By Robert W. Colby, Senior Analyst TraderPlanet.com

Very strong momentum, short term bullish momentum divergences persist


Short-term technical momentum oscillators jumped sharply higher following oversold readings. There have been Bullish momentum divergences since 11/12/07, when most momentum oscillators were at their lowest levels. Bullish momentum divergences are still in effect.

The Financial stock sector, which had been dragging the whole market down and was the most oversold, led the way higher, jumping an amazing 5.97%.


On Wednesday, major stock price indices opened higher and just continued higher most of the day. Prices closed up sharply, near their highs of the day. On Tuesday and Wednesday together, the S&P 500 rose 4.39% for its biggest two-day rally since 10/15/02.

Volume rose to its highest level since 11/20/07. Rising volume with rising prices tends to be Bullish.

Breadth ended 74% net Bullish, with more Advancing stocks than Declining stocks on the NYSE.

Up-Down Volume finished the day 88% net Bullish, with greater Up Volume than Down Volume on the NYSE.

New Highs-New Lows on the NYSE ended at 47% net Bearish.

Bullish Price Divergences: Although the Dow Industrials and Transports both closed below their August lows in November, the following indices held above their August closing lows: DJUA, S&P 500, S&P 100, NASDAQ Composite, NASDAQ 100, Russell 3000, Russell 1000, and Wilshire 5000.

Bad News: The business and financial news has taken a turn toward the extreme Bearish side in recent weeks, mainly due to worries about housing and credit and the impact on the economy. But keep in mind that the stock market is a leading economic indicator and the news is a lagging indicator. Stock prices typically discount the future many months ahead. Therefore, the current news usually arrives too late to be of much actual use to investors.

The Art of Contrary Thinking: “Traders see the situation in the financial world getting extensively worse before it gets better …”, according one typical published interpretation. “We have not seen a nationwide decline in housing like this since the Great Depression,” said John Stumpf, CEO of Wells Fargo. Optimistic reports scarce. The media appears to be more than willing to give big play to anything pessimistic. These are the kinds of stories typically seen at or near market bottoms.

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

4.44% , EWO , Austria Index, EWO
3.18% , FEZ , Euro STOXX 50, FEZ
10.09% , TRB , TRIBUNE
3.92% , MTK , Technology MS sT, MTK
7.08% , PGJ , China LargeCap Growth G D H USX PS, PGJ
2.77% , JKI , Value MidCap iS M, JKI
2.82% , IWZ , Growth LargeCap Russell 3000, IWZ
14.34% , FRE , FREDDIE MAC
3.87% , XSD , Semiconductor SPDR, XSD
2.84% , XLG , LargeCap Rydex Rus Top 50, XLG
2.71% , RPG , Growth S&P 500, RPG
6.76% , STI , SUNTRUST BANKS
7.00% , URBN , Urban Outfitters Inc.
5.34% , PSI , Semiconductors, PSI
3.19% , VIS , Industrials VIPERs, VIS
7.31% , LTD , LIMITED BRANDS
1.60% , EWN , Netherlands Index, EWN
4.28% , CHKP , Check Point Software Technologies Ltd
7.80% , MON , MONSANTO
7.03% , CTSH , Cognizant Technology Solutions
5.40% , ADRE , Emerging 50 BLDRS, ADRE
3.46% , RTH , Retail H, RTH
3.62% , FPX , IPOs, First Tr IPOX-100, FPX
4.41% , HGSI , Human Genome Sciences Inc
8.89% , MER , MERRILL LYNCH
5.49% , VMC , VULCAN MATERIALS
2.84% , HSY , HERSHEY FOODS
10.84% , THC , TENET HEALTHCARE
2.22% , PPH , Pharmaceutical H, PPH
5.97% , XLF , Financial SPDR, XLF
4.00% , LVLT , LEVEL 3 COMMUNICATIONS
5.16% , CIEN.O , CIENA
3.95% , RSH , RADIOSHACK
2.96% , IJJ , Value MidCap S&P 400 B, IJJ
8.26% , LEH , LEHMAN BROS HLDG
2.63% , BDH , Broadband H, BDH
5.91% , ROH , ROHM & HAAS
3.15% , JKK , Growth SmallCap iS M, JKK
5.37% , PFG , PRINCIPAL FINL
3.39% , IGM , Technology GS, IGM
6.25% , LOW , LOWES
1.61% , IDU , Utilities DJ, IDU
6.45% , GT , GOODYEAR TIRE
1.65% , IYH , Healthcare DJ, IYH
3.11% , SDY , Dividend SPDR, SDY
4.64% , RKH , Bank Regional H, RKH
3.16% , IGN , Networking, IGN
2.91% , IBB , Biotechnology, IBB
2.82% , SEE , SEALED AIR
4.01% , NWS.A , NEWS CORP STK A

