.27% , DHI , D.R. HORTON, DHI
-1.21% , PGJ , China LargeCap Growth G D H USX PS, PGJ
-0.26% , RZV , Value SmallCap S&P 600, RZV
-0.34% , IXN , Technology Global, IXN
-4.63% , MCHP , Microchip Technology Incorporated
-1.09% , ADRA , Asia 50 BLDRS, ADRA
-0.85% , LQD , Bond, Corp, LQD
-1.72% , PZI , Micro Cap Zachs, PZI
-5.59% , EWN , Netherlands Index, EWN
-2.52% , MIL , MILLIPORE
-6.06% , EZA , South Africa Index, EZA
-2.03% , IJT , Growth BARRA Small Cap 600, IJT
-0.27% , TTH , Telecom H, TTH
-5.94% , SNDK , SanDisk Corporation
-1.49% , EFV , Value EAFE MSCI, EFV
-5.04% , VFC , VF
-1.29% , JKJ , SmallCap Core iS M, JKJ
-0.44% , PWT , Growth SmallCap Dynamic PS, PWT

Sectors: among the 9 major U.S. sectors, 5 rose and 4 fell.
Major Sectors Ranked for the Day
% Price Change, Sector ETF, Symbol

2.67% Materials SPDR, XLB
2.20% Energy SPDR, XLE
2.02% Consumer Discretionary SPDR, XLY
0.75% Consumer Staples SPDR, XLP
0.51% Utilities SPDR, XLU
-0.38% Health Care SPDR, XLV
-0.96% Technology SPDR, XLK
-2.16% Industrial SPDR, XLI
-2.85% 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 10/10/08, XLP/SPY Relative Strength Ratio rose to another new 5-year high, but XLP absolute price fell to a new 2-year low. XLP is the best of a bad lot.

Health Care (XLV) Bearish, Underweight. On 10/10/08, XLV absolute price fell to a new 5-year low.

Utilities (XLU) Bearish, Underweight. On 10/10/08, the XLU absolute price fell to another new 2-year low.

Technology (XLK) Bearish, Underweight. On 10/10/08, the XLK absolute price fell to another new 41-month low.

Consumer Discretionary (XLY) Bearish, Underweight. On 10/10/08, XLY absolute price fell to its lowest level in 5 years.

Industrial (XLI) Bearish, Underweight. On 10/10/08, the XLI absolute price hit another new 58-month low.

Materials (XLB) Bearish, Underweight. On 10/16/08, the XLB absolute price made another new 26-month intraday low.

Energy (XLE) Bearish, Underweight. On 10/10/08, the XLE absolute price hit another new 18-month intraday low.

Financial (XLF) Bearish, Underweight. On 10/10/08, the XLF absolute price hit another new 10-year low. The XLF long-term trend of relative strength has been trending down since 2/20/07.

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 10/10/08 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 10/10/08, the absolute price made another new 5-year low, reconfirming long-term trend weakness.

NASDAQ 100 Index intraday price hit a new 5-year low on 10/16/08.

Growth Stock/Value Stock Relative Strength Ratio has been trending down since it peaked on 7/15/08.

The Small Cap/Large Cap Relative Strength Ratio has been trending down since it peaked on 9/19/08.

Crude Oil futures November contract price firmed slightly but remains Bearish. On 10/16/08, oil hit a new 12-month low of 68.57. 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 down below previous 4-week lows. Gold is in a short-term downtrend and 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 again. Bonds remain Bearish for the short term and appear uncertain for the intermediate-term trend. Long term, Bonds have been in a neutral sideways trend since June 2003.

iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF absolute price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows on 10/10/08. 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 15-month closing price low on 10/10/08, implying deflation. All trends remain Bearish.

The U.S. dollar consolidated with a narrow-range Inside Day (lower high and higher low). 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 record high levels of volatility. Investors might be wise to focus on risk control.

Sentiment/Contrary Opinion: There were 22.4% Bulls versus 52.9% Bears as of 10/15/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.42, down from 0.48 the previous week. This is an extreme level of pessimism. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47. Contrary Opinion must be tempered with other timing tools, of course.

