by Robert W. Colby, Senior Analyst,

Stock market:a flight to safety… with the look of a selling climax.

The Fear Index, VIX, broke out to a new all-time high.

A selling climax does not necessarily mark the end of a downtrend.

There can be multiple selling climaxes, each one taking place at a lower price level.

The U.S. government is still working to find a way to rescue the financial system.

It is not clear that government actions will be effective, and government actions can produce unintended consequences.

With news still pending, look for sudden changes in days ahead, perhaps in one direction, then in another.

Volatility seems likely to remain high, as the future could be full of further surprises.

It remains an uncertain, high-risk trading environment.

Focus on capital preservation.

The Dow Theory reconfirmed a Primary Tide Bear Market on 9/29/08, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their lowest closing prices of March through September, 2008. These two Averages originally confirmed a Primary Tide Bear Market on 11/21/07, when both closed below their closing price lows of August, 2007.

On Monday, major stocks indexes opened lower and fell further in the first 45 minutes. Prices stabilized for more than 3 hours before plunging steeply on news that the House of Representatives rejected the $700 billion financial relief plan.

Breadth was EXTREMELY Bearish, at levels suggesting a selling climax. The Standard & Poor’s 500 cash index (1,106.39) closed down 106.62 points, or 8.79%, at a new 47-month low. Total NYSE volume rose 39%, indicating urgent selling.

The short-term trend has been confirmed Bearish. The intermediate-term trend remains Bearish. Long-term, the S&P 500 has been in a Primary Tide Bear Market since the intraday high of 1,576.09 on 10/11/2007, as this daily update has consistently pointed out.

Reward/Risk tradeoffs still appear unattractive. It seems more appropriate than ever to focus on capital preservation.

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

8.42% , PSQ , Short 100% QQQ, PSQ
8.28% , SH , Short 100% S&P 500, SH
14.68% , SDS , Short 200% S&P 500 PS, SDS
14.37% , MZZ , Short 200% MidCap 400 PS, MZZ
5.60% , DOG , Short 100% Dow 30, DOG
11.45% , DXD , Short 200% Dow 30 PS, DXD
2.91% , TLT , Bond, 20+ Years Treasury, TLT
2.89% , IAU , Gold COMEX iS, IAU
7.17% , MYY , Short 100% MidCap 400, MYY
19.95% , QID , Short 200% QQQ PS, QID
3.38% , GLD , Gold Shares
1.39% , IEF , Bond, 10 Year Treasury, IEF
0.58% , SHY , Bond, 1-3 Year Treasury, SHY
0.41% , ACV , Alberto-Culver Co.
0.40% , TIP , Bond, TIPS, TIP

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

-9.00% , FPX , IPOs, First Tr IPOX-100, FPX
-12.75% , EFV , Value EAFE MSCI
-6.18% , IWC , Microcap Russell, IWC
-15.15% , WEN , WENDYS INTL
-12.26% , MTK , Technology MS sT, MTK
-9.46% , ADRA , Asia 50 BLDRS, ADRA
-6.76% , IWW , Value LargeCap Russell 3000, IWW
-34.92% , PWER , POWER ONE
-7.73% , PXQ , Networking, PXQ
-5.93% , DSG , Growth Small Cap DJ, DSG
-13.02% , EWN , Netherlands Index, EWN
-5.97% , XLG , LargeCap Rydex Rus Top 50, XLG
-7.31% , JKG , MidCap Blend Core iS M, JKG
-14.24% , L , LOEWS
-25.13% , SLM , SLM CORP
-27.16% , BK , BANK OF NEW YORK
-11.14% , PXE , Energy Exploration & Prod, PXE
-8.34% , IXP , Telecommunications Global, IXP
-9.27% , RPV , Value S&P 500, RPV
-8.45% , IXN , Technology Global, IXN
-3.97% , PIC , Insurance, PIC
-10.58% , EWI , Italy Index, EWI
-6.39% , FDL , Dividend Leaders, FDL
-6.99% , VXF , Extended Mkt VIPERs, VXF
-6.82% , NYC , LargeCap Blend NYSE Composite iS, NYC
-13.84% , ILF , Latin Am 40, ILF
-11.23% , PWB , Lg Cap Growth PSD, PWB
-14.58% , FXI , China 25 iS, FXI
-7.93% , XSD , Semiconductor SPDR, XSD
-10.75% , EPI , India Earnings WTree, EPI
-10.39% , ADRU , Europe 100 BLDRS, ADRU
-12.39% , EWA , Australia Index, EWA
-5.12% , PXN , Nanotech Lux, PXN
-10.12% , GNTX , Gentex Corporation
-7.81% , URBN , Urban Outfitters Inc.