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

-10.15% , MRVL , MARVELL TECHNOLOGY
-3.45% , XMSR , XM Satellite R
-0.71% , NYT , NY TIMES STK A
-1.71% , DVN , DEVON ENERGY
-1.07% , CPWR , COMPUWARE
-1.23% , DBC , Commodity Tracking, DBC
-2.71% , MYY , Short 100% MidCap 400, MYY
-1.21% , DLTR , Dollar Tree Stores Inc
-0.84% , SIRI , Sirius Satellite
-3.36% , USO , Oil, Crude, U.S. Oil Fund, USO
-2.79% , CFC , COUNTRYWIDE FNCL
-0.66% , GLD , Gold Shares S.T., GLD
-0.44% , QLGC , QLOGIC
-0.59% , MBI , MBIA
-0.93% , XTO , XTO ENERGY INC
-0.55% , NE , NOBLE
-4.43% , MAT , MATTEL
-0.26% , CEG , CONSTELL ENERGY
-0.33% , SLV , Silver Trust iS, SLV
-0.11% , RDC , ROWAN COMPANIES
-0.73% , IAU , Gold COMEX iS, IAU

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

5.97% Financial
4.74% Materials
3.89% Consumer Discretionary
2.94% Technology
2.48% Energy
2.43% Industrial
2.38% Health Care
1.74% Utilities
1.58% Consumer Staples

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

Utilities (XLU) Bullish, Overweight. This defensive sector’s Relative Strength made a new 6-year high on 11/26/07. Price made a new 5-month high on 10/31/07. Utilities have improved significantly since their Relative Strength low on 9/28/07.

Energy (XLE) Bullish, Overweight. Relative Strength made new all-time high on 11/8/07. XLE made an all-time closing price high on 10/16/07. XLE has been strong compared to the S&P since 3/12/03.

Consumer Staples (XLP) Bullish, Overweight. This defensive sector’s price made a new all-time high on 11/28/07, and Relative Strength made a new 6-year high on 11/26/07.

Materials (XLB) Bullish, Overweight. The short-term turned down but the long-term trend is still up. Relative Strength made new all-time high on 11/8/07. Price made new all-time high on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.

Technology (XLK) Bullish, Overweight. XLK hit a new 6-year price high on 11/1/07, and Relative Strength made a new 3-year high on 11/5/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.

Health Care (XLV) Neutral, Market Weight. This defensive sector’s Relative Strength moved up to a new 13-month high on 11/27/07.

Industrial (XLI) Neutral, Market Weight. Price and Relative Strength have been chopping sideways over the past 4 months. Longer-term trends appear Bullish.

Consumer Discretionary (XLY) Bearish, Underweight. On 11/27/07, price made a new 14-month low. On 11/21/07, the XLY/SPY Relative Strength ratio fell to its lowest level in 6 years. Relative Strength has been trending down since 1/5/05.

Financial (XLF) Bearish, Underweight. XLF price hit another new 2.5-year low on 11/26/07, and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 7 years on 11/26/07. Relative Strength has been trending down since 2/20/07.

Foreign stock indices made a new high in Relative Strength on 11/27/07. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made a new price high on 10/31/07 and a new relative strength high on 11/27/07. EFA has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is still Bullish. My Top 10 ETF Relative Strength Ranks have been nearly all Foreign for many months.

