High Price Volatility Is Typical of Bear Markets

The S&P 500 Composite (SPX, 1,253.30) fell 31.79 points or 2.47% on Monday, October 31, 2011. SPX surrendered most of the gains made last week.

SPX crossed back below its 200-day SMA, which may upset some trend-following bulls, especially if confirmed by downside follow through in days ahead.

Short-term Price Momentum Oscillators, designed to gauge the Daily Fluctuations, collapsed down to their most negative levels in more than 3 weeks. That is bearish for the short-term outlook.

Falling price momentum and low and falling volume are signs of fatigue.

The stock price recovery from 10/4/11 to 10/27/11 was larger than previous rallies–but it appears to have been a counter-trend correction rather than a change in the major trend.

Note that very high price volatility is typical of bear markets, while bull markets are much less volatile. Markets seem likely to remain volatile, with a continuing heightened sensitivity to news.

Longer-term indicators still are far from confirming any change in the major Primary Tide trend. For example, 50-day SMAs are well below 200-day SMAs for most stocks and indexes.

Ripples and Secondary Reactions opposite to the Dow Theory Primary Tide Trend lure short-term traders into trying to trade a bounce. Price corrections against the larger trends are normal and expected, of course, but playing counter-trend bounces is risky. The mood can switch from “risk on” to “risk off” overnight, leaving the too-clever trader suddenly holding the bag.

The Dow Theory signaled a Primary Tide Bear Market on 8/2/11, when both Dow-Jones Averages, Industrial and Transportation, closed below their closing price lows of the previous 11 months. This Bear Market was confirmed on 10/3/11 by lower closing price lows for both Averages. Both Averages would have to close above their closing price highs for the year to indicate a “Turn in the Tide”.
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Stock Market Indicators

NASDAQ Composite/S&P 500 Relative Strength Ratio has been correcting and consolidating gains over the past 4 weeks. The Ratio rose above previous 10-year highs on 9/23/11, reconfirming a major long-term uptrend.

iShares MSCI BRIC Fund (BKF) Relative Strength Ratio (BKF/SPY) fell below its 50-day SMA on 10/31/11, thereby turning bearish again.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell below its 50-day SMA on 10/31/11, thereby turning bearish again.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below its 50-day SMA on 10/31/11, thereby turning bearish again.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell below 6-week lows on 10/28/11, confirming a medium-term correction to the downside. Large Caps tend to underperform Mid Caps and Small Caps in bullish general market trends as investors prefer riskier and more volatile stocks. Large Caps tend to outperform in bearish general market trends as investors seek the perceived relative safety of large size.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) remains neutral with the 50-day SMA below the 200-day SMA. Absolute price also remains neutral with the 50-day SMA below the 200-day SMA.

The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) remains neutral with the 50-day SMA below the 200-day SMA. Absolute price also remains neutral with the 50-day SMA below the 200-day SMA.

Advisory Service Sentiment: There were 40.0% Bulls versus 37.9% Bears as of 10/26/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio rose to 1.06, up from 0.87 the previous week. The Bull/Bear Ratio has been relatively low for 10 consecutive weeks, since 8/24/11. The 20-year median is 1.56 and the mean is 1.64.

VIX Fear Index fell to 24.44 on 10/28/11, down from a high of 48.00 on 8/8/11, suggesting that fear has decreased substantially and is now trending down. 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.

The S&P 500 Composite (SPX: 1,253.30) Potential Resistance
1576.09, high of 10/11/2007
1552.76, high of 10/31/2007
1523.57, high of 12/11/2007
1498.85, high of 12/26/2007
1440.24, high of 5/19/2008
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1370.58, high of 5/2/11
1359.44, high of 5/10/11
1356.48, high of 7/7/11
1347.00, high of 7/21/11
1307.28, Fibonacci 78.6% of 2011 range
1292.66, high of 10/27/11
1274.05, 200-day SMA
1258.07, low of 6/16/11
1257.58, Fibonacci 61.8% of 2011 range
1256.55, high of 10/24/11

