By Robert W. Colby, Senior Analyst

Upside Breakout?
Or Bull Trap?

The S&P 500 rose to a slightly higher 3 month high, but the rally was unable to regain previous levels of upside momentum and volume contracted.

The Hanging Man is a potentially Bearish Reversal Japanese Candlestick.

Seasonal tendencies are Bullish for the week ahead.

Consumer Staples Stock Sector Relative Strength Ratio fell to a new 8-week low, confirming a corrective intermediate-term trend.

Crude Oil June futures rose to a new high.

On Friday, the S&P 500 closed slightly above the intraday highs of the past 3 months. The apparent upside breakout could yet prove to be a Bull Trap, however, since NASDAQ Composite Index failed to confirm a new high and the Friday’s Japanese Candlestick looks like the Hanging Man.

The Hanging Man is a Bearish Reversal Japanese Candlestick occurring within an uptrend. It has a small real body (white or black) at or near the high (and, therefore, it has little or no upper shadow). The color of the real body is not critical. Also, it has a long lower shadow, like legs dangling down from the real body. The hanging man’s small real body implies the previous uptrend is losing momentum. The next period’s action would confirm the bearish implications of the hanging man if there is a downward window (gap) or a long black candle.

Total NYSE volume fell 13%, indicating indecision. Falling volume does not confirm the new 3 month price high.

The recent 3-month correction/consolidation phase, which demonstrates an upward bias over the past 2 weeks, nevertheless may be a Secondary Reaction Continuation Pattern within the context of a Primary Bearish Trend. Preexisting Primary Trends tend to resume after such Secondary Reactions run their course.

The main technical trend for the broad-based stock price indexes may still be down. From time to time, serious fundamental worries seem to be temporarily displaced by hopes that the worst of the credit crisis might be over, or hopes for some kind of a rescue, from the Fed, the government, or big investors. The Wall Street pendulum swings from hope to fear–just as it always has.

Earnings reports are yet another wild card in an already uncertain market. Day to day, the stock market has been quite reactive to the news, rumors, and “reports” of the day, which certainly have been plentiful, although not always accurate. These “reports” strike at any unpredictable moment, like bolts out of the blue, disrupting trends and making short-term trading risky. In such a shifty market, short-term traders need to be nimble, be quick, and control risk. Investors need to be cautious and risk averse.

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

17.14% , BHH , Internet B2B H, BHH
13.50% , ERIC.O , LM Ericsson Telephone Company
5.84% , RYAAY , Ryanair Holdings plc
6.52% , HANS , Hansen Natural, HANS
0.85% , RPG , Growth S&P 500, RPG
5.59% , ITT , ITT INDS
2.06% , ITF , Japan LargeCap Blend TOPIX 150, ITF
1.46% , PHO , Water Resources, PHO
0.95% , VWO , Emerging VIPERs, VWO
0.75% , JKI , Value MidCap iS M, JKI
0.96% , JKF , Value LargeCap iS M, JKF
0.28% , IBB , Biotechnology, IBB
0.38% , NY , Value LargeCap NYSE 100 iS, NY
0.40% , PEJ , Leisure & Entertainment, PEJ
4.49% , PX , PRAXAIR
3.11% , TIF , TIFFANY
3.52% , MVV , Ultra MidCap400 Double, MVV
4.95% , KSS , KOHLS
2.75% , MTB , M&T BANK
1.01% , FDL , Dividend Leaders, FDL
1.38% , ACV , Alberto-Culver Co.
1.25% , IYT , Transportation Av DJ, IYT
1.19% , EWU , United Kingdom Index, EWU
1.31% , XLV , Health Care SPDR, XLV
0.56% , PMR , Retail, PMR
3.24% , PTEN , Patterson-UTI Energy Inc
0.48% , FDV , Value 40 Large Low P/E FT DB, FDV
2.22% , BA , BOEING

