U.S. Stock Market Update

The S&P 500 halted its 9-day dive just short of 1,098.14, which is the upper end of the gap from 10/3/08 to 10/6/08.

Price momentum oscillators have stubbornly refused to make new highs in October, thereby denying confirmation of new highs by the price indexes. Bearish divergences persist.

Cumulative On-Balance Volume and Candlestick Volume also failed to confirm new price highs last week.

Crude Oil rose further above previous 12-month highs. The main trend remains bullish.

Energy Stock Sector Relative Strength Ratio (XLE/SPY) rose to another a new 4-month high on 10/16/09, and absolute price confirmed. XLE/SPY has been in a strong uptrend short-term this month. Longer term, it appears likely that XLE/SPY bottomed a year ago, on 10/16/08, and has been building a technical base over the past year

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
4.65% , BHH , Internet B2B H, BHH
2.89% , HAS , HASBRO
2.16% , SIRI , Sirius Satellite
2.30% , ORCL , ORACLE
3.76% , GOOG , Google
2.76% , CAH , CARDINAL HEALTH
2.78% , HGSI , Human Genome Sciences Inc
4.94% , SVU , SUPERVALU
1.71% , URBN , Urban Outfitters Inc.
2.76% , BA , BOEING
1.70% , MZZ , Short 200% MidCap 400 PS, MZZ
1.06% , ERIC.O , LM Ericsson Telephone Company
0.96% , MYY , Short 100% MidCap 400, MYY
0.44% , EWU , United Kingdom Index, EWU
0.86% , MS , MORGAN STANLEY
2.45% , R , RYDER SYSTEM
0.77% , HPQ , HEWLETT PACKARD
0.86% , LNCR , Lincare Holdings Inc
0.85% , HSP , HOSPIRA
0.76% , LMT , LOCKHEED MARTIN
0.28% , PBJ , Food & Beverage, PBJ
1.09% , GIS , GENERAL MILLS
1.61% , SYY , SYSCO
1.42% , SDS , Short 200% S&P 500 PS, SDS
1.21% , SO , SOUTHERN
1.23% , QID , Short 200% QQQ PS, QID
0.61% , MKC , MCCORMICK
1.11% , DXD , Short 200% Dow 30 PS, DXD
0.72% , UIS , UNISYS
0.66% , DOG , Short 100% Dow 30, DOG
0.43% , PPL , PPL
1.00% , MCD , MCDONALDS
0.58% , DIS , WALT DISNEY
1.13% , PM , Philip Morris, PM
0.64% , GD , GENERAL DYNAMICS
1.36% , WAG , WALGREEN
0.66% , PSQ , Short 100% QQQ, PSQ
0.53% , XLP , Consumer Staples SPDR, XLP
0.33% , ACE , ACE
0.61% , SH , Short 100% S&P 500, SH

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-12.30% , MTG , MGIC INVESTMENT
-3.74% , RX , IMS HEALTH
-8.09% , MU , MICRON TECH
-1.07% , PZJ , SmallCap PS Zacks, PZJ
-4.43% , GRMN , GARMIN LTD
-1.19% , EWI , Italy Index, EWI
-7.27% , AMD , ADV MICRO DEV
-3.37% , LAMR , Lamar Advertising Company
-4.23% , GE , GENERAL ELECTRIC
-2.60% , RZV , Value SmallCap S&P 600, RZV
-1.15% , IWW , Value LargeCap Russell 3000, IWW
-5.40% , FITB , FIFTH THIRD BANC
-2.96% , HOLX , Hologic, Inc., HOLX
-4.58% , CAR , Avis Budget Group, Inc. (CAR)
-4.95% , IBM , IBM
-6.42% , GNW , GENWORTH FINANCIAL
-0.51% , JKK , Growth SmallCap iS M, JKK
-0.87% , IXJ , Healthcare Global, IXJ
-4.64% , BAC , BANK OF AMERICA
-3.45% , ZION , ZIONS
-0.92% , RFG , Growth MidCap S&P 400, RFG
-5.40% , MI , MARSHAL & ILSLEY
-4.64% , SNDK , SanDisk Corporation
-1.55% , FISV , FISERV
-9.21% , PWER , POWER ONE
-3.97% , SLM , SLM CORP
-4.33% , WFC , WELLS FARGO
-4.65% , STLD , Steel Dynamics, STLD
-2.16% , MDP , MEREDITH
-0.31% , FPX , IPOs, First Tr IPOX-100, FPX
-0.77% , VCR , Consumer D. VIPERs, VCR
-0.87% , JKF , Value LargeCap iS M, JKF
-2.15% , MRVL , MARVELL TECHNOLOGY
-2.79% , MET , METLIFE
-0.98% , MTB , M&T BANK
-3.16% , UNM , UNUMPROVIDENT
-3.61% , ODP , OFFICE DEPOT
-3.15% , TMK , TORCHMARK
-1.57% , EWP , Spain Index, EWP
-0.63% , VIG , Dividend Appreciation Vipers, VIG

