By Robert W. Colby, Senior Analyst TraderPlanet.com

Minor, short-term profit taking is normal and expected.

Stock sector price and relative strength trends continue.

Financial stock sector relative strength broke down to a new 7 week low.

U.S. dollar broke down to another new 34-year low.

Foreign stocks outperformed 5 days in a row, as the U.S. dollar crumbled.


On Monday, major stock price indices fluctuated in the morning then headed lower in the afternoon. Breadth and volume ratios were moderately Bearish, but New Highs outnumbered New Lows.

Yesterday, I wrote that minor, short-term profit taking would not be unusual. Short-term momentum slowed on Friday and moved lower on Monday. In addition, there were technical divergences among various indexes evident on both Friday and Monday.

Last Tuesday, the Fed’s half-point interest 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. Stocks staged an extreme up move on that rate cut news. Minor profit taking following such large stock price upsurges is entirely normal and to be expected.

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

0.96% , BHH , Internet B2B H, BHH
7.78% , EMC , EMC
8.68% , WYNN , Wynn Resorts L
0.72% , PHW , Hardware & Electronics, PHW
3.52% , AES , AES
0.71% , IXP , Telecommunications Global, IXP
5.82% , GRMN , GARMIN LTD
1.21% , SSCC , Smurfit-Stone Container Corporation
3.04% , F , FORD MOTOR
0.84% , MZZ , Short 200% MidCap 400 PS, MZZ
1.81% , AMD , ADV MICRO DEV
3.70% , RFMD , RF Micro Devices Inc
1.84% , ICF , Realty Cohen & Steers, ICF
2.34% , EWM , Malaysia Index, EWM
2.18% , EWZ , Brazil Index, EWZ
2.33% , PGJ , China LargeCap Growth G D H USX PS, PGJ
0.29% , IXN , Technology Global, IXN
0.23% , MTK , Technology MS sT, MTK
3.70% , OMX , OFFICEMAX INC., OMX
1.24% , VWO , Emerging VIPERs, VWO
2.63% , EWS , Singapore Index, EWS
0.62% , SH , Short 100% S&P 500, SH
0.85% , VNQ , REIT VIPERs, VNQ
1.83% , ADRE , Emerging 50 BLDRS, ADRE
0.66% , SDS , Short 200% S&P 500 PS, SDS
1.08% , QLD , Ultra QQQ Double, QLD
1.40% , ILF , Latin Am 40, ILF
1.00% , SWY , SAFEWAY
1.19% , GR , GOODRICH CORP
0.25% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
0.41% , FDC , FIRST DATA
0.18% , IWF , Growth 1000 Russell, IWF
0.61% , NSM , NATL SEMICONDUCT
0.17% , IGM , Technology GS, IGM
0.25% , NCR , NCR
0.76% , DXD , Short 200% Dow 30 PS, DXD
2.94% , FXI , China 25 iS, FXI
0.38% , IAH , Internet Architecture H, IAH
1.09% , EWA , Australia Index, EWA
0.12% , XLB , Materials SPDR, XLB
0.46% , QQQQ.O , Growth LargeCap NASDAQ 100, QQQQ
0.89% , MOT , MOTOROLA
1.11% , BRCM , BROADCOM STK A
0.10% , PBE , Biotech & Genome, PBE
0.09% , BMET , BIOMET
0.97% , EWH , Hong Kong Index, EWH
0.21% , ITF , Japan LargeCap Blend TOPIX 150, ITF
0.09% , PHO , Water Resources, PHO
0.80% , HUM , HUMANA
0.82% , DOW , DOW CHEMICAL

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

-1.17% , PWO , OTC Dynamic PS, PWO
-1.56% , RZV , Value SmallCap S&P 600, RZV
-0.77% , FDV , Value 40 Large Low P/E FT DB, FDV
-1.20% , PXQ , Networking, PXQ
-1.71% , EWK , Belgium Index, EWK
-6.22% , CFC , COUNTRYWIDE FNCL
-1.73% , AV , AVAYA
-7.32% , ETFC.O
-0.52% , RSP , LargeCap Blend S&P=Weight R, RSP
-1.36% , VTV , Value VIPERs, VTV
-3.89% , RHT , Red Hat Inc.
-0.63% , IWW , Value LargeCap Russell 3000, IWW
-5.07% , XHB , Homebuilders SPDR, XHB
-0.57% , IYC , Consumer Cyclical DJ, IYC
-0.64% , RPV , Value S&P 500, RPV
-0.77% , PEJ , Leisure & Entertainment, PEJ
-0.69% , DSG , Growth Small Cap DJ, DSG
-4.06% , TLAB , TELLABS
-0.73% , VPU , Utilities VIPERs, VPU
-1.21% , IYT , Transportation Av DJ, IYT
-0.87% , RFV , Value MidCap S&P 400, RFV
-1.17% , IIH , Internet Infrastructure H, IIH
-3.59% , NVLS , NOVELLUS SYS
-3.10% , SNDK , SanDisk Corporation
-3.83% , DHI , D.R. HORTON, DHI
-0.98% , PTE , Telecommunications & Wireless, PTE
-0.70% , IYE , Energy DJ, IYE
-1.69% , IGN , Networking, IGN
-2.64% , ZMH , ZIMMER HLDGS
-1.00% , JKF , Value LargeCap iS M, JKF
-1.47% , MNST , MONSTER WORLDWID
-0.67% , IGV , Software, IGV
-2.50% , LEH , LEHMAN BROS HLDG
-2.57% , MCO , MOODYS CORP
-0.60% , ISI , LargeCap Blend S&P 1500 iS, ISI
-1.08% , IYF , Financial DJ US, IYF
-0.80% , IYZ , Telecom DJ US, IYZ
-0.57% , GM , GENERAL MOTORS
-0.82% , EWN , Netherlands Index, EWN
-1.03% , PXJ , Oil & Gas, PXJ
-0.96% , XLI , Industrial SPDR, XLI
-3.69% , BSC , BEAR STEARNS
-0.95% , CIEN.O , CIENA
-0.91% , VV , LargeCap VIPERs, VV
-2.16% , LAMR , Lamar Advertising Company
-0.60% , KLD , LargeCap Blend Socially Responsible iS, KLD
-6.56% , PHM , PULTE HOMES
-0.98% , PWT , Growth SmallCap Dynamic PS, PWT
-2.00% , PCL , PLUM CREEK TIMB
-0.66% , XLG , LargeCap Rydex Rus Top 50, XLG