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

-12.11% , CTB , COOPER TIRE
-0.42% , PXQ , Networking, PXQ
-0.61% , IYK , Consumer Non-Cyclical, IYK
-10.00% , PWER , POWER ONE
-4.22% , TBH , Telebras HOLDRS, TBH*
-3.68% , MO , ALTRIA GROUP
-4.11% , FISV , FISERV
-2.19% , VIA , VIACOM INC. (New)
-2.59% , VIA.B , VIACOM STK B
-1.83% , YHOO , YAHOO
-1.15% , ILF , Latin Am 40, ILF
-3.38% , LBTYA , Liberty Global Inc. (LBTYA)
-2.15% , RTN , RAYTHEON
-1.19% , XLK , Technology SPDR, XLK
-0.97% , VGT , Info Tech VIPERs, VGT
-2.92% , EWW , Mexico Index, EWW
-1.53% , KO , COCA COLA
-0.57% , XLP , Consumer Staples SPDR, XLP
-0.89% , PPL , PPL
-0.81% , XBI , Biotech SPDR, XBI
-0.92% , WAG , WALGREEN
-0.31% , HSP , HOSPIRA
-0.99% , IAH , Internet Architecture H, IAH
-0.35% , AMGN , AMGEN
-0.94% , DLX , DELUXE
-0.27% , PLL , PALL
-0.21% , XRX , XEROX
-1.33% , LLL , L-3 COMMS HLDGS

Sectors: among the 9 major U.S. sectors, 7 rose and 2 fell.
Major Sectors Ranked for the Day
% Price Change Sector

2.86% Materials SPDR, XLB
1.89% Financial SPDR, XLF
1.42% Energy SPDR, XLE
1.40% Industrial SPDR, XLI
1.31% Health Care SPDR, XLV
1.00% Consumer Discretionary SPDR, XLY
0.32% Utilities SPDR, XLU
-0.57% Consumer Staples SPDR, XLP
-1.19% Technology SPDR, XLK

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

Energy (XLE) Neutral, Market Weight. On 4/22/08, both the XLE price close and the XLE/SPY Relative Strength Ratio rose to new all-time highs, again confirming a major uptrend.

Materials (XLB) Neutral, Market Weight. On 4/16/08, both the XLB price and the XLB/SPY Relative Strength Ratio rose to new all-time highs, confirming a major uptrend.

Consumer Staples (XLP) Neutral, Market Weight. On 4/25/08, the XLP/SPY Relative Strength Ratio fell to a new 8-week low, confirming a corrective intermediate-term trend.

Utilities (XLU) Neutral, Market Weight. The XLU/SPY Relative Strength Ratio has been in a moderately rising trend since 3/25/08, and so Utilities have improved somewhat in these rankings.

Industrial (XLI) Neutral, Market Weight. On 4/17/08, the XLI/SPY Relative Strength Ratio fell to a new 7-week low, confirming a corrective intermediate-term trend.

Technology (XLK) Neutral, Market Weight. On 4/24/08, the XLK/SPY Relative Strength Ratio rose to a new 3-month high, signaling an improving intermediate-term trend.

Consumer Discretionary (XLY) Bearish, Underweight. On 4/16/08, the XLY/SPY Relative Strength Ratio fell to a new 13-week low, suggesting renewed weakness. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to a new 6-year low, confirming a major downtrend.

Health Care (XLV) Bearish, Underweight. On 4/22/08, the XLV/SPY Relative Strength Ratio fell to a new 6-year low, again confirming the existing Primary Bearish trend.

Financial (XLF) Bearish, Underweight. On 3/17/08, both absolute price and the XLF/SPY Relative Strength Ratio fell to their lowest levels in nearly 5-years, again confirming a major Bearish trend.

Foreign stock indexes have shown in line relative strength in recent weeks. Intermediate term, the EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has underperformed since 11/27/07.

NASDAQ Composite price underperformed since 11/7/07. The minor Ripple trend has improved only slightly since 3/3/08 and appears questionable at best. On 3/3/08, Relative Strength fell to a new 9-month low, confirming a significant downtrend.