9 major U.S. stock sectors ranked in order of long-term relative strength:

Consumer Discretionary (XLY) Neutral, Market Weight. The Relative Strength Ratio (XLY/SPY) appears choppy short term. Intermediate term, the relative trend appears neutral/sideways since peaking on 4/30/09. XLY was strong from 11/19/08 to 4/30/09, and that past strength accounts for XLY’s high ranking here. The XLY/SPY trend was clearly down from 1/5/05 to 11/19/08.

Technology (XLK) Neutral, Market Weight. The Relative Strength Ratio (XLK/SPY) fell further below 4-month lows on 10/16/09. XLK/SPY turned down after 9/30/09. The XLK/SPY Ratio appears to be in a moderate correction for the intermediate term. Long term, on 7/22/09, XLK/SPY rose to its highest level in 7 years, thereby confirming a long-term uptrend in effect since 9/30/02.

Materials (XLB) Neutral, Market Weight. The Relative Strength Ratio (XLB/SPY) peaked on 8/5/09 and has been consolidating gains since. XLB/SPY was in an intermediate-term uptrend from its low on 12/5/08 to its high on 8/5/09.

Financial (XLF) Neutral, Market Weight. The Relative Strength Ratio (XLF/SPY) has fallen sharply after breaking out to a new 10-month high on 10/14/09. Absolute price confirmed by making a new 11-month high on 10/14/09.

Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) rose to another a new 4-month high on 10/16/09, and absolute price confirmed. XLE/SPY has been in a strong uptrend short-term, in this month of October, 2009. Longer term, it appears likely that XLE/SPY bottomed a year ago, on 10/16/08, and has been building a technical base over the past year.

Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) has been in a moderate downtrend since peaking on 11/20/08, as the appetite for risk recovered.

Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) has stabilized since making a low on 10/7/09 but is still well below its high of 9/17/09. XLI/SPY was in an intermediate-term uptrend from its low on 3/6/09 to its high on 9/17/09.

Health Care (XLV) Bearish, Underweight. The Relative Strength Ratio (XLV/SPY) fell further below the lows of the previous 12 months on 10/15/09. XLV/SPY has been relatively weak since 2/23/09.

Utilities (XLU) Bearish, Underweight. The Relative Strength Ratio (XLU/SPY) fell below previous 24-month lows on 10/14/09. XLU has underperformed since 11/21/08, as the appetite for risk recovered.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) moved further above previous 6-year highs on 10/14/09. Trends remain bullish in all time frames.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) peaked on 9/9/09 and has been lagging slightly since. The ratio outperformed from 10/27/08 to 9/9/09. EFA is the ETF representing the EAFE, the international developed country stock markets, excluding the U.S. and Canada.

NASDAQ Composite/S&P 500 Relative Strength Ratio fell below previous 6-week lows on 10/15/09. The ratio peaked out on 7/23/09 and has been correcting and consolidating since.

Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) has been correcting and consolidating gains since the peak on 3/5/09. IWF/IWD was in an uptrend from 8/8/06 to 3/5/09, and it is quite possible that uptrend could resume.

Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) has been correcting and consolidating gains in recent weeks. Intermediate term, IWD/SPY outperformed from 3/6/09 to 9/18/09. Long term, IWD/SPY remains in a Bearish Major Trend, underperforming since 3/22/07.

The S&P 500 equally weighted index relative to the S&P 500 capitalization weighted index has been consolidating gains since 9/16/09. The ratio had been in a strong uptrend from 11/19/08 to 9/16/09, and that trend could resume.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) has been in a downtrend since 11/20/08 as the market shifted toward a more aggressive risk seeking posture.