S&P 500 Composite (SPX: 1,253.30) Potential Support
1249.05, low of 3/16/11
1246.73, high of 12/13/10
1238.81, Fibonacci 78.6% of 1,576.09 high
1222.68, Fibonacci 50% of 2011 range
1221.06, low of 10/26/2011
1204.49, Fibonacci 23.6% of 2009-11 range
1190.58, low of 10/13/2011
1187.77, Fibonacci 38.2% of 2011 range
1144.38, Fibonacci 23.6% of 2011 range
1101.73, Fibonacci 38.2% of 2009-11 range
1074.77, low of 10/4/2011
1039.70, low of 8/27/10
1039.31, Fibonacci 23.6% of June-Aug. 2010 range
1010.91, low of 7/1/2010
1018.69, Fibonacci 50% of 2009-11 range
1008.55, Fibonacci 38.2% of 2009-2010 range
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
943.29, Gann 50.0% of 2009-2010 range
935.64, Fibonacci 61.8% of 2009-11 range
878.04, Fibonacci 61.8% of 2009-2010 range
874.17, Gann 62.5% of 2009-2010 range
869.32, low of 7/8/2009
817.40, Fibonacci 78.6% of 2009-11 range
805.17, Gann 75.0% of 2009-2010 range
785.13, Fibonacci 78.6% of 2009-2010 range
666.79, intraday low of 3/6/2009
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Fixed-Income Investments

Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) price gapped higher on 10/31/11, opening above the highs of the past 2 trading days. TLT added to gains during the regular 9:30 to 4:00 trading session and closed at the highs of the day. TLT price also crossed above its 50-day SMA, suggesting a short-term trend change to the upside. The chart shows an Island Reversal Bottom Pattern over the past 4 trading days. The rising 50-day SMA is in a bullish position above the rising 200-day SMA. Longer term, TLT rose above all-time highs on 10/4/11, reconfirming a major uptrend. A breakout above Resistance at 116.82 would confirm the bullish trend. Support 109.82, 106.08, 103.20, 102.27, 96.31, 94.83, 93.14, 89.65, and 88.14. Resistance 116.82 and 125.03.

Bond, iShares Barclays 7-10 Year U.S. Treasury ETF (IEF) price gapped higher on 10/31/11, opening above the highs of the past 2 trading days. IEF added to gains during the regular 9:30 to 4:00 trading session and closed at the highs of the day. The chart shows an Island Reversal Bottom Pattern over the past 4 trading days. Longer term, IEF rose above all-time highs on 9/22/11, reconfirming a major uptrend. Support 101.36, 101.11, 99.79, and 97.66. Resistance 106.66.

Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) turned down on 10/25/11 following a 3-weeks bounce. It appears to have lost upside momentum for the short term. Longer term, JNK/LQD broke down below the lows of the previous 29-months on 10/3/11, which reconfirmed a bearish major trend.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF), since making a low on 9/30/11, recovered a normal fraction of previous large losses. Longer term, TIP/IEF broke down below the lows of the previous 13-months on 9/30/11, which reconfirmed a bearish major trend, and the 50-day SMA is still far below the 200-day SMA.. This bearish long-term trend means that fixed-income investors have been choosing the unprotected 7-10 Year U.S. Treasury Note ETF (IEF) over the inflation-protected TIPs. So, fixed-income investors may be more worried about deflation than inflation.
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Tangible Assets, Commodities

U.S. dollar ETF (UUP) price gapped higher on 10/31/11, opening above the highs of the past 2 trading days. UUP added to gains during the regular 9:30 to 4:00 trading session and closed near the highs of the day. The chart shows an Island Reversal Bottom Pattern over the past 4 trading days. Support 21.07, 20.84. Resistance 21.91 and 22.63.

Agriculture, PowerShares DB Agriculture Fund ETF (DBA) fell below the lows of the previous 6 trading days on 10/31/11, suggesting a short-term downtrend. This after falling below the lows of the previous 10 months on 10/3/11, which reconfirmed a major long-term downtrend.

Crude Oil, United States Oil ETF (USO) appears to be losing upside momentum for the short term. Longer term, USO broke down below 2-year lows on 10/4/11 to confirm a major bear market. Support 32.52, 29.10, 26.28, and 22.74. Resistance 36.49, 39.25, 40.74, and 45.60.