Growth Stock/Value Stock Relative Strength Ratio has been in an uptrend for the intermediate term, since 2/1/08. Long term, the Growth/Value ratio (IWF/IWD) has been in an uptrend since 8/8/06.

The Small Cap/Large Cap Relative Strength Ratio broke down to a new 2.5-year low on 1/11/08. It has been trending down since 4/19/06. The main long-term trend is Relatively Bearish for Small Caps.

Crude Oil June futures rose to a new high, confirming Bullish trends in all timeframes. 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 underperformed Crude Oil since 12/10/07.

Gold June futures stabilized within their 6-week corrective trend since 3/17/08. Longer term, the 7-year trend is still Bullish.

Silver sharply underperformed Gold since 3/5/08. In addition, iShares Silver Trust (AMEX: SLV) has been relatively weak compared to Gold longer term, since 12/7/06. Finally, for the past 28 years, since 1/2/80, Silver has underperformed Gold.

The Gold Miners ETF (GDX) Relative Strength versus Gold bullion fell to new lows on 4/24/08. Longer-term, GDX significantly underperformed Gold since 10/31/07. Therefore, GDX trends are Bearish relative to Gold itself.

U.S. Treasury Bond prices fell to new 7-week lows, confirming a Secondary Reaction, intermediate-term downside correction phase. Bond prices benefit from fears of financial crisis, and they correct to the downside when financial crisis takes a back seat to some other news of the day.

The U.S. dollar bounced sharply higher over the past 3 trading days toward the upper end of its 6-week trading range. The U.S. dollar has been consolidating losses since its low on 3/17/08. The minor trend may appear uncertain, but the major trend of the dollar is down.

The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood of late. The business and financial news has flipped from fear to hope and back again many times in recent weeks, creating an extremely choppy trading environment. Investors’ moods and stock volatility have jumped up and down abruptly with the latest “reports”. When mass psychology shifts so dramatically and unpredictably from hope to fear, without warning, risk control becomes more important than aggressive profit seeking. Stay flexible.

Sentiment/Contrary Opinion: There were 39.1% Bulls versus 35.6% Bears as of 4/23/08, according to the weekly Investors Intelligence survey of newsletter advisors. The Bull/Bear ratio rose to 1.10, up from 0.97 the previous week. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47.

VIX “Fear Index”, now at 19.59, is low by Bear Market standards (around 20 to 40) but relatively high by Bull Market standards (around 10 to 20). Longer term, VIX has been in a rising trend since it hit a 13-year low of 9.89 on 1/24/07. The all-time high was 45.74 on 10/8/98. 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 23.34, is low by Bear Market standards (around 35 to 80) but relatively high by Bull Market standards (around 12 to 26). Longer term, VXN has been in a rising trend since it hit its all-time low of 12.61 on 7/29/05. The all-time high was 114.23 on 10/8/98. VXN measures Nasdaq Volatility using a method comparable to that used for VIX.

CBOE Put/Call Ratio is 0.73, which indicates relatively neutral sentiment. Its 4-year simple moving average and median are 0.62, and its 4-year range is 0.35 to 1.28.

ISEE Call/Put Ratio is 1.17, which indicates relatively neutral sentiment. The ratio’s 4-year simple moving average is 1.50, 4-year median is 1.47, and 4-year range is 0.51 to 3.04.

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 been weakening.