The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) been consolidating gains since 9/18/09. IWM/SPY was in an uptrend from 3/9/09 to 9/18/09, and that uptrend could resume. The 10-year trend still looks bullish.

The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) has been consolidating gains since 9/16/09. The secular trend since 1999 remains bullish.

Crude Oil nearest futures contract price rose further above previous 12-month highs on 10/16/09. The main trend remains bullish. The first potential support may be seen at the previous high at 75.00 set on 8/25/09. Look for further potential support at previous lows of 65.05, 61.38, and 58.32. Look for potential resistance at previous highs around 74-75.

Gold nearest futures contract price fell back below the lows of the previous 6 trading days on 10/16/09, in what appears to be a normal minor pullback. Gold rose above previous all-time highs on 10/14/09. All trends remain bullish, and Gold appears to have substantial upside potential. Technical supports might be found around previous highs and lows at 1033.9, 1024.7, 982.2, 940.3, 931.5, 925.2 and 904.8, based on the nearest futures contract. There is no chart resistance.

Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to Gold bullion) moved above the highs of the previous 3 weeks on 10/13/09. The short-term trend remains bullish. The ratio moved above previous 13-month highs on 9/17/09, confirming a preexisting longer-term uptrend in effect since 10/27/08. This main trend remains bullish for both Gold bullion and Gold Mining Stocks.

Silver/Gold Ratio turned down after 10/9/09. Although the short-term trend has been choppy, the ratio is still above uptrendlines drawn from the low on 10/10/08.

Copper nearest futures contract price has been correcting and consolidating gains since peaking at 29660 on 8/28/09. Copper appears confused about global economic prospects.

U.S. Treasury Bond December futures contract price fell further below the lows of the previous 3 weeks on 10/15/09 in what looks like a minor short-term shakeout. The 4-month trend still looks bullish. The Bond may find short-term support around the previous lows of 118.07 set on 9/23/09, 117.18 set on 9/9/09, and 116.30 set on 8/24/09. On 8/7/09, Bonds found support at the upper end of the 112-115 zone of many previous reversal points (including both lows and highs).

Bond quality ratio (LQD/TLT) partially recovered over the past 2 weeks. It broke down below a 6-month uptrend line and broke down below 11-week lows on 10/1/09, presumably signaling a move away from risk and toward safety. The trend had been up from 12/19/08 to 8/7/09, as the appetite for risk recovered, but that trend appears to have ended. LQD/TLT is iShares iBoxx $ Invest Grade Corp Bond ETF (LQD) price divided by 20+ Years US Treasury Bond ETF price (TLT).

The U.S. dollar nearest futures contract price fell further below the lows of the previous 14 months on 10/15/09. Obviously, the major trend remains bearish, and it probably would take a long period of base building and bottom testing to turn this trend.

The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. So, Contrary Thinking should be used with more precise market timing tools.

Advisory Service Sentiment: There were 47.2% Bulls versus 26.4% Bears as of 10/14/09, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 1.79, down from 2.00 the previous week. The ratio was 2.61 on 8/26/09, the highest reading since 10/17/07. The ratio’s 39-year range is 0.28 to 17.51, the median is 1.43, and the mean is 1.73.

VIX Fear Index touched a new 13-month low of 20.98 on 10/16/09. VIX is down from a peak of 80.86 set on 11/20/08. 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 touched a new 13-month low of 21.81 on 10/16/09. VIX is down from a peak of 80.86 set on 11/20/08. VXN is down from a peak of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.

ISEE Call/Put Ratio fell to 1.29 on 10/16/09, indicating mildly bearish sentiment. The ratio’s 5-year mean is 1.43, median is 1.38, and its range is 0.51 to 3.16.

CBOE Put/Call Ratio rose to 0.55 on 10/16/09, still indicating bullish sentiment. The ratio’s 5-year mean is 0.67, median is 0.65, and its range is 0.35 to 1.35.

Fundamentals: The 2003-2007 Bull Market was fed by abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and a net balance of positive earnings surprises. The unfolding fallout from the credit market crisis derailed that engine. Since the stock market low on 3/9/09, massive monetary and fiscal stimulation appears to have had a Bullish impact on investor sentiment.