By Robert W. Colby, Senior Analyst

Bad News Overwhelmed the Bulls
Stock Market is Oversold

NASDAQ Relative Strength made a new high.

Foreign stock indices Relative Strength made a new high.

Growth Stock/Value Stock Relative Strength ratio rose to a new 20-month high.

Financial stock sector: Relative Strength fell to its lowest level in 6 years–again.

December Crude Oil Futures hit a new intraday price high at $98.62 but reversed to close lower.

December Gold Futures hit another new 28-year intraday price high of $848.00.

The U.S. dollar fell to another new price low.

On Wednesday, major stock price indices gapped sharply lower and spent most of the day stair-stepping down into a deep hole, accelerating in the final hour. Trading volume was more active, and all other indicators confirmed substantial selling pressure.

The S&P 500 broke below its October low and its 200-day moving average. Momentum oscillators are oversold. Still, some momentum indicators are above their levels in October, and that indicates Bullish Divergence. Moreover, the long-term trend of the stock market remains upward. And seasonal tendencies remain Bullish. Finally, with the news headlines so negative, the Art of Contrary Thinking could be useful.

Breadth ended 82% net Bearish, with more Declining stocks than Advancing stocks on the NYSE.

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

Total volume rose on both the NYSE and on the NASDAQ to confirm the price downtrend.

New Highs-New Lows on the NYSE ended at 53% net Bearish.

The Financial Sector led the way lower, down 5.1%, on more bad news about housing, mortgage, and credit markets. Washington Mutual was accused by the New York Attorney General of pressuring real estate appraisers to inflate the value of their appraisals. A Royal Bank of Scotland report suggested credit losses could exceed $250 billion. General Motors reported a third quarter loss of $39 billion, including mortgage-related losses at GMAC. The U.S. dollar fell steeply on a report that China might pursue a plan to cut its dollar holdings.

VIX “Fear Index” rose to a 7-week high, more than 2 standard deviations above its 1-year mean. VIX hit 26.85, intraday on 11/7/07, indicating that options traders were feeling very Bearish. 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.

The similarly calculated VXN “Fear Index”, measuring Nasdaq Volatility, rose to 27.14, more than 2 standard deviations above its 1-year mean.

CBOE Put/Call Ratio at 0.68 showed moderate Bearishness. The CBOE Equity Put/Call Ratio ( was moderately above its 5-year median of 0.62.

ISEE Call/Put Ratio at 1.08 showed moderate Bearishness. The ISEE Call/Put Ratio was moderately below its 5-year median of 1.48, indicating that customers opened a fewer long call options and more long put options than normal.

News: The business and financial news has taken a turn toward the gloomy side due to concerns about housing and credit problems. 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 Primary Tide Major Trend remains Bullish, and that is a strong force. The Dow Theory has repeatedly confirmed a Primary Bull Market every time both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed at new all-time highs. Both last made new all-time highs on 7/19/07. The Industrial Average made a new high on 10/9/07, but the Transportation Average failed to confirm. Then on 11/7/07, the Transports closed below their August low, but that weakness alone is not sufficient to change the main trend. As long as the Dow-Jones Industrial Average holds above its 8/16/07 closing price low of 12,845.78, then the Primary Tide is still Bullish.

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

2.14% , MYY , Short 100% MidCap 400, MYY
2.31% , SH , Short 100% S&P 500, SH
4.02% , MZZ , Short 200% MidCap 400 PS, MZZ
2.82% , DOG , Short 100% Dow 30, DOG
5.25% , SDS , Short 200% S&P 500 PS, SDS
2.48% , PSQ , Short 100% QQQ, PSQ
4.51% , DXD , Short 200% Dow 30 PS, DXD
4.56% , QID , Short 200% QQQ PS, QID
1.46% , VRSN , VeriSign Inc
1.18% , BEAS , BEA Systems Inc
0.99% , GLD , Gold Shares S.T., GLD
1.28% , LAMR , Lamar Advertising Company
0.37% , DISH , EchoStar Communications Corporation
0.18% , TLT , Bond, 20+ Years Treasury, TLT
0.37% , IEF , Bond, 10 Year Treasury, IEF
0.39% , CLX , CLOROX
0.29% , WAT , WATERS
0.02% , AGG , Bond, Aggregate, AGG
0.06% , TIP , Bond, TIPS, TIP

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

-3.12% , PHW , Hardware & Electronics, PHW
-1.97% , FDV , Value 40 Large Low P/E FT DB, FDV
-2.81% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
-2.46% , RPG , Growth S&P 500, RPG
-1.61% , IEV , Europe 350 S&P Index, IEV
-2.08% , JKG , MidCap Blend Core iS M, JKG
-10.11% , FNM , FANNIE MAE
-3.06% , HHH , Internet H, HHH
-8.63% , FRE , FREDDIE MAC
-5.09% , OMC , OMNICOM
-2.18% , EWN , Netherlands Index, EWN
-1.99% , FPX , IPOs, First Tr IPOX-100, FPX
-5.68% , FLR , FLUOR
-11.15% , GRMN , GARMIN LTD
-2.08% , XSD , Semiconductor SPDR, XSD
-19.06% , CAR , Avis Budget Group, Inc. (CAR)
-3.10% , ELV , Value Large Cap DJ, ELV
-3.00% , RFV , Value MidCap S&P 400, RFV
-3.00% , CMS , CMS ENERGY
-2.80% , RPV , Value S&P 500, RPV
-2.76% , VTI , Blend Total Market VIPERs, VTI
-5.73% , RYAAY , Ryanair Holdings plc
-2.60% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
-4.22% , PKB , Building & Construction, PKB
-2.19% , IXP , Telecommunications Global, IXP
-3.99% , SLM , SLM CORP
-4.77% , DDM , Ultra Dow30 Double, DDM
-2.63% , JKI , Value MidCap iS M, JKI
-2.18% , PEJ , Leisure & Entertainment, PEJ
-5.64% , SSCC , Smurfit-Stone Container Corporation
-3.20% , JKJ , SmallCap Core iS M, JKJ
-2.31% , IDU , Utilities DJ, IDU
-2.65% , VIS , Industrials VIPERs, VIS
-1.97% , EWP , Spain Index, EWP
-2.31% , DSG , Growth Small Cap DJ, DSG
-2.62% , TMW , Wilshire 5000 ST TM, TMW
-3.11% , VNQ , REIT VIPERs, VNQ
-2.38% , IWS , Value MidCap Russell, IWS