A Secondary Reaction was signaled on 4/18/28, when the Dow-Jones Industrials and Transports both closed at 3-month highs. But the Primary Tide Major Trend may still be Bearish. The Dow Theory confirmed a Primary Bear Market on 11/21/07 when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their respective closing price lows of August, 2007. On 11/7/07, the Transports closed below their 8/16/07 closing price low of 4,671.88. Then on 11/21/07, the Dow-Jones Industrial Average closed below its 8/16/07 closing price low of 12,845.78, thereby turning the Primary Tide 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 (1,397.84):

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
1,403.45, low of 1/7/2008
1,399.11, high of 4/25/2008

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 (1,397.84):

Potential Support
1,324.35, low of 4/15/2008
1,256.98, low of 3/17/2008
1,224.54, low of 7/18/2006
1,219.29, low of 6/14/2006
1,214.45, low of 11/4/2005
1,201.07, low of 11/2/2005
1,168.20, low of 10/13/2005
1,163.23, high of 3/5/2004
1,159.86, low of 5/17/2005
1,153.64, low of 5/16/2005
1,146.18, low of 5/13/2005
1,139.14, low of 4/29/2005
1,136.37, low of 4/20/2005

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

17.14% Internet B2B H, BHH
3.52% Ultra MidCap400 Double, MVV
3.20% Metals & Mining SPDR, XME
2.99% Basic Materials DJ US, IYM
2.90% Sweden Index, EWD
2.86% Materials SPDR, XLB
2.76% Materials VIPERs, VAW
2.64% Oil, Crude, U.S. Oil Fund, USO
2.55% Energy Exploration & Prod, PXE
2.19% Bank Regional H, RKH
2.16% Financial Services DJ, IYG
2.06% Japan LargeCap Blend TOPIX 150, ITF
2.06% MidCap S&P 400 SPDRs, MDY
1.95% Japan Index, EWJ
1.89% Financial SPDR, XLF
1.83% Commodity Tracking, DBC
1.76% Ultra S&P500 Double, SSO
1.73% Retail H, RTH
1.71% Natural Resource iS GS, IGE
1.71% Growth MidCap 400 B, IJK
1.68% Asia 50 BLDRS, ADRA
1.63% Aerospace & Defense, PPA
1.57% Financial DJ US, IYF
1.54% Value S&P 500, RPV
1.53% Financials VIPERs, VFH
1.50% Growth MidCap S&P 400, RFG
1.49% Growth Small Cap DJ, DSG
1.46% Water Resources, PHO
1.46% MidCap Growth iS M, JKH
1.45% MidCap S&P 400 iS, IJH
1.42% Developed 100 BLDRS, ADRD
1.42% Energy SPDR, XLE
1.40% Industrial SPDR, XLI
1.40% Brazil Index, EWZ
1.40% Value MidCap S&P 400, RFV
1.39% Building & Construction, PKB
1.38% Energy DJ, IYE
1.37% Energy VIPERs, VDE
1.36% Value Line Timeliness MidCap Gr, PIV
1.34% Europe 100 BLDRS, ADRU
1.32% Growth BARRA Small Cap 600, IJT
1.31% Value LargeCap Euro STOXX 50 DJ, FEU
1.31% Health Care SPDR, XLV
1.28% Pharmaceutical H, PPH
1.26% Financials Global LargeCap Value, IXG
1.25% Transportation Av DJ, IYT
1.25% Oil & Gas, PXJ
1.22% Pacific VIPERs, VPL
1.21% Value SmallCap VIPERS, VBR
1.21% Value SmallCap iS M, JKL
1.20% Growth SmallCap VIPERs, VBK
