by Robert W. Colby, Senior Analyst

Stock Market: Oversold…But the Bears are in control.
The path of least resistance is down.

SPY RSI 14 is more “oversold” than at the low on 3/17/08—but oversold can get more oversold when momentum is this Bearish.

Dow-Jones Industrial Average closed at a new 12-week low.

Dow-Jones Transportation Average closed at a new 7-week low.

NASDAQ Composite closed at a new 7-week low.

S&P 500 Composite closed at a new 8-week low.

Financial Stock Sector Relative Strength Ratio fell to another new 7- year low.

Consumer Staples Stock Sector Relative Strength Ratio rose to another new 8-week high.

Energy Stock Sector Relative Strength Ratio rose to another new all-time high.

Commodity Tracking ETF (DBC) and the CRB index both rose to new all-time price highs.

On Wednesday, major stock price indexes opened firm but after 10 minutes fell steeply to a 10:30 a.m. low. Prices stabilized in a choppy trading range midsession, before falling steeply again in the final hour. Stocks closed with hefty losses at the lowest levels of the day.

The S&P 500 closed at 1,335.49, down 22.95 points or 1.69%. Again, the breadth of the market showed substantially more declines than advances. The Cumulative Daily Advance-Decline on the NASDAQ fell to another new multi-year low. There were nearly 7 times more New Lows than New Highs, on both the NYSE and the NASDAQ.

I have been assuming that the March-May rally was nothing more than a counter-trend rally and Secondary Reaction Continuation Pattern within the context of a Primary Bearish Trend. The sum total weight of the evidence for the stock market in general appears to be taking on a more Bearish tilt again since the rally top on 5/19/08. The short-term general market action has been subject to rapid and frequent change, so a cautious approach still seems prudent.

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

5.31% , SPLS , STAPLES
3.98% , BIG , BIG LOTS
2.56% , PSQ , Short 100% QQQ, PSQ
1.53% , SH , Short 100% S&P 500, SH
3.04% , DXD , Short 200% Dow 30 PS, DXD
3.19% , SDS , Short 200% S&P 500 PS, SDS
1.35% , PETM , PETsMART Inc
1.63% , MYY , Short 100% MidCap 400, MYY
3.69% , DBC , Commodity Tracking, DBC
2.05% , NBR , NABORS
0.44% , DYN , DYNEGY
0.64% , GLW , CORNING
0.77% , WMB , WILLIAMS
4.58% , QID , Short 200% QQQ PS, QID
0.90% , SUN , SUNOCO
0.26% , LNCR , Lincare Holdings Inc
0.80% , IGE , Natural Resource iS GS, IGE
0.61% , XLE , Energy SPDR, XLE
0.63% , WYNN , Wynn Resorts L
0.10% , IEF , Bond, 10 Year Treasury, IEF

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

-2.10% , PXQ , Networking, PXQ
-1.07% , EWL , Switzerland Index, EWL
-1.69% , PIC , Insurance, PIC
-8.92% , MCHP , Microchip Technology Incorporated
-2.27% , EZA , South Africa Index, EZA
-10.32% , TER , TERADYNE
-1.67% , EWQ , France Index, EWQ
-5.26% , KSU , Kansas City Southern, KSU
-1.78% , RFG , Growth MidCap S&P 400, RFG
-2.70% , PSI , Semiconductors, PSI
-2.78% , FDL , Dividend Leaders, FDL
-2.57% , HHH , Internet H, HHH
-2.66% , RFV , Value MidCap S&P 400, RFV
-7.42% , MI , MARSHAL & ILSLEY
-1.66% , IWV , LargeCap Blend Russell 3000, IWV
-5.73% , WFMI , Whole Foods Market Inc
-4.03% , CSX , CSX
-3.05% , RPV , Value S&P 500, RPV
-3.43% , KCE , Capital Markets KWB ST, KCE
-4.83% , IYT , Transportation Av DJ, IYT
-5.44% , JNPR , Juniper Networks Inc
-1.67% , PZI , Micro Cap Zachs, PZI
-12.26% , CTX , CENTEX
-4.23% , DOV , DOVER
-3.55% , TLAB , TELLABS
-3.92% , SIRI , Sirius Satellite
-1.95% , PKB , Building & Construction, PKB
-1.40% , EWO , Austria Index, EWO
-1.99% , RSP , LargeCap Blend S&P=Weight R, RSP

