By Robert W. Colby, Senior Analyst TraderPlanet.com

Oil stocks soar, U.S. Dollar Breaks Down, Inflation Expectations Are Rising

Stocks rise slightly on shrinking volume. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes rose to another new high.
On Monday, major U.S. stock price indexes opened lower but recovered for another winning session. The Advance-Decline balance was moderately Bullish on the NYSE but significantly less Bullish on the NASDAQ. The Cumulative Daily Advance-Decline Line for the NYSE rose to a new high, but the A-D line for the NASDAQ is lagging far behind.

Trading volume on both on the NYSE and NASDAQ slowed from the active pace on Thursday and Friday, suggesting less urgency to chase stocks as they rise higher in price.

Short-term momentum oscillators ticked upward but again failed to make new highs. They remain below their peaks from late April-early May. Currently, momentum oscillators are overbought and are diverging Bearishly from price, thereby giving warning that the time for a consolidation or correction might be approaching.

Mergers and acquisitions, leveraged buyouts, and corporate stock buybacks are major Bullish drivers of the Bull market for stocks. On Monday, reports said that Flextronics is set to acquire Solectron, and TPG and Silver Lake Partners are nearing a deal to buy Avaya.

Here is a stock screen I designed to pick out potential “event” stocks. 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

15.13% , SLR , SOLECTRON
5.63% , SANM , SANMINA
5.55% , XTO , XTO ENERGY INC
2.03% , PXE , Energy Exploration & Prod, PXE
3.77% , SUN , SUNOCO
2.72% , MAR , MARRIOTT INTL STK A
1.80% , USO , Oil, Crude, U.S. Oil Fund, USO
2.41% , GNTX , Gentex Corporation
0.38% , EWP , Spain Index, EWP
2.55% , IGT , INTL GAME TECH
2.91% , TLAB , TELLABS
3.28% , LIZ , LIZ CLAIRBORNE
3.04% , KBH , KB HOME
4.10% , JNS , JANUS CAPITAL
0.31% , IGV , Software, IGV
2.66% , OIH , Oil Services H, OIH
3.98% , AV , AVAYA
0.14% , PMR , Retail, PMR
2.46% , ANDW , ANDREW
0.34% , ITF , Japan LargeCap Blend TOPIX 150, ITF
0.58% , DGT , Global Titans, DGT
2.21% , ERTS , ELECTRONIC ARTS
2.68% , AMZN , Amazoncom Inc
0.92% , EWO , Austria Index, EWO
0.74% , RPG , Growth S&P 500, RPG
1.60% , XRAY , DENTSPLY International Inc
4.55% , BJS , BJ SERVICES
2.86% , BHI , BAKER HUGHES
0.29% , JKK , Growth SmallCap iS M, JKK
4.63% , APC , ANADARKO PETRO
2.37% , CPWR , COMPUWARE
0.25% , DSG , Growth Small Cap DJ, DSG
0.59% , TEK , TEKTRONIX
1.47% , PDCO , Patterson Dental Company
3.64% , OXY , OCCIDENTAL
1.55% , VDE , Energy VIPERs, VDE
3.98% , CTAS , CINTAS
2.80% , SNDK , SanDisk Corporation
1.70% , HAL , HALLIBURTON
1.91% , SNPS , Synopsys Inc
1.46% , SSCC , Smurfit-Stone Container Corporation
0.27% , RZG , Growth SmallCap S&P 600, RZG
1.44% , PTEN , Patterson-UTI Energy Inc
2.37% , AMP , Ameriprise Financial Inc.
2.44% , RDC , ROWAN COMPANIES
0.19% , SWH , Software H, SWH
1.57% , XLE , Energy SPDR, XLE
0.14% , EWK , Belgium Index, EWK
0.35% , SIRI , Sirius Satellite
0.88% , AW , ALLIED WASTE IND

