By Robert W. Colby, Senior Analyst TraderPlanet.com

“deteriorating credit quality”

U.S. dollar hit new 15-year price low.

Crude Oil and Energy stocks fell sharply.

The Cumulative Daily Advance-Decline Line for the NASDAQ fell to a new 2007 low.

Financial sector fell to a new 4-month closing price low and another new 5-year relative strength low.

Industrial and Technology stock sectors relative strength made a new high.

Bond prices broke out to a new 7-week price high.


For the general stock market, suddenly it appears that consolidation could turn into correction. Given the Bullish extremes we have seen in investor sentiment, a downside shakeout might come as no surprise to the astute technician.

Investors might perceive anything that could diminish abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises as a threat to the popular Bullish scenario.

Shaken by forecasts of deteriorating credit quality and rising costs of debt financing, stock prices gapped lower on Tuesday’s open and slid still lower in the afternoon. The popular S&P 500 ETF (SPY) broke down below the lows of the previous 8 trading days and broke a 4-week uptrend line. But SPY held above the pivot low of 7/11/07 at 150.52.

Trading volume jumped up to near record levels, reflecting urgent dumping of stocks and confirming the trend change to the Bearish side for the short term. The Advance-Decline balances were very Bearish, both on the NYSE and the NASDAQ. The Cumulative Daily Advance-Decline Line for the NASDAQ fell to a new 2007 low.

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

9.92% , PTV , PACTIV
7.00% , CHKP , Check Point Software Technologies Ltd
3.59% , LMT , LOCKHEED MARTIN
6.86% , DGX , QUEST DIAG
2.23% , MYY , Short 100% MidCap 400, MYY
1.57% , PSQ , Short 100% QQQ, PSQ
3.67% , SLM , SLM CORP
1.49% , DOG , Short 100% Dow 30, DOG
2.88% , DXD , Short 200% Dow 30 PS, DXD
2.97% , QID , Short 200% QQQ PS, QID
1.20% , KMB , KIMBERLY CLARK
2.72% , BIIB , BIOGEN IDEC
3.29% , SDS , Short 200% S&P 500 PS, SDS
3.64% , MZZ , Short 200% MidCap 400 PS, MZZ
0.71% , WLP , WELLPOINT HEALTH
1.95% , SH , Short 100% S&P 500, SH
1.84% , HPC , HERCULES
0.46% , PETM , PETsMART Inc
1.98% , RHT , Red Hat Inc.
0.67% , AMCC , APPLD MICRO CIRC
0.42% , PTE , Telecommunications & Wireless, PTE
0.40% , FO , FORTUNE BRANDS
0.25% , LNCR , Lincare Holdings Inc
0.29% , ABC , AMERISOURCEBERGN
0.72% , FRX , FOREST LABS STK A
0.82% , CLX , CLOROX
0.37% , TLT , Bond, 20+ Years Treasury, TLT
0.32% , SNDK , SanDisk Corporation
0.26% , BBH , Biotech H, BBH
0.25% , NEM , NEWMONT MINING
0.40% , X , US STEEL CORP
1.02% , HOG , HARLEY DAVIDSON
0.83% , GPC , GENUINE PARTS
0.17% , ATVI , Activision Inc.
0.43% , RSH , RADIOSHACK
0.75% , VZ , VERIZON COMMS
0.19% , UPS , UNITED PARCEL STK B
0.30% , GENZ , GENZYME GEN
0.14% , HSIC , Henry Schein Inc
0.77% , QCOM , QUALCOMM
0.21% , TNB , THOMAS & BETTS
0.21% , BRCM , BROADCOM STK A
0.06% , PBG , PEPSI BOTTLING
0.04% , BDX , BECTON DICKINSON
0.34% , HSY , HERSHEY FOODS
0.10% , SHY , Bond, 1-3 Year Treasury, SHY