Sectors: among the 9 major U.S. sectors, 1 rose and 8 fell.
Major Sectors Ranked for the Day
% Price Change Sector

0.61% Energy SPDR, XLE
-0.10% Utilities SPDR, XLU
-0.53% Consumer Staples SPDR, XLP
-1.00% Health Care SPDR, XLV
-1.78% Materials SPDR, XLB
-1.88% Industrial SPDR, XLI
-2.10% Consumer Discretionary SPDR, XLY
-2.57% Technology SPDR, XLK
-2.90% 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):

Energy (XLE) Neutral, Market Weight. On 6/10/08, XLE/SPY Relative Strength Ratio rose to another new all-time high. On 5/20/08, both the XLE price close and the XLE/SPY Relative Strength Ratio rose to new all-time highs, again confirming a major uptrend. Energy underperformed since 5/21/08.

Materials (XLB) Neutral, Market Weight. On 6/9/08, XLB/SPY Relative Strength Ratio rose to another new all-time high. On 5/16/08, XLB price rose to another new all-time high. On 4/16/08, both the XLB price and the XLB/SPY Relative Strength Ratio rose to new all-time highs, confirming the major uptrend.

Utilities (XLU) Neutral, Market Weight. The XLU/SPY Relative Strength Ratio rose to a new 4-month high on 6/10/08. Since 10/17/02, the XLU/SPY Relative Strength Ratio has outperformed substantially. Since 5/15/08, the XLU/SPY Relative Strength Ratio has been rising again. So, Utilities have outperformed the S&P 500 both long term and short term.

Consumer Staples (XLP) Neutral, Market Weight. On 6/10/08, XLP /SPY Relative Strength Ratio rose to another new 8-week high. For nearly 8 years, since 9/27/00, the XLP/SPY Relative Strength Ratio has outperformed, so the long-term trend is up.

Technology (XLK) Neutral, Market Weight. On 6/6/08, the XLK/SPY Relative Strength Ratio rose to a new 5-month high, confirming an improving intermediate-term trend.

Industrial (XLI) Bearish, Underweight. On 6/6/08, both price and the XLI/SPY Relative Strength Ratio fell to their lowest levels in 7 weeks. Since 3/31/08, the XLI/SPY Relative Strength Ratio has underperformed.

Health Care (XLV) Bearish, Underweight. Since 10/9/02, the XLV/SPY Relative Strength Ratio has underperformed substantially. On 5/15/08, the XLV/SPY Relative Strength Ratio fell to another new 6-year low, again confirming the existing Primary Bearish trend.

Consumer Discretionary (XLY) Bearish, Underweight. Since 1/5/05, the XLY/SPY Relative Strength Ratio has underperformed substantially. On 1/11/08, the XLY/SPY Relative Strength Ratio fell to a new 6-year low, confirming a major downtrend.

Financial (XLF) Bearish, Underweight. On 6/10/08, the XLF/SPY Relative Strength Ratio fell to its lowest level in more than 7 years. Since 3/23/04, the XLF/SPY Relative Strength Ratio has underperformed substantially. 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 index EFA Relative Strength Ratio broke down to a new 11-week low on 6/9/08, indicating a significant downside correction. Since 5/23/08, EFA has underperformed the U.S. stock market. Previously, EFA outperformed from 2/8/08 to 5/23/08 and, longer term, since the major bottom on 3/12/03. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.

NASDAQ Composite rose to a new 5-month closing price high on 6/5/08. It has been outperforming the S&P 500 since 3/3/08.

Growth Stock/Value Stock Relative Strength Ratio rose to another new 3-year high on 6/6/08. 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 rose to a new 9-month high on 6/6/08. The major trend appears to be turning to Small Caps.

Crude Oil July futures contract bounced. Trends are sill Bullish in all time frames, strictly speaking. 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 August futures contract recovered a normal fraction of Tuesday’s steep plunge. The short-term trend has been whipsawing without mercy, and the intermediate-term trend appears questionable at best.

U.S. Treasury Bond September futures consolidated recent losses. Trends in all time frames still appear vulnerable to further price decline.

The U.S. dollar fell back from resistance near 3-month highs. The short-term trend appears uncertain. The long-term Primary Tide trend is still Bearish.