VIX Fear Index, now at 70.33, broke out to a new 18-year 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 71.26, backed down slightly from its 7-year high of 72.93 set on 10/15/08. 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 0.82, 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 1.26, 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 10/9/08, 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.

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.”

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 10/10/08, 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 (940.55):

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
1,044.91, high of 10/14/2008
970.50, Gann 75.0% of 2002-2007 upmove
941.43, Fibonacci 78.6% 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 (940.55):

Potential Support
839.80, low of 10/10/2008
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

12.78% Internet B2B H, BHH
8.27% Developed 100 BLDRS, ADRD
6.67% IPOs, First Tr IPOX-100, FPX
5.17% OTC Dynamic PS, PWO
4.88% Pharmaceuticals, PJP
4.81% Software, PSJ
4.67% Technology MS sT, MTK
4.08% Leisure & Entertainment, PEJ
4.06% Dividend Growth PS, PHJ
3.74% Broadband H, BDH
3.57% Value MidCap S&P 400, RFV
3.49% Latin Am 40, ILF
2.90% Semiconductor SPDR, XSD
2.78% Short 200% Dow 30 PS, DXD
2.67% Materials SPDR, XLB
2.43% Building & Construction, PKB
2.35% SmallCap PS Zacks, PZJ
2.30% Food & Beverage, PBJ
2.20% Energy SPDR, XLE
2.19% Europe 100 BLDRS, ADRU
2.06% Growth Small Cap DJ, DSG
2.03% Internet Architecture H, IAH
2.02% Consumer Discretionary SPDR, XLY
1.78% Internet H, HHH
1.76% Utilities H, UTH
1.75% Biotech & Genome, PBE
1.68% Brazil Index, EWZ
1.65% LargeCap Blend Socially Responsible iS, KLD
1.54% Biotech H, BBH
1.51% Energy Global, IXC
1.48% Global Titans, DGT
1.45% Software, IGV
1.44% Canada Index, EWC
1.42% Energy Exploration & Prod, PXE
1.40% Natural Resource iS GS, IGE
1.33% Telecommunications & Wireless, PTE
1.33% Value S&P 500, RPV
1.31% Short 200% S&P 500 PS, SDS
1.30% Short 200% MidCap 400 PS, MZZ
1.18% Consumer Non-Cyclical, IYK
1.15% Metals & Mining SPDR, XME
1.13% Commodity Tracking, DBC
1.13% Short 100% Dow 30, DOG
1.12% Hardware & Electronics, PHW
1.07% WilderHill Clean Energy PS, PBW
1.02% Healthcare Global, IXJ
0.99% Pharmaceutical H, PPH
0.92% Internet Infrastructure H, IIH
0.91% Value Line Timeliness MidCap Gr, PIV
0.89% Capital Markets KWB ST, KCE
0.89% Utilities DJ, IDU
0.86% Utilities VIPERs, VPU
0.86% Growth 1000 Russell, IWF
0.86% Growth LargeCap iS M, JKE
0.86% Retail, PMR
0.84% Value LargeCap Euro STOXX 50 DJ, FEU
0.82% Growth Large Cap, ELG
0.82% Value 40 Large Low P/E FT DB, FDV
0.81% Software H, SWH