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

-2.24% Health Care SPDR, XLV
-3.39% Industrial SPDR, XLI
-3.75% Consumer Staples SPDR, XLP
-5.24% Utilities SPDR, XLU
-6.67% Consumer Discretionary SPDR, XLY
-7.21% Materials SPDR, XLB
-8.65% Technology SPDR, XLK
-11.89% Energy SPDR, XLE
-13.18% 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):

Consumer Staples (XLP) Neutral, Market Weight. On 9/15/08, XLP/SPY Relative Strength Ratio rose to another new 5-year high, again confirming that the long-term trend is up. On 9/8/08, XLP absolute price rose to a new 8-month high, indicating significant price trend strength.

Health Care (XLV) Neutral, Market Weight. On 9/29/08, the XLV/SPY Relative Strength Ratio moved up to a new 4-year high, confirming a long-term uptrend.

Consumer Discretionary (XLY) Bearish, Underweight. On 7/15/08, XLY absolute price fell to its lowest level in 5 years. Since 1/5/05, the XLY/SPY Relative Strength Ratio has underperformed substantially.

Industrial (XLI) Bearish, Underweight. On 9/29/08, the XLI absolute price hit a new 35-month low, indicating long-term trend weakness. On 9/24/08, the XLI/SPY Relative Strength Ratio broke down to a new 3-month low.

Utilities (XLU) Bearish, Underweight. On 9/29/08, the XLU absolute price fell to another new 2-year low, indicating long-term trend weakness. On 9/22/08, the XLU/SPY Relative Strength Ratio broke down to a new 6-month low.

Materials (XLB) Bearish, Underweight. On 9/29/08, the XLB absolute price hit a new 23-month intraday low, indicating significant trend weakness.

Technology (XLK) Bearish, Underweight. On 9/17/08, the XLK absolute price fell to a new 3-year low, indicating long-term trend weakness.

Energy (XLE) Bearish, Underweight. On 9/29/08, the XLE absolute price fell to a new 18-month intraday low, indicating significant trend weakness.

Financial (XLF) Bearish, Underweight. On 9/19/08, the XLF absolute price hit a new 3-month intraday high, reflecting dramatic government intervention. On 9/18/08, the XLF absolute price hit a new 2-month intraday low, indicating intermediate-term trend weakness. With the rules changing day by day, trading these stocks would seem to be extraordinarily risky.

Foreign stock index EFA Relative Strength Ratio has underperformed the S&P 500 since 11/27/07. EFA absolute price fell to a new 3-year low on 9/29/08 and has been in a falling trend since 10/31/07. EFA is the ETF representing the EAFE, the international developed country stock markets, ex the U.S. and Canada.

NASDAQ Composite remains Bearish. On 9/29/08, absolute price broke down to a new 3-year intraday low, indicating long-term trend weakness. Relative Strength Ratio has been in a declining trend since 8/14/08.

NASDAQ 100 Index absolute price broke down to a new 2-year intraday low on 9/29/08.

Growth Stock/Value Stock Relative Strength Ratio fell to a new 5-month low on 9/19/08. The short-term trend appears relatively weak. Longer term, this ratio (IWF/IWD) has been in an uptrend since 8/8/06, and it rose to a new 4-year high on 7/15/08.

The Small Cap/Large Cap Relative Strength Ratio eased lower since 9/19/08. The ratio jumped up to a 21-year high on 9/19/08, confirming a major uptrend. The long-term trend has been Bullish most of the time since 4/8/99.

Crude Oil futures November contract price plunged below previous 7-day lows. The short-term trend looks Bearish, and the intermediate-term trend remains Bearish. 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 underperformed Crude Oil since 5/30/07.

Gold futures contract price moved above previous 6-day highs, reflecting a flight to safety. Gold is a safe haven in times of great stress. Gold seems likely to fluctuate inversely to the financial news and the broad-based stock indexes in days ahead. Gold has been in an intermediate-term downtrend since the peak of 1033.90 on 3/17/08.

Gold Mining stocks continue to underperform Gold futures on a major trend basis.

U.S. Treasury Bond futures contract price soared above previous 6-day highs, reflecting a flight to safety. Bonds have been in an intermediate-term uptrend since 6/13/08. Long term, Bonds have been in a neutral sideways trend since June 2003.

iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows. All trends remain Bearish. Bond investors appear to be seriously concerned about the economic outlook.

iShares Lehman TIPS Bond (TIP) ETF firmed slightly. All trends remain relatively weak. On 9/19/08, TIP/TLT Relative Strength Ratio broke down to another new multi-year low, again confirming that the short-term, intermediate-term, and long-term trends all are Bearish. This implies that Bond investors may be anticipating deflation.