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 months, 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 43.0% Bulls versus 32.6% Bears as of 6/11/08, according to the weekly Investors Intelligence survey of newsletter advisors. The Bull/Bear ratio fell to 1.32, down from 1.44 the previous week. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47.

VIX “Fear Index” is now at 24.12. VIX fell from a peak of 32.64 on 3/17/08 to a low of 16.30 on 5/15/08, indicating decreasing Fear. The all-time high was 45.74 on 10/8/98. 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” is now at 27.32. VXN fell from a peak of 35.63 on 1/22/08 to a low of 20.00 on 5/16/08, indicating decreasing Fear. 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 0.84, which indicates moderately Bearish 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 0.75, which indicates Bearish 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 weakened.

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 still may be Bearish. On 6/5/08, the Transportation Average closed above its previous all-time closing high, while the Industrial Average languished far below its all-time closing high of 14,164.50 set on 10/9/07. Such a non-confirmation and divergence means that the companies that produce the goods are not keeping pace with the companies that deliver the goods, the market is out of balance, and there is no Buy Signal because the Dow Theory requires both Averages to make new highs. 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.

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 (1,335.49):

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 5/19/08
1,406.32, high of 5/29/08

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 (1,335.49):

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:

4.58% Short 200% QQQ PS, QID
3.71% Oil, Crude, U.S. Oil Fund, USO
3.69% Commodity Tracking, DBC
3.19% Short 200% S&P 500 PS, SDS
3.04% Short 200% Dow 30 PS, DXD
2.96% Short 200% MidCap 400 PS, MZZ
2.56% Short 100% QQQ, PSQ
1.75% Internet B2B H, BHH
1.74% Energy Exploration & Prod, PXE
1.72% Gold Shares S.T., GLD
1.63% Short 100% MidCap 400, MYY
1.58% Silver Trust iS, SLV
1.53% Short 100% S&P 500, SH
1.33% Short 100% Dow 30, DOG
1.14% Oil & Gas, PXJ
0.89% Energy VIPERs, VDE
0.81% Energy DJ, IYE
0.81% Energy Global, IXC
0.80% Natural Resource iS GS, IGE
0.77% Canada Index, EWC
0.61% Energy SPDR, XLE
0.52% WilderHill Clean Energy PS, PBW
0.19% Bond, TIPS, TIP
0.19% Oil Services H, OIH
0.17% Bond, 1-3 Year Treasury, SHY
0.13% Bond, Aggregate, AGG
0.10% Bond, 10 Year Treasury, IEF
-0.04% Bond, Corp, LQD
-0.10% Utilities SPDR, XLU
-0.23% Bond, 20+ Years Treasury, TLT
-0.42% Emerging VIPERs, VWO
-0.49% IPOs, First Tr IPOX-100, FPX
-0.53% Consumer Staples SPDR, XLP
-0.65% Singapore Index, EWS
-0.65% Utilities DJ, IDU
-0.71% Metals & Mining SPDR, XME
-0.78% Utilities H, UTH
-0.82% Pacific ex-Japan, EPP
-0.88% Australia Index, EWA
-0.91% South Korea Index, EWY
-0.93% Value Line Timeliness MidCap Gr, PIV