0.79% Mexico Index, EWW
0.78% Value MidCap iS M, JKI
0.76% Growth S&P 500, RPG
0.75% Networking, IGN
0.75% Consumer Staples SPDR, XLP
0.74% Utilities, PUI
0.71% Switzerland Index, EWL
0.70% MidCap Growth iS M, JKH
0.68% Biotech SPDR, XBI
0.64% Growth S&P 500/BARRA, IVW
0.63% Bond, 10 Year Treasury, IEF
0.55% Value MidCap Dynamic PS, PWP
0.54% Consumer Staples VIPERs, VDC
0.51% Utilities SPDR, XLU
0.51% Consumer D. VIPERs, VCR
0.46% Technology GS, IGM
0.43% Healthcare DJ, IYH
0.41% Health Care VIPERs, VHT
0.40% Emerging 50 BLDRS, ADRE
0.37% Retail H, RTH
0.36% Bond, Aggregate, AGG
0.34% Short 100% S&P 500, SH
0.33% Value Small Cap DJ, DSV
0.33% Insurance, PIC
0.29% Dividend Leaders, FDL
0.29% Growth Mid Cap Dynamic PS, PWJ
0.28% Networking, PXQ
0.26% Consumer Cyclical DJ, IYC
0.18% Lg Cap Growth PSD, PWB
0.17% Growth SmallCap iS M, JKK
0.16% LargeCap Blend Core iS M, JKD
0.16% Growth LargeCap Russell 3000, IWZ
0.12% Growth LargeCap NASDAQ 100, QQQQ
0.07% Bond, 1-3 Year Treasury, SHY
0.05% Oil, Crude, U.S. Oil Fund, USO
0.00% Dividend International, PID
-0.02% LargeCap Blend NYSE Composite iS, NYC
-0.03% Value Large Cap DJ, ELV
-0.03% Growth MidCap Russell, IWP
-0.04% MidCap Blend Core iS M, JKG
-0.06% Ultra S&P500 Double, SSO
-0.07% LargeCap Blend S&P 1500 iS, ISI
-0.08% Value LargeCap iS M, JKF
-0.12% Energy VIPERs, VDE
-0.13% LargeCap Blend Total Market DJ, IYY
-0.13% Wilshire 5000 ST TM, TMW
-0.16% LargeCap 1000 R, IWB
-0.16% Growth MidCap S&P 400, RFG
-0.16% Telecom Services VIPERs, VOX
-0.16% Telecom DJ US, IYZ
-0.17% MidCap Russell, IWR
-0.19% Growth VIPERs, VUG
-0.19% Short 100% QQQ, PSQ
-0.20% Ultra QQQ Double, QLD
-0.21% Materials VIPERs, VAW
-0.23% United Kingdom Index, EWU
-0.24% Info Tech VIPERs, VGT
-0.24% Extended Mkt VIPERs, VXF
-0.24% MidCap VIPERs, VO
-0.25% Telecommunications Global, IXP
-0.26% Value SmallCap S&P 600, RZV
-0.27% Telecom H, TTH
-0.31% Growth LargeCap NASDAQ Fidelity, ONEQ
-0.33% LargeCap Rydex Rus Top 50, XLG
-0.33% Growth MidCap 400 B, IJK
-0.34% Technology Global, IXN
-0.34% Dividend Achievers PS, PFM
-0.36% Technology DJ US, IYW
-0.38% LargeCap VIPERs, VV
-0.38% Basic Materials DJ US, IYM
-0.38% Health Care SPDR, XLV
-0.41% Bond, TIPS, TIP
-0.44% LargeCap Blend Dynamic PS, PWC
-0.44% Growth SmallCap Dynamic PS, PWT
-0.52% Emerging VIPERs, VWO
-0.53% S&P 500 iS LargeCap Blend, IVV
-0.54% Financials VIPERs, VFH
-0.56% Value MidCap Russell, IWS
-0.58% Semiconductors, PSI
-0.60% S&P 500 SPDRs LargeCap Blend, SPY
-0.62% Energy DJ, IYE
-0.63% Value S&P 500 B, IVE
-0.63% Value LargeCap Fundamental RAFI 1000, PRF
-0.65% Aerospace & Defense, PPA
-0.66% Value LargeCap NYSE 100 iS, NY
-0.69% Bond, 20+ Years Treasury, TLT
-0.70% Oil Services H, OIH