NASDAQ Composite and NASDAQ 100 outperformed since 11/12/07. Longer term, NASDAQ outperformed from 8/8/06 to 11/7/07, including a new 6-year Relative strength high on 11/7/07 and a new price high on 10/31/07.

Growth Stock/Value Stock Relative Strength ratio has been in a rising trend since 11/12/07. The ratio made a new high on 11/7/07. The long-term, the main trend for the Growth/Value ratio (IWF/IWD) has been rising since 8/8/06.

Small Cap Relative Strength fell to new lows on 11/26/07 and price broke its August low on 11/21/07. Small Caps substantially underperformed Large Caps since 4/19/06, and so the main long-term trend is Bearish for Small Caps.

January Crude Oil Futures broke previous 3-day lows and fell 3.34% to 94.44. Crude Oil fell to 90.33—just 0.20 above the previous low at 90.13. Support appears at previous lows of 90.13 and 88.92, at previous resistance at 84.10, and at previous minor lows in the 78.25-78.35 zone. The 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 has been lagging oil the commodity over the past 5 months. XLE has underperformed the USO since 5/30/07.

December Gold Futures fell again. Gold appears uncertain for the short term, but Gold’s main trend remains Bullish.

Silver’s main trend is Bearish compared to Gold. The iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.

The Gold Miners ETF (GDX) has underperformed Gold Futures since 10/31/07.

Inflation expectations turned down since 11/23/07. The main trend is still up, based on the behavior of the ratio of two ETFs, TIP/IEF.

U.S. Treasury Bonds prices fell moderately over the past 2 days after making a new 28-month price high on 11/26/07. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) has been rising since 6/12/07. 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.

The U.S. dollar may be trying to stabilize. The U.S. dollar appears to be losing downside momentum over the past 6 trading days, but the main trend is still down. Some kind of relief rally could be possible. Previously, all rally attempts have been confined to only one day at a time over the past 7 weeks, indicating persistent selling pressure. Longer term, the dollar fell 19% from its high of 92.53 on 11/16/05 to its low of 74.65 on 11/23/07. There can be no doubt that the main trend has been Bearish.

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

7.27% Brazil
5.97% Financial
5.95% Broker Dealers
5.39% Hong Kong
5.28% Banks
4.84% Chemicals
4.74% Materials
4.63% Retailers
4.57% Hardware
4.50% Mexico
4.44% Austria
4.06% Airlines
3.89% Consumer Discretionary
3.83% REITs
3.77% Sweden
3.69% Network
3.65% Internet
3.63% United Kingdom
3.60% Russell 2000
3.55% Dow Transports
3.39% Disk Drives
3.26% S&P Small Caps
3.26% Australia
3.18% Nasdaq Composite
3.16% DOT
3.15% Value Line
3.13% Paper
3.09% Germany
3.09% Singapore
3.03% Nasdaq 100
3.00% Computer Tech
2.96% S&P Mid Caps
2.96% Gold Mining
2.94% Technology
2.91% Russell 3000
2.90% Wilshire 5000
2.86% S&P 500
2.86% Russell 1000
2.84% France
2.83% NYSE Composite
2.80% Canada
2.80% Malaysia
2.79% South Korea
2.75% S&P 100
2.72% Belgium
2.69% Commodity Related
2.59% Italy
2.56% Hospitals
2.55% Dow Industrial
2.55% Dow Composite
2.50% AMEX Composite
2.48% Energy
2.48% Insurance
2.44% Spain
2.43% Industrial
2.38% Health Care
2.35% Semiconductors
2.05% Switzerland
1.85% Oil
1.84% Drugs
1.76% Australian Dollar
1.74% Utilities
1.70% Health Care
1.63% Taiwan
1.60% Netherlands
1.58% Consumer Staples
1.44% Health Care Products
1.40% Biotechs
1.28% Canadian Dollar
1.22% Oil Services
1.21% Dow Utilities
0.94% Japan
0.83% Natural Gas
0.48% British Pound
0.03% US Dollar Index
-0.03% Euro Index
-0.61% 30Y T-Bond
-0.62% Swiss Franc
-1.40% Japanese Yen