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

-1.10% Consumer Staples
-2.05% Consumer Discretionary
-2.28% Health Care
-2.29% Utilities
-2.41% Industrial
-2.69% Technology
-2.80% Materials
-4.12% Energy
-5.47% Financial

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

Energy (XLE) Bullish, Overweight. Relative Strength made new all-time high on 11/6/07. 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.

Technology (XLK) Bullish, Overweight. XLK hit another 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.

Materials (XLB) Bullish, Overweight. Relative Strength made new all-time high on 11/6/07. Price made new all-time high on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.

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

Industrial (XLI) Neutral, Market Weight. Industrial stock sector price made an all-time price high on 10/10/07, and XLI has turned Relatively Strong since 10/31/07.

Consumer Staples (XLP) Neutral, Market Weight. This defensive sector’s Relative Strength has improved since its low on 10/9/07 and made a new 1-year high on 11/7/07.

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. On 11/6/07, 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. On 11/5/07, XLF price hit another new 2-year low and the XLF/SPY Relative Strength ratio fell to its lowest level in more than 6 years. Relative Strength has been trending down since 2/20/07.

Foreign stock indices Relative Strength made a new high. 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 11/7/07. 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 both made new 6-year Relative strength highs on 11/7/07. Price confirmed the Bullish trend on 10/31/07. Longer term, NASDAQ has outperformed since 8/8/06.

Growth Stock/Value Stock Relative Strength ratio rose to a new 20-month high. Growth price made a new 6-year high on 10/11/07. Growth stocks outperformed Value stocks since 8/8/06. The main trend for the Growth/Value ratio (IWF/IWD) is confirmed Bullish.

Small Caps substantially underperformed Large Caps since 4/19/06, and the main long-term trend is Bearish for Small Caps.

December Crude Oil Futures hit a new intraday price high at $98.62 but reversed to close lower. This could be a sign of fatigue after a steep price run-up. Support appears at the low of 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), which is not a pure play on Crude Oil, confirmed the action of oil futures.

The Energy stock sector has been lagging oil the commodity. XLE has underperformed the USO since 5/30/07.

December Gold Futures hit another new 28-year intraday price high of $848.00, and GLD confirmed. Major trends obviously remain Bullish for Gold and the Gold Trust ETF (NYSE: GLD).

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) reversed with a Bearish Engulfing Line.

Inflation expectations rose to a new 14-month high on 11/6/07. This is based on the behavior of the ratio of two ETFs, TIP/IEF.

U.S. Treasury Bonds prices recovered, but only slightly, after hitting resistance last week. The long-term, iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) touched a new 11-month high on 11/2/07 but was unable to hold new high territory into the close that day. This could signal fatigue. 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 fell to another a new price low. The main trend has been confirmed Bearish—again and again. Longer term, the dollar fell 17% from its high of 92.53 on 11/16/05, and the main tidal force remains very Bearish.

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

1.25% Japanese Yen
1.09% Swiss Franc
0.80% British Pound
0.78% Euro Index
0.66% Australian Dollar
0.29% Canadian Dollar
-0.08% 30Y T-Bond
-0.63% US Dollar Index
-0.78% Malaysia
-0.84% Germany
-1.10% Consumer Staples
-1.31% Hospitals
-1.53% AMEX Composite
-1.57% Switzerland
-1.61% Retailers
-1.66% Australia
-1.80% France
-1.83% Drugs
-1.83% Italy
-1.85% Japan
-1.97% Spain
-2.05% Consumer Discretionary
-2.05% Internet
-2.10% Disk Drives
-2.10% Health Care
-2.14% Commodity Related
-2.14% Health Care Products
-2.18% Netherlands
-2.19% Oil
-2.20% Hardware
-2.22% Insurance
-2.28% Health Care
-2.29% Utilities
-2.31% S&P Mid Caps
-2.31% DOT
-2.37% Dow Utilities
-2.39% Canada
-2.40% Gold Mining
-2.40% Belgium
-2.41% Industrial
-2.44% Natural Gas
-2.45% Nasdaq 100
-2.45% Chemicals
-2.46% Semiconductors
-2.61% United Kingdom
-2.64% Dow Industrial
-2.69% NYSE Composite
-2.69% Technology
-2.69% Sweden
-2.70% Nasdaq Composite
-2.74% Network
-2.75% Dow Composite
-2.75% Computer Tech
-2.77% Biotechs
-2.79% Wilshire 5000
-2.80% Materials
-2.83% Value Line
-2.84% Russell 1000
-2.87% Russell 3000
-2.90% Taiwan
-2.94% S&P 500
-2.98% S&P 100
-3.08% Austria
-3.22% Russell 2000
-3.23% Dow Transports
-3.24% S&P Small Caps
-3.25% Hong Kong
-3.28% REITs
-3.35% Oil Services
-3.41% Airlines
-3.67% Mexico
-3.68% Brazil
-3.71% Paper
-3.74% Singapore
-3.99% South Korea
-4.12% Energy
-4.50% Broker Dealers
-5.47% Financial
-5.79% Banks