-0.71% Short 200% QQQ PS, QID
-0.72% Value LargeCap Dynamic PS, PWV
-0.73% Oil & Gas, PXJ
-0.73% Nanotech Lux, PXN
-0.75% Value LargeCap Russell 3000, IWW
-0.77% Value 1000 Russell, IWD
-0.81% LargeCap Blend Russell 3000, IWV
-0.82% Realty Cohen & Steers, ICF
-0.85% Bond, Corp, LQD
-0.90% Global 100, IOO
-0.91% REIT Wilshire, RWR
-0.94% Blend Total Market VIPERs, VTI
-0.94% Value VIPERs, VTV
-0.96% Technology SPDR, XLK
-0.99% Japan LargeCap Blend TOPIX 150, ITF
-1.03% Real Estate US DJ, IYR
-1.03% Dividend Appreciation Vipers, VIG
-1.08% Value MidCap S&P 400 B, IJJ
-1.08% Ultra MidCap400 Double, MVV
-1.09% Asia 50 BLDRS, ADRA
-1.17% Dividend SPDR, SDY
-1.17% LargeCap Blend S&P 100, OEF
-1.19% Short 100% MidCap 400, MYY
-1.20% Growth SmallCap VIPERs, VBK
-1.21% China LargeCap Growth G D H USX PS, PGJ
-1.21% Industrial LargeCap Blend DJ US, IYJ
-1.24% Euro STOXX 50, FEZ
-1.29% SmallCap Core iS M, JKJ
-1.31% Water Resources, PHO
-1.35% MidCap S&P 400 iS, IJH
-1.35% Japan Index, EWJ
-1.48% Industrials VIPERs, VIS
-1.49% Value EAFE MSCI, EFV
-1.51% MidCap S&P 400 SPDRs, MDY
-1.56% Semiconductor iS GS, IGW
-1.58% Small Cap VIPERs, VB
-1.58% LargeCap Blend S&P=Weight R, RSP
-1.62% Europe 350 S&P Index, IEV
-1.63% Dividend DJ Select, DVY
-1.65% Semiconductor H, SMH
-1.67% Pacific VIPERs, VPL
-1.71% Homebuilders SPDR, XHB
-1.72% Micro Cap Zachs, PZI
-1.80% European VIPERs, VGK
-1.89% Italy Index, EWI
-1.94% France Index, EWQ
-1.97% Growth EAFE MSCI, EFG
-2.03% Growth BARRA Small Cap 600, IJT
-2.13% EAFE Index, EFA
-2.16% Industrial SPDR, XLI
-2.23% Value SmallCap iS M, JKL
-2.30% Financial DJ US, IYF
-2.36% Microcap Russell, IWC
-2.38% Value SmallCap Russell 2000, IWN
-2.40% Value SmallCap Dynamic PS, PWY
-2.40% Taiwan Index, EWT
-2.46% Value SmallCap S&P 600 B, IJS
-2.47% Growth SmallCap R 2000, IWO
-2.53% Germany Index, EWG
-2.55% Ultra Dow30 Double, DDM
-2.55% Spain Index, EWP
-2.57% Value SmallCap VIPERS, VBR
-2.61% Malaysia Index, EWM
-2.62% SmallCap S&P 600, IJR
-2.62% Gold Shares S.T., GLD
-2.64% SmallCap Russell 2000, IWM
-2.71% EMU Europe Index, EZU
-2.74% Transportation Av DJ, IYT
-2.81% Financial Services DJ, IYG
-2.85% Financial SPDR, XLF
-3.05% Belgium Index, EWK
-3.14% Emerging Markets, EEM
-3.14% Dividend High Yield Equity PS, PEY
-3.22% Hong Kong Index, EWH
-3.78% Bank Regional H, RKH
-3.85% Silver Trust iS, SLV
-3.98% Sweden Index, EWD
-4.52% Financials Global LargeCap Value, IXG
-4.77% Austria Index, EWO
-4.78% Singapore Index, EWS
-4.82% India Earnings WTree, EPI
-5.08% Pacific ex-Japan, EPP
-5.39% Australia Index, EWA
-5.59% Netherlands Index, EWN
-5.85% China 25 iS, FXI
-6.06% South Africa Index, EZA
-6.58% South Korea Index, EWY