-0.94% Consumer Staples VIPERs, VDC
-0.95% Utilities VIPERs, VPU
-0.97% Consumer Non-Cyclical, IYK
-0.98% Taiwan Index, EWT
-0.98% Utilities, PUI
-1.00% Health Care SPDR, XLV
-1.05% Europe 100 BLDRS, ADRU
-1.05% Spain Index, EWP
-1.07% Switzerland Index, EWL
-1.14% Value LargeCap NYSE 100 iS, NY
-1.14% Growth S&P 500/BARRA, IVW
-1.14% Hardware & Electronics, PHW
-1.15% Japan LargeCap Blend TOPIX 150, ITF
-1.18% SmallCap PS Zacks, PZJ
-1.20% Aerospace & Defense, PPA
-1.22% Broadband H, BDH
-1.24% Pacific VIPERs, VPL
-1.25% Pharmaceutical H, PPH
-1.26% Basic Materials DJ US, IYM
-1.27% Healthcare Global, IXJ
-1.27% Dividend Appreciation Vipers, VIG
-1.27% EAFE Index, EFA
-1.29% Growth Small Cap DJ, DSG
-1.31% Water Resources, PHO
-1.32% Global Titans, DGT
-1.33% LargeCap VIPERs, VV
-1.33% Belgium Index, EWK
-1.33% Value LargeCap Dynamic PS, PWV
-1.33% Growth S&P 500, RPG
-1.33% Growth MidCap 400 B, IJK
-1.35% Lg Cap Growth PSD, PWB
-1.37% Growth Large Cap, ELG
-1.38% Mexico Index, EWW
-1.38% LargeCap Blend S&P 100, OEF
-1.39% LargeCap Blend Dynamic PS, PWC
-1.39% Growth MidCap Russell, IWP
-1.40% Austria Index, EWO
-1.40% Value 1000 Russell, IWD
-1.43% Developed 100 BLDRS, ADRD
-1.44% Health Care VIPERs, VHT
-1.44% Biotech H, BBH
-1.44% Growth EAFE MSCI, EFG
-1.45% Healthcare DJ, IYH
-1.45% Asia 50 BLDRS, ADRA
-1.45% Japan Index, EWJ
-1.45% LargeCap Blend Core iS M, JKD
-1.46% MidCap Russell, IWR
-1.47% Growth VIPERs, VUG
-1.47% S&P 500 SPDRs LargeCap Blend, SPY
-1.48% Sweden Index, EWD
-1.48% Global 100, IOO
-1.49% Value 40 Large Low P/E FT DB, FDV
-1.50% Emerging Markets, EEM
-1.51% Blend Total Market VIPERs, VTI
-1.52% Value VIPERs, VTV
-1.52% Extended Mkt VIPERs, VXF
-1.52% LargeCap Rydex Rus Top 50, XLG
-1.52% Hong Kong Index, EWH
-1.52% LargeCap Blend Socially Responsible iS, KLD
-1.52% Latin Am 40, ILF
-1.53% Value LargeCap iS M, JKF
-1.53% LargeCap Blend NYSE Composite iS, NYC
-1.53% European VIPERs, VGK
-1.54% MidCap S&P 400 SPDRs, MDY
-1.55% Malaysia Index, EWM
-1.55% Europe 350 S&P Index, IEV
-1.55% Software H, SWH
-1.55% Food & Beverage, PBJ
-1.57% Emerging 50 BLDRS, ADRE
-1.57% Value EAFE MSCI, EFV
-1.57% Brazil Index, EWZ
-1.58% Internet Infrastructure H, IIH
-1.59% Dividend International, PID
-1.59% Growth 1000 Russell, IWF
-1.59% REIT Wilshire, RWR
-1.60% Nanotech Lux, PXN
-1.60% Netherlands Index, EWN
-1.60% United Kingdom Index, EWU
-1.60% Value Small Cap DJ, DSV
-1.61% Growth SmallCap iS M, JKK
-1.61% Pharmaceuticals, PJP
-1.62% LargeCap 1000 R, IWB
-1.62% Italy Index, EWI
-1.63% LargeCap Blend S&P 1500 iS, ISI
-1.63% Wilshire 5000 ST TM, TMW
-1.63% Value MidCap Dynamic PS, PWP
-1.64% MidCap S&P 400 iS, IJH
-1.64% Value LargeCap Euro STOXX 50 DJ, FEU
-1.64% Materials VIPERs, VAW
-1.65% MidCap Blend Core iS M, JKG
-1.66% Dividend Growth PS, PHJ
-1.66% LargeCap Blend Russell 3000, IWV
-1.67% France Index, EWQ
-1.67% Micro Cap Zachs, PZI
-1.68% Value LargeCap Russell 3000, IWW
-1.68% Value Large Cap DJ, ELV
-1.69% Euro STOXX 50, FEZ