The U.S. dollar moved above previous 5-day highs, reflecting a flight to cash. Still, the short-term trend appears questionable. On 9/22/08, the dollar fell steeply to its lowest level in 6 weeks.

The Art of Contrary Thinking: Traders need to be extremely nimble to keep up with rapid changes in the mass mood. The business and financial news has flipped from fear to hope and back again this year, creating higher levels of volatility. Investors might be wise to focus on risk control.

Sentiment/Contrary Opinion: There were 37.5% Bulls versus 40.9% Bears as of 9/24/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.92, and it was 0.92 the previous week. The Bull/Bear ratio low of 0.57 on 7/16/08 was the lowest level of the ratio since 1994. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47.

VIX Fear Index, now at 46.72, indicates great Fear. On 9/29/08, VIX broke out above all previous highs to set a new all-time high. The previous all-time high was 45.74 set 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, now at 49.56, broke out to a new 6-year high. 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 0.79, which indicates Bearish sentiment. Its 4-year mean and median are 0.62, and its 4-year range is 0.35 to 1.28.

ISEE Call/Put Ratio is 1.12, which indicates Bearish sentiment. The ratio’s 4-year mean is 1.50, 4-year median is 1.47, and 4-year range is 0.51 to 3.16.

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 and seem likely to weaken further over the next several months.

The breadth of the market has been in a Bearish trend long term since June 2007. The number of New Lows has exceeded the number of New Highs most days for more than a year, since July 2007, and that is one sign of a Bear Market. On 9/29/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 22-month lows, so major breadth trends remain Bearish.

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 (1,106.39):

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 5/19/2008
1,406.32, high of 5/29/2008
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15, high of 8/11/2008
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008

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 (1,106.39):