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

-0.34% , EWI , Italy Index, EWI
-3.85% , MLNM , Millennium Pharmaceuticals Inc
-1.37% , FLEX , Flextronics International Ltd
-1.35% , SUNW , SUN MICROSYS
-0.13% , IXJ , Healthcare Global, IXJ
-0.80% , XMSR , XM Satellite R
-1.89% , TMO , THERMO ELECTRON
-1.59% , JBL , JABIL CIRCUIT
-1.15% , RAI , RJR TOBACCO HLDS
-0.76% , PXN , Nanotech Lux, PXN
-1.47% , MER , MERRILL LYNCH
-1.59% , RYAAY , Ryanair Holdings plc
-1.33% , APOL , APOLLO GROUP
-1.21% , FISV , FISERV
-1.66% , INTU , INTUIT
-1.21% , ABT , ABBOTT LABS
-1.31% , UST , UST
-0.90% , WWY , WM WRIGLEY JR
-0.79% , ROST , Ross Stores Inc
-1.41% , AEP , AM ELEC POWER
-1.36% , LPX , LOUISIANA PAC
-0.36% , DUK , DUKE ENERGY
-0.75% , MRK , MERCK & CO
-0.48% , MYY , Short 100% MidCap 400, MYY
-1.13% , CMCSA , COMCAST HOLDINGS STK A
-0.22% , ADRE , Emerging 50 BLDRS, ADRE
-0.93% , NIHD , NII Holdings, Inc.
-0.14% , SH , Short 100% S&P 500, SH
-1.09% , HPC , HERCULES
-0.15% , PSI , Semiconductors, PSI
-0.46% , PG , PROCTER & GAMBLE
-0.43% , LLL , L-3 COMMS HLDGS
-0.27% , CI , CIGNA
-0.98% , AMD , ADV MICRO DEV
-1.06% , MON , MONSANTO
-1.04% , PNW , PINNACLE WEST
-0.08% , EWQ , France Index, EWQ
-0.14% , EWT , Taiwan Index, EWT
-0.81% , AET , AETNA
-0.59% , ZION , ZIONS
-0.67% , AVY , AVERY DENNISON
-1.37% , GRMN , GARMIN LTD
-0.18% , EWL , Switzerland Index, EWL
-0.42% , DYN , DYNEGY
-0.42% , NYT , NY TIMES STK A
-0.20% , STI , SUNTRUST BANKS
-0.87% , PRU , PRUDENTIAL FINL
-0.07% , DOG , Short 100% Dow 30, DOG
-1.27% , SVU , SUPERVALU
-0.86% , BC , BRUNSWICK

Sectors: Among the nine major U.S. sectors, five rose and four fell. Energy was the standout, rising 1.57% to a new high.

Utilities fell again and have been relatively weak since 5/22/07.

Foreign Stocks: The ratio of the EAFE (international developed country stock markets, ex the U.S. and Canada) relative to the S&P 500 rose to a new three-week high, and the absolute price of the EAFE made a new high. In the bigger picture, foreign stocks outperformed U.S. stocks since the Bull Market started in 2002, and that is a powerful major trend that continues.

NASDAQ: The ratio of the NASDAQ Composite relative to the S&P 500 continued to drift lower. The ratio remains in a downtrend for the longer term. On 5/17/07, it fell to a new seven-month low, the lowest since October 2006, for a Bearish confirmation for the longer term. The NASDAQ has greatly underperformed the S&P 500 for more than seven years, since 3/10/00. The secular trend is Bearish.

Growth Stocks: The ratio of Growth stocks relative to Value stocks recovered slightly. The larger trends remain Bearish.

Small Caps: The ratio of Small Cap stocks relative to Large Caps (Russell 2000/Russell 1000) rose slightly but on lower volume. In longer-term perspective, the ratio has been heading down since 4/19/06, so the major trend is Bearish for Small Caps relative to Large Caps.

Semiconductors: Semiconductor HOLDERS (SMH) turned down after recovering about half of its loss from the May peak, which was a normal bounce. The Semiconductor industry group has been underperforming for more than seven years, so the relative major trend remains Bearish.

Crude Oil: The U.S. OIL FUND ETF (AMEX: USO), which reflects the market price of crude oil futures, rose moderately. USO has been chopping up and down in a trading range since February. Previous lows at 47.30-47.39 appear to be offering technical support. Resistance appears in the 51-52 zone. The USO cyclical trend has been Bearish since USO peaked at 73.29 on 7/13/06.

Energy Stocks: The Energy Select Sector SPDR ETF (XLE) rose to another new all-time high. Since 3/2/07, the stocks of the oil companies have been much stronger than oil as a commodity, and that still looks like an important continuing trend.

Gold: StreetTRACKS Gold Trust ETF (NYSE: GLD), which reflects the market price of gold futures, moved slightly higher. GLD has recovered nearly half of April-May losses, which is normal for a countertrend bounce against a larger downtrend. GLD fell to a new two-month closing price low on 5/30/07, thereby confirming again an ongoing and significant downside correction.

Silver: iShares Silver Trust (AMEX: SLV) rose slightly within its short-term recovery trend evident since 5/17/07. But the larger silver trend looks like a trading range since the top on 5/11/06.