-1.69% Networking, IGN
-1.69% Insurance, PIC
-1.69% LargeCap Blend Total Market DJ, IYY
-1.72% Value MidCap S&P 400 B, IJJ
-1.73% Growth BARRA Small Cap 600, IJT
-1.73% MidCap Growth iS M, JKH
-1.74% SmallCap Russell 2000, IWM
-1.74% S&P 500 iS LargeCap Blend, IVV
-1.74% Growth SmallCap R 2000, IWO
-1.76% Germany Index, EWG
-1.78% Growth MidCap S&P 400, RFG
-1.78% Dividend Achievers PS, PFM
-1.78% Materials SPDR, XLB
-1.80% Technology Global, IXN
-1.80% EMU Europe Index, EZU
-1.80% Telecommunications Global, IXP
-1.83% Growth SmallCap VIPERs, VBK
-1.83% Growth LargeCap iS M, JKE
-1.88% Industrial SPDR, XLI
-1.90% Realty Cohen & Steers, ICF
-1.90% Value LargeCap Fundamental RAFI 1000, PRF
-1.90% Growth LargeCap Russell 3000, IWZ
-1.90% OTC Dynamic PS, PWO
-1.91% Microcap Russell, IWC
-1.91% Biotech & Genome, PBE
-1.95% Building & Construction, PKB
-1.96% Small Cap VIPERs, VB
-1.96% MidCap VIPERs, VO
-1.99% LargeCap Blend S&P=Weight R, RSP
-2.03% Value SmallCap Russell 2000, IWN
-2.03% Value MidCap iS M, JKI
-2.03% SmallCap S&P 600, IJR
-2.03% Biotechnology, IBB
-2.06% Growth Mid Cap Dynamic PS, PWJ
-2.06% Real Estate US DJ, IYR
-2.06% Telecommunications & Wireless, PTE
-2.09% Value S&P 500 B, IVE
-2.09% Consumer Cyclical DJ, IYC
-2.10% Networking, PXQ
-2.10% Consumer Discretionary SPDR, XLY
-2.13% Growth LargeCap NASDAQ Fidelity, ONEQ
-2.13% Biotech SPDR, XBI
-2.16% Retail H, RTH
-2.19% Value MidCap Russell, IWS
-2.20% Value SmallCap S&P 600 B, IJS
-2.20% Value SmallCap VIPERS, VBR
-2.22% Software, IGV
-2.23% Technology MS sT, MTK
-2.23% SmallCap Core iS M, JKJ
-2.25% Industrials VIPERs, VIS
-2.26% Software, PSJ
-2.27% Industrial LargeCap Blend DJ US, IYJ
-2.27% South Africa Index, EZA
-2.30% Value SmallCap iS M, JKL
-2.32% Dividend SPDR, SDY
-2.33% Consumer D. VIPERs, VCR
-2.35% Growth SmallCap Dynamic PS, PWT
-2.36% Technology GS, IGM
-2.39% Growth LargeCap NASDAQ 100, QQQQ
-2.40% Financials Global LargeCap Value, IXG
-2.40% Technology DJ US, IYW
-2.41% Dividend DJ Select, DVY
-2.42% China 25 iS, FXI
-2.42% Telecom Services VIPERs, VOX
-2.46% Info Tech VIPERs, VGT
-2.48% Internet Architecture H, IAH
-2.51% Telecom H, TTH
-2.55% Value SmallCap Dynamic PS, PWY
-2.57% Technology SPDR, XLK
-2.57% Internet H, HHH
-2.58% China LargeCap Growth G D H USX PS, PGJ
-2.66% Value MidCap S&P 400, RFV
-2.68% Leisure & Entertainment, PEJ
-2.70% Semiconductors, PSI
-2.70% Dividend High Yield Equity PS, PEY
-2.74% Financial DJ US, IYF
-2.77% Financials VIPERs, VFH
-2.78% Dividend Leaders, FDL
-2.79% Retail, PMR
-2.83% Ultra Dow30 Double, DDM
-2.85% Semiconductor H, SMH
-2.86% Ultra S&P500 Double, SSO
-2.87% Value SmallCap S&P 600, RZV
-2.90% Financial SPDR, XLF
-2.93% Financial Services DJ, IYG
-3.05% Value S&P 500, RPV
-3.11% Bank Regional H, RKH
-3.16% Telecom DJ US, IYZ
-3.20% Semiconductor iS GS, IGW
-3.35% Ultra MidCap400 Double, MVV
-3.43% Capital Markets KWB ST, KCE
-3.47% Semiconductor SPDR, XSD
-4.59% Ultra QQQ Double, QLD
-4.83% Transportation Av DJ, IYT
-6.31% Homebuilders SPDR, XHB