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

-2.08% , RFG , Growth MidCap S&P 400, RFG
-1.96% , ISI , LargeCap Blend S&P 1500 iS, ISI
-1.71% , MKH , Market 2000 H, MKH
-10.18% , WYE , WYETH
-2.45% , DSG , Growth Small Cap DJ, DSG
-7.77% , SVU , SUPERVALU
-2.13% , PMR , Retail, PMR
-10.45% , CFC , COUNTRYWIDE FNCL
-1.92% , PWP , Value MidCap Dynamic PS, PWP
-3.12% , PEJ , Leisure & Entertainment, PEJ
-1.91% , IWW , Value LargeCap Russell 3000, IWW
-2.00% , EWI , Italy Index, EWI
-2.58% , RFV , Value MidCap S&P 400, RFV
-6.78% , ETFC.O , E*TRADE FINANCIAL
-3.04% , JKL , Value SmallCap iS M, JKL
-1.48% , RPG , Growth S&P 500, RPG
-2.53% , DSV , Value Small Cap DJ, DSV
-1.91% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
-5.73% , EFX , EQUIFAX
-2.87% , RPV , Value S&P 500, RPV
-1.89% , EZU , EMU Europe Index, EZU
-4.26% , MVV , Ultra MidCap400 Double, MVV
-1.93% , PWJ , Growth Mid Cap Dynamic PS, PWJ
-4.07% , CKFR , Checkfree Corp.
-5.40% , AVY , AVERY DENNISON
-2.07% , EWK , Belgium Index, EWK
-5.91% , CTB , COOPER TIRE
-2.00% , VCR , Consumer D. VIPERs, VCR
-3.49% , UTH , Utilities H, UTH
-2.16% , ELV , Value Large Cap DJ, ELV
-2.01% , NYC , LargeCap Blend NYSE Composite iS, NYC
-1.53% , EFV , Value EAFE MSCI, EFV
-3.11% , IDU , Utilities DJ, IDU
-1.42% , IGV , Software, IGV
-2.04% , FEZ , Euro STOXX 50, FEZ
-1.74% , IOO , Global 100, IOO
-2.66% , JKJ , SmallCap Core iS M, JKJ
-4.60% , WAT , WATERS
-4.84% , XL , XL CAPITAL STK A
-1.32% , SWH , Software H, SWH
-2.40% , RKH , Bank Regional H, RKH
-7.40% , DLX , DELUXE
-2.07% , IXG , Financials Global LargeCap Value, IXG
-2.65% , JKK , Growth SmallCap iS M, JKK
-6.31% , DD , DU PONT
-2.37% , FPX , IPOs, First Tr IPOX-100, FPX
-1.96% , FDL , Dividend Leaders, FDL
-2.33% , VBK , Growth SmallCap VIPERs, VBK
-2.36% , EWU , United Kingdom Index, EWU
-1.88% , KLD , LargeCap Blend Socially Responsible iS, KLD

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

-0.73% Consumer Staples
-1.01% Health Care
-1.01% Technology
-1.38% Industrial
-1.57% Consumer Discretionary
-1.99% Materials
-2.51% Financial
-2.89% Energy
-2.99% Utilities

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

Energy (XLE) Bullish. Price made a new high on 7/20/07 and relative strength made a new high on 7/23/07. XLE has been relatively strong compared to the S&P since 3/12/03. Overweight.

Materials (XLB) Bullish. Price made a new high on 7/19/07 and relative strength made a new high on 7/18/07. XLB has been relatively strong compared to the S&P since 9/27/00. Overweight.

Industrial (XLI) Bullish. Price made a new high on 7/19/07 and relative strength made a new high on 7/24/07. XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.

Technology (XLK) Bullish. Price made a new 6-year high on 7/19/07 and relative strength made a new 19-month high on 7/24/07. XLK has been relatively strong compared to the S&P since its low on 7/24/06.

Utilities (XLU) Bearish. XLU has been relatively weak compared to the S&P since 9/20/01. Underweight.

Consumer Discretionary (XLY) Bearish. XLY made a new 10-month relative strength low on 7/23/07 and has been relatively weak compared to the S&P since 1/5/05. Underweight.

Consumer Staples (XLP) Bearish. Relative strength made a new 7-year low on 6/19/07. XLP has been relatively weak compared to the S&P since 10/9/02. Underweight.

Health Care (XLV) Bearish. XLV made a new 5-year relative strength low on 7/19/07 and has been relatively weak compared to the S&P since 10/9/02. Underweight.

Financial (XLF) Bearish. XLF made a new 3-month closing price low and a new 5-year relative strength low on 7/23/07. Underweight.

Foreign stocks: main trend is still Bullish. EFA has outperformed since 7/18/07. Also, EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) outperformed the S&P 500 since 3/19/03.

NASDAQ has outperformed since 5/17/07. The intermediate-term trend looks Bullish.

Growth has been beating Value since 5/16/07. Longer term, the major trend of Growth/Value, mostly Bearish for seven years, could be turning.

