Daily Stock Market Commentary – 9/20/2007

On Tuesday, the Fed’s half-point rate cut news eased fears of the risks of the liquidity, subprime, and credit-market crisis turning into a full-blown credit crunch which could lead to a recession.

Advances-Declines and Up-Down Volumes were about 2 to 1 Bullish on both the NYSE and NASDAQ

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.

2.47% , RZV , Value SmallCap S&P 600, RZV
2.93% , RPV , Value S&P 500, RPV
1.41% , IXG , Financials Global LargeCap Value, IXG
0.90% , IWS , Value MidCap Russell, IWS
0.61% , PFM , Dividend Achievers PS, PFM
1.34% , JKK , Growth SmallCap iS M, JKK
0.33% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
1.20% , ADRA , Asia 50 BLDRS, ADRA
4.68% , COH , COACH
3.54% , ECL , ECOLAB
1.36% , IWC , Microcap Russell, IWC
0.71% , IWZ , Growth LargeCap Russell 3000, IWZ
2.81% , DOV , DOVER
1.46% , EWD , Sweden Index, EWD
2.71% , CPWR , COMPUWARE
2.15% , ADSK , AUTODESK
0.31% , PHW , Hardware & Electronics, PHW
2.19% , CAG , CONAGRA FOODS
3.06% , NIHD , NII Holdings, Inc.
2.60% , CIT , CIT GROUP
1.18% , PTE , Telecommunications & Wireless, PTE
1.49% , VAW , Materials VIPERs, VAW
3.19% , LIZ , LIZ CLAIRBORNE
4.46% , PWER , POWER ONE
5.52% , ABK , AMBAC FINL GRP
0.74% , JKH , MidCap Growth iS M, JKH
0.66% , TMW , Wilshire 5000 ST TM, TMW
1.93% , PXJ , Oil & Gas, PXJ
0.69% , JKE , Growth LargeCap iS M, JKE
4.87% , GT , GOODYEAR TIRE
1.64% , JKL , Value SmallCap iS M, JKL
2.28% , BDX , BECTON DICKINSON
2.84% , PTV , PACTIV
2.43% , HPC , HERCULES
2.53% , ISIL , INTERSIL CORP
0.64% , PGJ , China LargeCap Growth G D H USX PS, PGJ
0.70% , PPA , Aerospace & Defense, PPA
2.64% , X , US STEEL CORP
2.17% , HSP , HOSPIRA
1.04% , IJR , SmallCap S&P 600, IJR
2.76% , FRE

-3.89% , MRVL , MARVELL TECHNOLOGY
-4.29% , SIRI , Sirius Satellite
-1.25% , SLR , SOLECTRON
-2.72% , CMCSA , COMCAST HOLDINGS STK A
-0.37% , MYY , Short 100% MidCap 400, MYY
-5.53% , XMSR , XM Satellite R
-1.45% , LH , LAB CRP OF AMER
-2.18% , SUN , SUNOCO
-0.36% , IEF , Bond, 10 Year Treasury, IEF
-0.79% , CPB , CAMPBELL SOUP
-5.05% , MAS , MASCO
-2.99% , BSC , BEAR STEARNS
-2.63% , AN , AUTONATION
-1.35% , ANDW , ANDREW
-1.36% , FDX , FEDEX
-3.37% , KG , KING PHARM
-1.18% , JNPR , Juniper Networks Inc
-1.62% , BDK , BLACK & DECKER
-2.06% , MU , MICRON TECH
-0.55% , LQD , Bond, Corp, LQD
-0.63% , SH , Short 100% S&P 500, SH
-0.72% , DHI , D.R. HORTON, DHI
-1.72% , LSI , LSI LOGIC
-2.00% , BIG , BIG LOTS
-0.53% , EWC , Canada Index, EWC
-2.01% , FLEX , Flextronics International Ltd
-0.43% , CLX , CLOROX
-1.22% , LRCX , LAM RESEARCH CORP
-0.70% , EMC , EMC
-0.78% , HPQ , HEWLETT PACKARD
-1.03% , BMS , BEMIS
-0.86% , TWX , TIME WARNER INC
-0.90% , VLO , VALERO ENERGY
-0.37% , CCE , COCA COLA ENTER
-0.93% , TLT , Bond, 20+ Years Treasury, TLT
-0.90% , MSFT , MICROSOFT
-0.26% , MYL , MYLAN LABS
-1.25% , QLGC , QLOGIC
-0.49% , GNTX , Gentex Corporation
-0.52% , DE , DEERE & CO
-0.39% , NKE , NIKE STK B
-0.96% , TNB , THOMAS & BETTS
-0.65% , LBTYA , Liberty Global Inc. (LBTYA)
-0.98% , NBR , NABORS
-0.76% , MHS , MEDCO HEALTH
-1.08% , VMC , VULCAN MATERIALS
-0.85% , CB , CHUBB
-0.28% , TIP , Bond, TIPS, TIP
-0.37% , USO , Oil, Crude, U.S. Oil Fund, USO
-0.04% , PXE , Energy Exploration & Prod, PXE

Sectors: among the 9 major U.S. sectors, all 9 rose.

1.14% Materials
1.11% Utilities
1.06% Industrial
0.87% Energy
0.63% Financial
0.40% Health Care
0.38% Technology
0.22% Consumer Staples
0.11% Consumer Discretionary

Energy (XLE) Bullish. Both price and relative strength made new all-time highs on 9/18/07. XLE has been strong compared to the S&P since 3/12/03. Overweight.

Materials (XLB) Bullish. The relative strength trend strongly outperformed since the price shakeout low on 8/16/07, and the long term trend has been Bullish since 9/27/2000.

Industrial (XLI) Bullish. Price made a new 8-week high. Short-term, relative strength is rising. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.