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

0.37% Utilities
0.12% Materials
-0.07% Consumer Staples
-0.18% Energy
-0.20% Health Care
-0.26% Technology
-0.84% Consumer Discretionary
-0.96% Industrial
-1.39% Financial

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

Energy (XLE) Bullish. Both price and relative strength made new all-time highs on 9/21/07. 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.

Technology (XLK) Bullish. Price made a new 8-week high on 9/21/07. Long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06. Overweight.

Industrial (XLI) Bullish. Relative strength made a new 5-week high on 9/21/07. Price made a new 8-week high on 9/19/07. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.

Utilities (XLU) Market Weight. Price made a new 8-week high on 9/19/07, but relative strength has lagged.

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 6-year low on 9/24/07. Underweight.

Financial (XLF) Bearish. Relative strength broke down to a new 7 week low, and the long-term trend of relative strength has been down since 2/20/07. Underweight.

Foreign stocks outperformed 5 days in a row, as the U.S. dollar crumbled. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is probably still Bullish.

NASDAQ relative strength turned upward over the past 3 trading days but is still down 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. Usually, the longer time frame trend wins.

Growth stocks outperformed Value stocks over the past 3 days. Also, Growth has outperformed Value since 8/8/06. The main trend is Bullish.

Small Caps substantially underperformed Large Caps since 4/19/06. The main trend is Bearish.

Crude Oil Futureseased lower over the past 2 days. It appears to be a minor correction, following the new high on 9/20/07. The U.S. OIL FUND ETF (AMEX: USO) price also moved lower. Note that the USO fund is not a pure play on Crude Oil. The longer-term trends for both remain Bullish.

The Energy sector outperformed the USO and the 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.

Goldconsolidated over the past two days. Previously, Gold broke out to a new 28-year high on 9/20/07. The Gold Trust ETF (NYSE: GLD) confirmed by closing above its top on 5/12/06 at 72.26. These major trends remain Bullish.

Silver rose strongly since 9/13/07 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) underperformed Gold since 9/20/07. Previously, GDX outperformed Gold from 8/16/07 to 9/20/07. Before 8/16/07, Gold Mining stocks substantially underperformed both Gold and the S&P 500 for more than 20 years. I usually give the longer term trend the benefit of the doubt in such cases.

Inflation expectations moved moderately lower after rising sharply from 8/31/07 to 9/20/07.

U.S. Treasury Bond prices rose modestly following 8 days of downside correction. The 2-day recovery attempt lacked momentum and volume and, therefore, is not impressive. Long-term, Bonds recently recovered about a Fibonacci 61.8% ratio of their losses from the price peak at 97.66 on 6/16/03 to the low at 82.20 on 6/12/07, based on the iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT). That would be normal for an oversold bounce in a Bearish trend. 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 broke down to another new 34-year low on 9/24/07. All trends remain clearly Bearish.

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

2.63% Singapore
2.34% Malaysia
2.18% Brazil
1.64% REITs
1.09% Australia
0.97% Hong Kong
0.80% South Korea
0.80% Taiwan
0.40% Computer Tech
0.40% Japanese Yen
0.38% Nasdaq 100
0.37% Utilities
0.36% Japan
0.35% Mexico
0.30% Hardware
0.28% United Kingdom
0.23% Biotechs
0.18% Dow Utilities
0.12% Materials
0.12% Australian Dollar
0.11% 30Y T-Bond
0.05% Austria
0.03% Canada
0.02% Spain
0.00% British Pound
-0.03% Euro Index
-0.05% Swiss Franc
-0.07% Consumer Staples
-0.08% US Dollar Index
-0.12% Nasdaq Composite
-0.18% Energy
-0.20% Health Care
-0.22% Canadian Dollar
-0.23% Oil
-0.26% Technology
-0.28% Disk Drives
-0.30% Health Care
-0.30% Switzerland
-0.32% Internet
-0.34% France
-0.35% NYSE Composite
-0.37% Chemicals
-0.41% Germany
-0.44% Dow Industrial
-0.45% S&P 100
-0.46% AMEX Composite
-0.46% Health Care Products
-0.46% Drugs
-0.50% Wilshire 5000
-0.51% Russell 1000
-0.53% S&P 500
-0.53% Natural Gas
-0.54% Dow Composite
-0.54% Russell 3000
-0.55% Italy
-0.56% Gold Mining
-0.57% DOT
-0.71% S&P Mid Caps
-0.73% Value Line
-0.74% Retailers
-0.77% Commodity Related
-0.82% Netherlands
-0.84% Consumer Discretionary
-0.89% S&P Small Caps
-0.90% Russell 2000
-0.95% Insurance
-0.96% Industrial
-0.96% Hospitals
-1.17% Semiconductors
-1.18% Paper
-1.23% Dow Transports
-1.29% Sweden
-1.39% Financial
-1.39% Oil Services
-1.62% Banks
-1.71% Belgium
-2.14% Broker Dealers
-2.55% Network
-5.41% Airlines

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.