Gold, SPDR Gold Shares ETF (GLD) price fell below Friday’s low and crossed below the 200-day SMA on 10/31/11. Longer term, new highs on 9/6/11 confirmed a major bull market. Support: 154.19, 153.61, 147.19, 143.97, 143.42, and 142.55. Resistance: 170.32, 172.20, 177.40, and 185.85.

Gold Mining Stocks ETF/ Gold Shares ETF Relative Strength Ratio (GDX/GLD) crossed back below its 50-day SMA on 10/31/11, indicating a bearish trend. GDX/GLD fell below 29-month lows on 8/8/11, reconfirming a bearish major trend for the long term. Investors still prefer Gold bullion over Gold Miners.

Silver, iShares Silver Trust ETF (SLV) price fell below Friday’s low. Longer term, SLV price broke down below the lows of the previous 7 months on 9/26/11, which confirmed a bearish major trend for the long term. SLV fell below its 50-day SMA on 9/19/11, fell below its 200-day SMA on 9/22/11, and remains bearishly below both SMAs. Support 27.41, 26.03, and 24.44. Resistance: 34.39, 34.51, 40.23, 41.49, 42.30, 42.78, 44.71 and 48.35.

Silver/Gold ETFs Ratio (SLV/GLD) remains in bearish position relative to 50-day and 200-day SMAs. Longer term, the SLV/GLD Ratio broke down below the lows of the previous 11 months on 9/30/11, reconfirming a bearish major trend. SLV/GLD has been mostly weak since peaking on 4/28/11. This means investors prefer Gold over Silver.

Copper, iPath DJ-UBS Copper TR Sub-Index ETN (JJC) fell below the lows of the previous 2 trading days on 10/31/11, possibly suggesting a short-term downtrend. Longer term, JJC broke down below the lows of the previous 14 months on 10/5/11, confirming a bearish major trend. Major trend weakness in Copper suggests serious concerns about the economic outlook.
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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
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
5.65% , HUM , HUMANA
1.36% , ITT , ITT INDS
5.10% , MZZ , Short 200% MidCap 400 PS, MZZ
2.25% , TLH , Bond 10-20 Year US Treas, TLH
2.73% , HANS , Hansen Natural, HANS
1.34% , ADBE , ADOBE SYS
3.97% , TLT , Bond, 20+ Years Treasury, TLT
1.85% , MBI , MBIA
1.73% , PSQ , Short 100% QQQ, PSQ
1.47% , DISCA , Discovery Communications
0.81% , XLNX , XILINX
4.53% , DXD , Short 200% Dow 30 PS, DXD
1.05% , TIF , TIFFANY
1.05% , FDO , FAMILY DLR STRS
1.38% , BSX , BOSTON SCIENT
0.98% , CCE , COCA COLA ENTER
0.89% , TIP , Bond, TIPS, TIP
0.47% , AGG , Bond, Aggregate, AGG
0.81% , SPLS , STAPLES
1.38% , DLTR , Dollar Tree Stores Inc
1.34% , IEF , Bond, 10 Year Treasury, IEF
0.62% , LMT , LOCKHEED MARTIN
1.49% , RTN , RAYTHEON
1.13% , BBBY , BED BATH BEYOND
0.24% , CAG , CONAGRA FOODS
0.18% , ROST , Ross Stores Inc
0.23% , ETR , ENTERGY
2.51% , SH , Short 100% S&P 500, SH
0.13% , BIG , BIG LOTS
0.02% , SHV , Bond Treasury Short-Term iS, SHV
0.25% , SJM , J. M. Smucker
1.41% , TLAB , TELLABS
0.03% , TIN , TEMPLE INLAND