Potential Support
1060.72, low of 8/13/04

Daily Rankings of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

19.95% Short 200% QQQ PS, QID
14.68% Short 200% S&P 500 PS, SDS
14.37% Short 200% MidCap 400 PS, MZZ
11.45% Short 200% Dow 30 PS, DXD
8.42% Short 100% QQQ, PSQ
8.28% Short 100% S&P 500, SH
7.17% Short 100% MidCap 400, MYY
5.60% Short 100% Dow 30, DOG
3.38% Gold Shares S.T., GLD
2.91% Bond, 20+ Years Treasury, TLT
1.39% Bond, 10 Year Treasury, IEF
0.58% Bond, 1-3 Year Treasury, SHY
0.40% Bond, TIPS, TIP
-0.46% Bond, Aggregate, AGG
-1.52% Silver Trust iS, SLV
-2.24% Health Care SPDR, XLV
-2.79% Biotech & Genome, PBE
-2.96% Pharmaceutical H, PPH
-3.25% Consumer Staples VIPERs, VDC
-3.39% Industrial SPDR, XLI
-3.46% Wilshire 5000 ST TM, TMW
-3.49% REIT Wilshire, RWR
-3.52% Pharmaceuticals, PJP
-3.55% Utilities, PUI
-3.68% Retail, PMR
-3.75% Consumer Staples SPDR, XLP
-3.81% Consumer Non-Cyclical, IYK
-3.97% Insurance, PIC
-4.13% Health Care VIPERs, VHT
-4.37% Healthcare DJ, IYH
-4.41% Retail H, RTH
-4.53% Dividend Appreciation Vipers, VIG
-4.53% Utilities DJ, IDU
-4.61% Aerospace & Defense, PPA
-4.64% Food & Beverage, PBJ
-4.68% Dividend Growth PS, PHJ
-4.79% Leisure & Entertainment, PEJ
-4.90% Telecommunications & Wireless, PTE
-5.00% LargeCap Blend Core iS M, JKD
-5.01% Biotech SPDR, XBI
-5.12% Nanotech Lux, PXN
-5.18% OTC Dynamic PS, PWO
-5.21% Growth SmallCap Dynamic PS, PWT
-5.24% Utilities VIPERs, VPU
-5.24% Utilities SPDR, XLU
-5.40% Telecom Services VIPERs, VOX
-5.45% SmallCap PS Zacks, PZJ
-5.46% Healthcare Global, IXJ
-5.48% Micro Cap Zachs, PZI
-5.49% Malaysia Index, EWM
-5.51% Telecom H, TTH
-5.53% LargeCap Blend Socially Responsible iS, KLD
-5.55% Value SmallCap iS M, JKL
-5.60% Utilities H, UTH
-5.61% Value SmallCap Dynamic PS, PWY
-5.61% Software, PSJ
-5.76% Transportation Av DJ, IYT
-5.83% Dividend Achievers PS, PFM
-5.92% Consumer Cyclical DJ, IYC
-5.93% Software H, SWH
-5.93% Growth Small Cap DJ, DSG
-5.97% LargeCap Rydex Rus Top 50, XLG
-5.98% Real Estate US DJ, IYR
-6.12% SmallCap S&P 600, IJR
-6.13% Industrials VIPERs, VIS
-6.13% Hardware & Electronics, PHW
-6.17% Value Large Cap DJ, ELV
-6.18% Microcap Russell, IWC
-6.20% Commodity Tracking, DBC
-6.21% Growth MidCap S&P 400, RFG
-6.31% Growth BARRA Small Cap 600, IJT
-6.36% MidCap S&P 400 iS, IJH
-6.37% Growth SmallCap R 2000, IWO
-6.39% Dividend Leaders, FDL
-6.40% LargeCap Blend Dynamic PS, PWC
-6.42% Value MidCap Dynamic PS, PWP
-6.44% Value SmallCap VIPERS, VBR
-6.48% Value SmallCap S&P 600 B, IJS
-6.51% Value LargeCap NYSE 100 iS, NY
-6.56% Value Small Cap DJ, DSV
-6.59% Industrial LargeCap Blend DJ US, IYJ
-6.59% Blend Total Market VIPERs, VTI
-6.61% Consumer D. VIPERs, VCR
-6.64% SmallCap Core iS M, JKJ
-6.67% Consumer Discretionary SPDR, XLY
-6.67% Japan LargeCap Blend TOPIX 150, ITF
-6.69% Global Titans, DGT
-6.69% Financials VIPERs, VFH
-6.70% Growth S&P 500, RPG
-6.71% Value VIPERs, VTV
-6.73% Telecom DJ US, IYZ
-6.75% LargeCap Blend S&P 1500 iS, ISI
-6.76% Value S&P 500 B, IVE
-6.76% Value LargeCap Russell 3000, IWW
-6.82% LargeCap Blend NYSE Composite iS, NYC
-6.82% LargeCap Blend Total Market DJ, IYY
-6.88% Value MidCap S&P 400, RFV
-6.89% Growth VIPERs, VUG
-6.89% Value 1000 Russell, IWD
-6.89% LargeCap 1000 R, IWB
-6.96% Growth Large Cap, ELG
-6.98% Growth LargeCap Russell 3000, IWZ
-6.99% Extended Mkt VIPERs, VXF
-7.04% Value LargeCap iS M, JKF
-7.06% Small Cap VIPERs, VB
-7.09% Growth S&P 500/BARRA, IVW
-7.09% Canada Index, EWC
-7.10% MidCap S&P 400 SPDRs, MDY
-7.11% Value MidCap S&P 400 B, IJJ
-7.15% MidCap Russell, IWR
-7.18% LargeCap Blend Russell 3000, IWV
-7.20% Growth SmallCap VIPERs, VBK
-7.21% Materials SPDR, XLB
-7.24% Biotech H, BBH