1.19% United Kingdom Index, EWU
1.17% Growth MidCap Russell, IWP
1.16% Extended Mkt VIPERs, VXF
1.15% Growth SmallCap Dynamic PS, PWT
1.15% MidCap VIPERs, VO
1.14% Dividend DJ Select, DVY
1.12% LargeCap Blend S&P=Weight R, RSP
1.12% South Korea Index, EWY
1.11% Small Cap VIPERs, VB
1.11% Telecommunications & Wireless, PTE
1.09% European VIPERs, VGK
1.09% Value VIPERs, VTV
1.09% MidCap Russell, IWR
1.07% Value S&P 500 B, IVE
1.07% Value MidCap S&P 400 B, IJJ
1.06% LargeCap VIPERs, VV
1.06% Capital Markets KWB ST, KCE
1.06% Homebuilders SPDR, XHB
1.06% SmallCap S&P 600, IJR
1.05% Networking, IGN
1.03% Growth Mid Cap Dynamic PS, PWJ
1.03% Dividend International, PID
1.01% Dividend Leaders, FDL
1.00% Consumer Discretionary SPDR, XLY
1.00% SmallCap Core iS M, JKJ
1.00% Value EAFE MSCI, EFV
0.99% Canada Index, EWC
0.98% Value 1000 Russell, IWD
0.98% Europe 350 S&P Index, IEV
0.98% Dividend SPDR, SDY
0.96% Value LargeCap iS M, JKF
0.95% Emerging VIPERs, VWO
0.94% SmallCap Russell 2000, IWM
0.93% Telecom Services VIPERs, VOX
0.93% S&P 500 SPDRs LargeCap Blend, SPY
0.92% MidCap Blend Core iS M, JKG
0.91% Consumer D. VIPERs, VCR
0.90% Value MidCap Russell, IWS
0.90% Internet H, HHH
0.89% Value LargeCap Russell 3000, IWW
0.88% Health Care VIPERs, VHT
0.87% Consumer Cyclical DJ, IYC
0.87% Growth EAFE MSCI, EFG
0.86% Switzerland Index, EWL
0.85% Growth S&P 500, RPG
0.84% Value Large Cap DJ, ELV
0.83% Italy Index, EWI
0.83% LargeCap Blend Dynamic PS, PWC
0.83% EAFE Index, EFA
0.82% Industrial LargeCap Blend DJ US, IYJ
0.82% Healthcare DJ, IYH
0.81% LargeCap Blend Russell 3000, IWV
0.80% Silver Trust iS, SLV
0.79% Growth SmallCap iS M, JKK
0.79% Industrials VIPERs, VIS
0.79% LargeCap Blend NYSE Composite iS, NYC
0.77% Blend Total Market VIPERs, VTI
0.76% Growth SmallCap R 2000, IWO
0.75% Value MidCap iS M, JKI
0.74% Emerging Markets, EEM
0.72% LargeCap Blend Total Market DJ, IYY
0.72% S&P 500 iS LargeCap Blend, IVV
0.72% Euro STOXX 50, FEZ
0.71% Value LargeCap Fundamental RAFI 1000, PRF
0.70% Value SmallCap Dynamic PS, PWY
0.69% Ultra Dow30 Double, DDM
0.69% Dividend High Yield Equity PS, PEY
0.68% Value SmallCap S&P 600 B, IJS
0.68% IPOs, First Tr IPOX-100, FPX
0.67% Germany Index, EWG
0.66% LargeCap 1000 R, IWB
0.66% Value SmallCap S&P 600, RZV
0.65% Telecom DJ US, IYZ
0.65% South Africa Index, EZA
0.64% Value SmallCap Russell 2000, IWN
0.61% Value MidCap Dynamic PS, PWP
0.60% Oil Services H, OIH
0.58% SmallCap PS Zacks, PZJ
0.56% Global 100, IOO
0.56% Retail, PMR
0.55% Growth 1000 Russell, IWF
0.55% EMU Europe Index, EZU
0.55% Growth Large Cap, ELG
0.53% Semiconductor SPDR, XSD
0.52% LargeCap Blend S&P 1500 iS, ISI
0.52% Energy Global, IXC
0.52% Pharmaceuticals, PJP
0.52% Value LargeCap Dynamic PS, PWV
0.51% Growth LargeCap iS M, JKE