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-9.76% , EK , EASTMAN KODAK
-3.47% , ADRD , Developed 100 BLDRS, ADRD
-5.16% , PXE , Energy Exploration & Prod, PXE
-4.31% , SCZ , Small Cap EAFE MSCI iS, SCZ
-5.94% , EWO , Austria Index, EWO
-6.64% , EWI , Italy Index, EWI
-5.91% , EWQ , France Index, EWQ
-2.95% , PZI , Micro Cap Zachs, PZI
-5.06% , IXG , Financials Global LargeCap Value, IXG
-3.82% , IXC , Energy Global, IXC
-4.48% , ACWX , Global ex US ACWI iS, ACWX
-2.28% , PWV , Value LargeCap Dynamic PS, PWV
-1.80% , IYH , Healthcare DJ, IYH
-3.36% , FEU , Value LargeCap Euro STOXX 50 DJ, FEU
-5.75% , FEZ , Euro STOXX 50, FEZ
-9.14% , JNS , JANUS CAPITAL
-2.33% , RPV , Value S&P 500, RPV
-4.26% , IYG , Financial Services DJ, IYG
-9.84% , ODP , OFFICE DEPOT
-5.42% , EWP , Spain Index, EWP
-1.78% , IYW , Technology DJ US, IYW
-10.98% , LNC , LINCOLN NATL
-3.86% , EWU , United Kingdom Index, EWU
-4.67% , ERIC.O , LM Ericsson Telephone Company
-2.31% , PID , Dividend International, PID
-7.87% , VLO , VALERO ENERGY
-2.92% , THD , Thailand MSCI iS, THD
-5.56% , YHOO , YAHOO
-2.23% , IGV , Software, IGV
-3.78% , NBR , NABORS
-1.38% , FPX , IPOs, First Tr IPOX-100, FPX
-2.48% , IWR , MidCap Russell, IWR
-2.00% , DBA , Agriculture DB PS, DBA
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One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
3.97% Bond, 20+ Years Treasury, TLT
1.34% Bond, 10 Year Treasury, IEF
0.89% Bond, TIPS, TIP
0.47% Bond, Aggregate, AGG
0.23% Bond, Corp, LQD
0.09% Bond, 1-3 Year Treasury, SHY
0.02% Bond Treasury Short-Term iS, SHV
-0.11% Bond Muni ATM-Free S&P iS, MUB
-0.19% Bond EmrgMkt JPM iS, EMB
-0.46% Utilities SPDR, XLU
-0.59% Bond, High-Yield Junk, JNK
-0.79% Utilities VIPERs, VPU
-0.80% Oil, Crude, U.S. Oil Fund, USO
-0.93% Bond, High-Yield Corporate, HYG
-0.96% Preferred Stock iS, PFF
-0.97% Realty Cohen & Steers, ICF
-0.98% Oil Fund PowerShares, DBO
-1.05% REIT Wilshire, RWR
-1.12% REIT VIPERs, VNQ
-1.31% Real Estate US DJ, IYR
-1.34% Gold Shares S.T., GLD
-1.35% Malaysia Index, EWM
-1.40% Financial Preferred, PGF
-1.49% Consumer Staples SPDR, XLP
-1.53% Commodity Tracking, DBC
-1.54% Consumer Discretionary SPDR, XLY
-1.55% Dividend High Yield Equity PS, PEY
-1.68% QQQ Nasdaq 100 Trust, QQQ
-1.77% Dividend DJ Select, DVY
-1.77% Technology SPDR, XLK
-1.78% Technology DJ US, IYW
-1.85% Bond Ex-US Treas, BWX
-1.87% Dividend SPDR, SDY
-1.88% Info Tech VIPERs, VGT
-1.90% Health Care SPDR, XLV
-2.00% Agriculture DB PS, DBA
-2.04% Telecom DJ US, IYZ
-2.15% Networking, IGN
-2.20% Growth S&P 500/BARRA, IVW
-2.21% DIAMONDS (DJIA), DIA
-2.21% Dividend Appreciation Vipers, VIG
-2.28% Value LargeCap Dynamic PS, PWV
-2.29% Growth VIPERs, VUG
-2.30% Value MidCap Russell, IWS
-2.31% Dividend International, PID
-2.33% Growth 1000 Russell, IWF
-2.33% Transportation Av DJ, IYT