Large Caps have been beating Small Caps since 6/27/07. Longer term, Large Caps beat Small Caps since the Small-Cap relative strength peak on 4/19/06.

Crude Oil fell steeply for the second consecutive session. It could signal a short-term correction. Longer term, the U.S. OIL FUND ETF (AMEX: USO) is in an uptrend since its shakeout low at 42.56 on 1/18/07.

Energy stocks underperformed the USO and the SPY. Long term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.

Gold consolidated after making a new 10-week price high on 7/20/07. StreetTRACKS Gold Trust ETF (NYSE: GLD) remains in an uptrend since its price low on 6/26/07.

Silver underperformed Gold since 6/5/07. Longer term, iShares Silver Trust (AMEX: SLV) broke down to a new 6-month low on 6/26/07 and underperformed GLD since 12/7/06. So, the main trend is relatively Bearish.

The Gold Miners Index (XAU) underperformed Gold since 7/19/07. XAU made a new 14-month price high on 7/20/07.

Inflation expectations eased moderately lower since 6/22/07. Still, for the longer term, the ratio of the price of bond TIPS to 10-year U.S. Treasury Notes has been rising since 1/16/07, indicating rising inflation expectations.

Bond prices broke out to a new 7-week price high on 7/24/07. The short-term trend still looks Bullish since the price low on 6/12/07. But since the peak at 97.66 on 6/16/03, the long-term trend appears Bearish for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT).

U.S. dollar remains very Bearish. The dollar fell to a new 15-year price low on 7/24/07. It has been heading nearly straight down since 6/13/07. Longer term, the dollar has been falling most of the time since its peak at 121.29 on 7/5/01.

Japanese Yen broke out to a new 10-week price high on 7/24/07. But on 6/15/07, the Yen fell to its lowest level in more than four years. The Yen has been weak since its peak at 12,625 on 4/19/1995. So, the short-term trend is up and the long-term trend is down

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

1.20% Canadian Dollar
0.64% Japanese Yen
0.31% Airlines
0.29% British Pound
0.21% Swiss Franc
0.18% Euro Index
0.12% 30Y T-Bond
0.07% Australian Dollar
-0.30% US Dollar Index
-0.33% Hospitals
-0.34% Japan
-0.73% Consumer Staples
-0.77% Biotechs
-0.85% Disk Drives
-0.93% Taiwan
-0.99% Singapore
-1.01% Health Care
-1.01% Technology
-1.02% Switzerland
-1.07% Health Care Products
-1.19% Australia
-1.23% Malaysia
-1.29% Network
-1.32% Health Care
-1.33% AMEX Composite
-1.37% DOT
-1.38% Industrial
-1.39% Austria
-1.40% Spain
-1.53% Computer Tech
-1.57% Consumer Discretionary
-1.62% Dow Industrial
-1.64% Canada
-1.65% Internet
-1.67% Paper
-1.68% Drugs
-1.76% Nasdaq 100
-1.79% Hong Kong
-1.80% Gold Mining
-1.86% Hardware
-1.89% Nasdaq Composite
-1.90% Dow Transports
-1.90% S&P 100
-1.91% Semiconductors
-1.98% S&P 500
-1.99% Materials
-2.00% Russell 1000
-2.00% Italy
-2.02% Wilshire 5000
-2.07% Russell 3000
-2.07% Belgium
-2.09% NYSE Composite
-2.09% Dow Composite
-2.09% South Korea
-2.12% Netherlands
-2.18% Retailers
-2.19% Commodity Related
-2.27% Value Line
-2.27% REITs
-2.31% S&P Mid Caps
-2.36% United Kingdom
-2.38% Oil Services
-2.43% Insurance
-2.46% S&P Small Caps
-2.51% Financial
-2.52% Chemicals
-2.52% France
-2.57% Germany
-2.67% Sweden
-2.84% Russell 2000
-2.89% Energy
-2.93% Mexico
-2.98% Banks
-2.99% Utilities
-3.30% Natural Gas
-3.45% Dow Utilities
-3.51% Oil
-3.73% Broker Dealers
-5.30% Brazil

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

Longer term, 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.

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. Although that alone does not mean that stocks cannot continue to trend higher (and indeed they have) nevertheless, it is good to remember that “no tree grows to the sky.” The cyclical nature of stock prices never really changes, although the turning points are not always easy to predict.
Investors might perceive anything that could diminish abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises as a threat to the popular Bullish scenario.