0.51% Dividend Growth PS, PHJ
0.49% France Index, EWQ
0.49% Realty Cohen & Steers, ICF
0.48% Value 40 Large Low P/E FT DB, FDV
0.46% Microcap Russell, IWC
0.46% Spain Index, EWP
0.45% Growth VIPERs, VUG
0.42% Utilities H, UTH
0.41% Dividend Appreciation Vipers, VIG
0.40% LargeCap Blend S&P 100, OEF
0.40% Leisure & Entertainment, PEJ
0.40% Lg Cap Growth PSD, PWB
0.38% Healthcare Global, IXJ
0.38% Value LargeCap NYSE 100 iS, NY
0.37% Belgium Index, EWK
0.37% Micro Cap Zachs, PZI
0.36% Food & Beverage, PBJ
0.34% Real Estate US DJ, IYR
0.33% WilderHill Clean Energy PS, PBW
0.32% Utilities SPDR, XLU
0.32% Growth S&P 500/BARRA, IVW
0.31% LargeCap Blend Socially Responsible iS, KLD
0.30% Telecom H, TTH
0.29% Utilities VIPERs, VPU
0.29% Global Titans, DGT
0.28% Biotechnology, IBB
0.28% Value Small Cap DJ, DSV
0.26% Short 100% QQQ, PSQ
0.22% Austria Index, EWO
0.21% Growth LargeCap Russell 3000, IWZ
0.19% Semiconductor H, SMH
0.17% Wilshire 5000 ST TM, TMW
0.14% Utilities DJ, IDU
0.14% OTC Dynamic PS, PWO
0.13% LargeCap Rydex Rus Top 50, XLG
0.12% Semiconductors, PSI
0.10% Hong Kong Index, EWH
0.10% Ultra QQQ Double, QLD
0.09% Telecommunications Global, IXP
0.06% Gold Shares S.T., GLD
0.06% Software, PSJ
0.06% Biotech & Genome, PBE
0.05% Utilities, PUI
0.05% Bond, Corp, LQD
0.04% LargeCap Blend Core iS M, JKD
0.03% Netherlands Index, EWN
0.02% Short 200% QQQ PS, QID
0.01% Bond, 1-3 Year Treasury, SHY
0.00% Broadband H, BDH
0.00% Australia Index, EWA
-0.08% REIT Wilshire, RWR
-0.10% Bond, Aggregate, AGG
-0.14% Bond, 10 Year Treasury, IEF
-0.14% Bond, TIPS, TIP
-0.17% Biotech H, BBH
-0.18% Growth LargeCap NASDAQ Fidelity, ONEQ
-0.20% Dividend Achievers PS, PFM
-0.25% Growth LargeCap NASDAQ 100, QQQQ
-0.26% Emerging 50 BLDRS, ADRE
-0.27% Hardware & Electronics, PHW
-0.27% Pacific ex-Japan, EPP
-0.28% Short 100% Dow 30, DOG
-0.29% Insurance, PIC
-0.30% Taiwan Index, EWT
-0.35% Short 200% Dow 30 PS, DXD
-0.37% Semiconductor iS GS, IGW
-0.40% Consumer Staples VIPERs, VDC
-0.42% Networking, PXQ
-0.53% Internet Infrastructure H, IIH
-0.55% Nanotech Lux, PXN
-0.57% Consumer Staples SPDR, XLP
-0.58% Bond, 20+ Years Treasury, TLT
-0.59% Technology Global, IXN
-0.61% Consumer Non-Cyclical, IYK
-0.73% Malaysia Index, EWM
-0.74% China LargeCap Growth G D H USX PS, PGJ
-0.81% Biotech SPDR, XBI
-0.83% Software, IGV
-0.83% Technology GS, IGM
-0.87% Singapore Index, EWS
-0.91% Short 100% S&P 500, SH
-0.97% Info Tech VIPERs, VGT
-0.99% Internet Architecture H, IAH
-1.01% Technology DJ US, IYW
-1.15% Latin Am 40, ILF
-1.17% Short 100% MidCap 400, MYY
-1.19% Technology SPDR, XLK
-1.29% Technology MS sT, MTK
-1.34% China 25 iS, FXI
-1.45% Short 200% S&P 500 PS, SDS
-1.72% Software H, SWH
-2.92% Mexico Index, EWW
-3.18% Short 200% MidCap 400 PS, MZZ