-2.40% LargeCap VIPERs, VV
-2.40% Growth BARRA Small Cap 600, IJT
-2.41% Growth MidCap 400 B, IJK
-2.41% Biotech SPDR, XBI
-2.41% S&P 500 SPDRs LargeCap Blend, SPY
-2.42% Microcap Russell, IWC
-2.42% Semiconductor iS IGW, SOXX
-2.42% Silver Trust iS, SLV
-2.42% MidCap S&P 400 SPDRs, MDY
-2.44% LargeCap Blend S&P 100, OEF
-2.45% Industrial SPDR, XLI
-2.47% LargeCap 1000 R, IWB
-2.48% MidCap Russell, IWR
-2.52% S&P 500 iS LargeCap Blend, IVV
-2.53% MidCap S&P 400 iS, IJH
-2.53% Blend Total Market VIPERs, VTI
-2.56% Small Cap VIPERs, VB
-2.56% Taiwan Index, EWT
-2.56% Value MidCap S&P 400 B, IJJ
-2.57% Value SmallCap VIPERS, VBR
-2.59% Canada Index, EWC
-2.60% LargeCap Blend Russell 3000, IWV
-2.62% LargeCap Blend S&P=Weight R, RSP
-2.63% Growth MidCap Russell, IWP
-2.65% Growth SmallCap R 2000, IWO
-2.65% Homebuilders SPDR, XHB
-2.66% SmallCap Russell 2000, IWM
-2.68% Value 1000 Russell, IWD
-2.69% Growth SmallCap VIPERs, VBK
-2.71% Value SmallCap Russell 2000, IWN
-2.74% Value SmallCap S&P 600 B, IJS
-2.77% Chile MSCI iS, ECH
-2.79% SmallCap S&P 600, IJR
-2.79% Value VIPERs, VTV
-2.80% Semiconductor SPDR, XSD
-2.87% India Earnings WTree, EPI
-2.92% Thailand MSCI iS, THD
-2.96% Value S&P 500 B, IVE
-2.98% India PS, PIN
-3.07% Frontier Markets Guggenheim , FRN
-3.08% Emerging 50 BLDRS, ADRE
-3.25% Latin Am 40, ILF
-3.31% Financials VIPERs, VFH
-3.32% Brazil Index, EWZ
-3.33% Water Resources, PHO
-3.33% Financial DJ US, IYF
-3.47% China LargeCap Growth G D H USX PS, PGJ
-3.59% South Korea Index, EWY
-3.62% Global 100, IOO
-3.74% Emerging Markets, EEM
-3.82% Energy Global, IXC
-3.86% United Kingdom Index, EWU
-3.87% Indonesia MV, IDX
-3.89% Mexico Index, EWW
-3.93% Emerging VIPERs, VWO
-3.95% Financial SPDR, XLF
-3.97% Hong Kong Index, EWH
-4.04% Switzerland Index, EWL
-4.22% Singapore Index, EWS
-4.26% Financial Services DJ, IYG
-4.28% Materials SPDR, XLB
-4.29% Energy & Nat Res iS GS, IGE
-4.31% Small Cap EAFE MSCI iS, SCZ
-4.34% Energy VIPERs, VDE
-4.43% Energy DJ, IYE
-4.44% Belgium Index, EWK
-4.48% Silver Miners Global X, SIL
-4.48% Global ex US ACWI iS, ACWX
-4.50% Pacific ex-Japan, EPP
-4.54% Australia Index, EWA
-4.56% Energy SPDR, XLE
-4.58% China 25 iS, FXI
-4.59% Basic Materials DJ US, IYM
-4.65% Netherlands Index, EWN
-4.69% Capital Markets KWB ST, KCE
-4.91% Turkey MSCI iS, TUR
-4.95% European VIPERs, VGK
-4.96% Russia MV, RSX
-4.98% Growth EAFE MSCI, EFG
-4.99% Europe 350 S&P Index, IEV
-4.99% South Africa Index, EZA
-5.02% Value EAFE MSCI, EFV
-5.19% WilderHill Clean Energy PS, PBW
-5.19% EAFE Index, EFA
-5.30% Pacific VIPERs, VPL
-5.42% Spain Index, EWP
-5.81% Japan Index, EWJ
-5.91% France Index, EWQ
-5.94% Austria Index, EWO
-6.10% EMU Europe Index, EZU
-6.21% Sweden Index, EWD
-6.28% Germany Index, EWG
-6.57% Metals & Mining SPDR, XME
-6.64% Italy Index, EWI