Technology (XLK) Bullish. Relative strength made a new 2-year high on 9/6/07 but has lagged since then. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06. The long-term trend usually wins. Overweight.

Utilities (XLU) Market Weight. Price made a new 8-week high on 9/19/07, and relative strength has been improving since 6/22/07.

Consumer Staples (XLP) Bearish. This defensive sector’s relative strength made a new 7-week low on 9/19/07. Underweight.

Health Care (XLV) Bearish. Relative strength turned down on 4/19/07 and made a new 5-year low on 7/19/07, thereby confirming a major downtrend. Underweight.

Consumer Discretionary (XLY) Bearish. Price hit a new 10-month low on 8/16/07. Relative strength made another new 5-year low on 9/12/07. Underweight.

Financial (XLF) Bearish. The limited oversold bounce is normal, but the long-term trend of relative strength has been down since 2/20/07. Underweight.

Foreign stocks outperformed and made new 8-week price highs. The EFA (the EAFE, international developed country stock markets

NASDAQ price made another new 8-week high, but relative strength continues to underperform since 9/5/07. Previously, NASDAQ outperformed from 5/17/07 to 9/5/07. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.

Growth stocks made another new 8-week price high. But Growth has lagged value since 9/7/07, after outperforming Value from 8/20/07 to 9/7/07. Also, Growth outperformed Value since 5/16/07. It looks like a minor pullback in strong trend.

Small Caps bounced but still have underperformed Large Caps since 8/21/07. Small Caps also underperformed since 4/19/06. These trends deserve respect.

Crude Oil futuresjumped to another new all-time high. The U.S. OIL FUND ETF (AMEX: USO) price eased a bit lower. Note that the USO fund is not a pure play on

The Energy sector price made a new all-time high and outperformed both USO and SPY. Longer 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 Trust ETF (NYSE: GLD) eased slightly lower. Longer term, GLD has underperformed the S&P since the GLD top on 5/12/06 at 72.26, which is a level that probably will be significant to traders

Silver bounced but still has underperformed Gold since 12/7/06. The main trend remains relatively Bearish for iShares Silver Trust (AMEX: SLV).

The Gold Miners ETF (GDX) rose to another new 1-year price high and outperformed Gold since 8/16/07. GDX underperformed GLD since 7/19/07. The Gold Miners also underperformed the Gold Metal since 1/31/06. In fact, Gold Mining stocks have substantially underperformed both Gold and the S&P 500 for more than 20 years.

Inflation expectations have been rising since 8/31/07. But the next larger trend has been falling since 6/22/07. So, the ratio of the price of bond TIPS to 10-year U.S. Treasury Notes indicates mixed inflation expectations in different time frames.

U.S. Treasury Bond prices are correcting to the downside following a new 9-month high on 9/10/97. That new high confirmed a significant uptrend. Long-term, Bonds have recovered more than half of their losses since the price peak at 97.66 on 6/16/03 for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT). 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

U.S. dollar rose modestly after falling to a new 15-year low on 9/18/07. All trends are clearly Bearish. Traders will be watching 78.43, the low of 9/2/92.

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

2.22% Australia
1.74% REITs
1.70% South Korea
1.61% Austria
1.59% Oil Services
1.57% Chemicals
1.46% Sweden
1.39% Paper
1.37% Australian Dollar
1.34% Russell 2000
1.31% Dow Utilities
1.25% S&P Small Caps
1.22% Airlines
1.17% Commodity Related
1.14% Materials
1.11% Utilities
1.10% Japan
1.06% Industrial
1.02% Brazil
1.01% Health Care Products
0.99% Spain
0.99% Switzerland
0.97% Insurance
0.90% France
0.87% Energy
0.84% Drugs
0.83% Gold Mining
0.82% Value Line
0.82% Natural Gas
0.73% Health Care
0.72% United Kingdom
0.66% Russell 3000
0.65% Wilshire 5000
0.63% Financial
0.62% NYSE Composite
0.61% S&P 500
0.60% Russell 1000
0.60% Belgium
0.60% Germany
0.59% Internet
0.56% Nasdaq Composite
0.55% Dow Industrial
0.53% S&P Mid Caps
0.53% Canadian Dollar
0.52% Network
0.49% S&P 100
0.49% Singapore
0.40% Health Care
0.38% Dow Composite
0.38% Technology
0.36% Hardware
0.35% Oil
0.34% Computer Tech
0.29% Nasdaq 100
0.29% Broker Dealers
0.29% Hong Kong
0.27% Banks
0.23% DOT
0.22% Consumer Staples
0.19% Euro Index
0.14% Hospitals
0.14% Semiconductors
0.12% Italy
0.12% US Dollar Index
0.11% Consumer Discretionary
0.05% Swiss Franc
0.04% Biotechs
-0.10% Retailers
-0.17% Malaysia
-0.26% British Pound
-0.38% Mexico
-0.38% Japanese Yen
-0.45% AMEX Composite
-0.48% Disk Drives
-0.53% Canada
-0.55% Dow Transports
-0.57% Netherlands
-0.75% 30Y T-Bond
-1.48% Taiwan

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

The unfolding fallout from the subprime- and credit-market crisis moved investor sentiment toward the Bearish side in August. News of both damages and rescues is still leaking out little by little, but the stock market seems to be taking all the news in stride.

Considering the long term, beyond the recent short-term downside shakeout, the U.S. stock market has shown impressive Bullish resilience from the major low on 10/10/02 to the new all-time highs on 7/19/07. 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.

Investors may perceive anything that threatens to end abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises as threats to the Bullish scenario.

Stocks generally are fully valued to over priced by long-term historical standards. Although that alone does not mean that stocks cannot resume their uptrends, 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