Gold Mines: The Gold Miners Index (XAU) fell slightly. XAU has outperformed GLD since 4/30/07. Longer term, XAU has underperformed GLD since 5/31/1996. So, XAU shows a conflict between relative price trends in different time frames.

Inflation Expections: The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes rose again to a new -month high, the highest since September, 2006. This ratio has been rising since 1/16/07, thereby indicating a trend toward rising inflation expectations.

Bonds: iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT) recovered only slightly. On 6/1/07, TLT broke down to a new nine-month low, the lowest since August, 2006, on high volume. This confirmed the main trend as Bearish.

U.S. dollar fell sharply to its lowest level in nearly three weeks. Long-term trends remain Bearish. The U.S. dollar has been in a major Bearish trend for nearly six years, since it peaked out at 121.29 on 7/5/2001. Beyond that, the dollar has been weakening since WWII, so the secular trend is also Bearish.

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

2.55% Oil Services
2.12% Natural Gas
1.57% Energy
1.38% Hardware
1.35% South Korea
1.34% Oil
1.21% Network
0.99% Australia
0.95% Singapore
0.86% Commodity Related
0.84% Paper
0.82% Austria
0.75% Disk Drives
0.75% Netherlands
0.64% Retailers
0.54% Hong Kong
0.48% Swiss Franc
0.47% REITs
0.45% S&P Mid Caps
0.44% British Pound
0.38% Spain
0.37% 30Y T-Bond
0.36% Consumer Staples
0.35% Technology
0.35% Computer Tech
0.35% Euro Index
0.34% Japan
0.32% Insurance
0.32% Canadian Dollar
0.30% Canada
0.28% Nasdaq 100
0.25% Value Line
0.24% Wilshire 5000
0.24% Australian Dollar
0.23% S&P Small Caps
0.22% Internet
0.22% DOT
0.21% NYSE Composite
0.21% AMEX Composite
0.21% Japanese Yen
0.20% Russell 2000
0.20% Consumer Discretionary
0.19% Russell 1000
0.19% Russell 3000
0.18% S&P 500
0.17% Nasdaq Composite
0.15% Belgium
0.14% Sweden
0.12% S&P 100
0.12% United Kingdom
0.09% Semiconductors
0.06% Dow Industrial
0.06% Hospitals
0.03% Industrial
0.03% Germany
-0.03% Mexico
-0.05% Chemicals
-0.08% Health Care
-0.08% France
-0.13% Financial
-0.14% Taiwan
-0.16% Health Care Products
-0.18% Drugs
-0.18% Switzerland
-0.19% Health Care
-0.20% Dow Utilities
-0.22% Dow Composite
-0.28% Banks
-0.33% US Dollar Index
-0.34% Gold Mining
-0.34% Italy
-0.38% Utilities
-0.41% Malaysia
-0.60% Materials
-0.61% Broker Dealers
-0.67% Dow Transports
-0.69% Biotechs
-0.90% Brazil
-2.75% Airlines

To sum up the current position of the U.S. stock market:

The U.S. stock market has shown impressive Bullish resilience since the major low on 10/10/02, more than four years ago. Stock prices have been buoyed by abundant global liquidly (following years of fiscal stimulation, rapid money supply growth, and rising corporate profits), M&A, and earnings comparisons above expectations. Still, periodic downside shakeouts are normal, and the world is a volatile place where the unexpected is always possible, so stocks are never without risk.

Liquidity driven merger and acquisitions news has been helping to keep the old Bull alive. Both U.S. and foreign corporations hold excess cash after several years of rising profits, and so M&A speculation as well as leveraged buyouts and corporate stock buybacks have provided substantial Bullish stimulus to stock prices. In 2007, mergers and acquisitions are running about 60% ahead of 2006’s record pace, driven by rising stock prices and private-equity funds that raised more than $250 billion for takeovers since the start of 2006. Takeovers are on track to surpass 2006’s all-time high of $3.49 trillion, according to data compiled by Bloomberg.

Conservative earnings estimates also have been useful in keeping the old Bull alive. First quarter 2007 corporate earnings reflected a significant growth slowdown. Nevertheless, earnings were ahead of expectations, which had been lowered to very conservative levels in advance of actual reporting. Managements and Wall Street have learned that investors hate disappointments, so they simply don’t give them any–unless absolutely necessary.

Stocks generally are fully valued to over priced by long-term historical standards. But that alone does not mean that stocks cannot continue to trend higher.