-7.25% LargeCap VIPERs, VV
-7.26% Growth MidCap 400 B, IJK
-7.30% Growth 1000 Russell, IWF
-7.31% MidCap Blend Core iS M, JKG
-7.31% Water Resources, PHO
-7.32% Software, IGV
-7.33% Value MidCap iS M, JKI
-7.42% S&P 500 iS LargeCap Blend, IVV
-7.45% Semiconductors, PSI
-7.46% Value LargeCap Fundamental RAFI 1000, PRF
-7.52% Internet Architecture H, IAH
-7.52% Growth SmallCap iS M, JKK
-7.64% Value SmallCap Russell 2000, IWN
-7.66% Growth MidCap Russell, IWP
-7.68% Realty Cohen & Steers, ICF
-7.73% Networking, PXQ
-7.75% Japan Index, EWJ
-7.75% LargeCap Blend S&P=Weight R, RSP
-7.75% Value MidCap Russell, IWS
-7.81% Internet Infrastructure H, IIH
-7.82% Value 40 Large Low P/E FT DB, FDV
-7.84% S&P 500 SPDRs LargeCap Blend, SPY
-7.84% Homebuilders SPDR, XHB
-7.84% Global 100, IOO
-7.85% Growth LargeCap NASDAQ Fidelity, ONEQ
-7.88% Growth LargeCap iS M, JKE
-7.90% SmallCap Russell 2000, IWM
-7.93% Semiconductor SPDR, XSD
-7.94% Growth LargeCap NASDAQ 100, QQQQ
-7.94% MidCap VIPERs, VO
-7.99% Info Tech VIPERs, VGT
-8.20% Dividend DJ Select, DVY
-8.23% Dividend SPDR, SDY
-8.25% Mexico Index, EWW
-8.27% Switzerland Index, EWL
-8.30% Technology GS, IGM
-8.34% Telecommunications Global, IXP
-8.37% Technology DJ US, IYW
-8.41% Building & Construction, PKB
-8.45% Technology Global, IXN
-8.49% Semiconductor iS GS, IGW
-8.54% WilderHill Clean Energy PS, PBW
-8.55% Growth Mid Cap Dynamic PS, PWJ
-8.65% Technology SPDR, XLK
-8.68% Pacific VIPERs, VPL
-8.71% MidCap Growth iS M, JKH
-8.75% Value Line Timeliness MidCap Gr, PIV
-8.84% LargeCap Blend S&P 100, OEF
-8.85% Materials VIPERs, VAW
-8.90% Singapore Index, EWS
-8.90% Networking, IGN
-9.00% IPOs, First Tr IPOX-100, FPX
-9.09% Internet H, HHH
-9.10% Spain Index, EWP
-9.11% Bond, Corp, LQD
-9.12% Financial DJ US, IYF
-9.27% Value S&P 500, RPV
-9.28% Semiconductor H, SMH
-9.29% Taiwan Index, EWT
-9.32% Dividend High Yield Equity PS, PEY
-9.43% Germany Index, EWG
-9.43% Natural Resource iS GS, IGE
-9.46% Asia 50 BLDRS, ADRA
-9.66% Energy DJ, IYE
-9.71% Ultra Dow30 Double, DDM
-9.90% Euro STOXX 50, FEZ
-9.97% Value LargeCap Euro STOXX 50 DJ, FEU
-10.03% Energy VIPERs, VDE
-10.17% Broadband H, BDH
-10.21% Basic Materials DJ US, IYM
-10.24% Oil & Gas, PXJ
-10.35% Europe 350 S&P Index, IEV
-10.37% France Index, EWQ
-10.39% Europe 100 BLDRS, ADRU
-10.42% Capital Markets KWB ST, KCE
-10.55% European VIPERs, VGK
-10.58% Oil, Crude, U.S. Oil Fund, USO
-10.58% Italy Index, EWI
-10.68% Value SmallCap S&P 600, RZV
-10.75% India Earnings WTree, EPI
-10.78% Hong Kong Index, EWH
-10.92% Emerging VIPERs, VWO
-10.96% South Korea Index, EWY
-11.00% Financial Services DJ, IYG
-11.01% Developed 100 BLDRS, ADRD
-11.02% Energy Global, IXC
-11.07% China LargeCap Growth G D H USX PS, PGJ
-11.11% EMU Europe Index, EZU
-11.14% Energy Exploration & Prod, PXE
-11.16% EAFE Index, EFA
-11.22% Pacific ex-Japan, EPP
-11.23% Lg Cap Growth PSD, PWB
-11.24% Bank Regional H, RKH
-11.56% Financials Global LargeCap Value, IXG
-11.63% Value LargeCap Dynamic PS, PWV
-11.68% Emerging Markets, EEM
-11.73% Oil Services H, OIH
-11.87% South Africa Index, EZA
-11.89% Energy SPDR, XLE
-12.02% United Kingdom Index, EWU
-12.04% Emerging 50 BLDRS, ADRE
-12.07% Sweden Index, EWD
-12.26% Technology MS sT, MTK
-12.39% Australia Index, EWA
-12.66% Austria Index, EWO
-12.75% Value EAFE MSCI, EFV
-13.02% Netherlands Index, EWN
-13.18% Financial SPDR, XLF
-13.53% Growth EAFE MSCI, EFG
-13.54% Belgium Index, EWK
-13.70% Ultra MidCap400 Double, MVV
-13.71% Metals & Mining SPDR, XME
-13.79% Ultra S&P500 Double, SSO
-13.84% Latin Am 40, ILF
-14.58% China 25 iS, FXI
-14.81% Dividend International, PID
-15.38% Internet B2B H, BHH
-15.41% Brazil Index, EWZ
-19.30% Ultra QQQ Double, QLD