Stock Market: Dead Cat Bounce. Ignoring all news and considering the technical data only, the latest 5-day stock market recovery is unimpressive.

S&P 500 rose above the highs of the previous 8 trading days, but volume fell by 54%.

Declining volume on rally days calls into question the power and sustainability of this stock price recovery.

The technical chart pattern of the bounce resembles a 5-day Bearish Rising Wedge, with upward sloping boundary lines converging, and with declining volume.

The ratio of prices of Investment Grade Corporate Bonds relative to U.S. Treasuries fell to a new 7-week low, suggesting serious concern about the economic outlook.

The ratio of ML SEMICONDUCTOR HLDR1240 (AMEX SMH 16.65) relative to SPDR S&P 500 (AMEX SPY 89.83) fell to another new low, suggesting trouble in the technology sector.

Fundamentally, with the business conditions outlook deteriorating alarmingly, with the possibility of further financial risks, and with probable unintended consequences of government bailouts, prudent investors may continue to focus on capital preservation.

On Friday, major stock price indexes opened lower, turned choppy, and finally jumped up near the 1:00 p.m. semi-holiday close. Stocks closed near the highest levels of the day. The Standard & Poor's 500 cash index (896.24) closed up 8.56 points, or 0.96%. Total NYSE volume fell 54%, again calling into question the power of this latest 5-day stock price recovery.

CATS is holding Short, having Sold Short the SPY at 87.30 at the Open on Tuesday, 11/25/08. From 9/8/08 to 11/25/08, CATS Simulated Cumulative Equity soared by more than 86% to new all-time highs, assuming 50% margin and zero transaction costs. CATS is the Colby Algorithmic Timing System. (Click here for a graph of CATS Simulated Performance.) Email colby@robertwcolby.com for information about CATS—or click the link at the top right of this page.

Judging by media reports, many investors want to believe that the U.S. government can rescue all the failing large corporations. But the actual fact is that all of the government bailouts have only brought temporary relief to the market. Patchwork solutions have arrived too little too late and have not cured the underlying problems. After each previous upside reaction to bailout news, stocks sank to lower lows. Clearly, that is the established pattern of behavior. The trend is your friend—don’t fight it.

The stock market typically reflects future fundamental conditions about 6 months ahead. Economic and business news has been growing dramatically worse as time goes on, with no visible end to the downward fundamental spiral. Some economists see weakness for another 12 months--or longer. Given that assumption, now would be too early for a change in the Bearish Primary Tide Trend. The unfolding financial crisis has been like an iceberg, and no one has been able to determine how much of it is hidden under water.

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
3.34% , FPX , IPOs, First Tr IPOX-100, FPX
3.93% , PHJ , Dividend Growth PS, PHJ
1.46% , RZV , Value SmallCap S&P 600, RZV
4.84% , XSD , Semiconductor SPDR, XSD
33.55% , CVG , CONVERGYS
1.76% , VOX , Telecom Services VIPERs, VOX
0.63% , EWK , Belgium Index, EWK
41.51% , VC , VISTEON
16.00% , SIRI , Sirius Satellite
4.44% , PHW , Hardware & Electronics, PHW
1.82% , PBJ , Food & Beverage, PBJ

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-1.12% , RFG , Growth MidCap S&P 400, RFG
-0.15% , DGT , Global Titans, DGT

9 Major U.S. Stock Sectors
Ranked on Latest One-Day Price Change
% Price Change, Sector ETF, Symbol
2.51% Financial SPDR, XLF
2.17% Industrial SPDR, XLI
1.76% Utilities SPDR, XLU
1.54% Consumer Discretionary SPDR, XLY
1.52% Consumer Staples SPDR, XLP
1.30% Health Care SPDR, XLV
0.43% Materials SPDR, XLB
0.13% Technology SPDR, XLK
-1.60% Energy SPDR, XLE

Primary Tide Trends for the 9 major sectors can 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 11/20/08, XLP/SPY Relative Strength Ratio rose to a new 10-year high. All 9 sectors have lost in 2008, but XLP has lost least.

Utilities (XLU) Neutral, Market Weight. On 11/21/08, the XLU/SPY Relative Strength Ratio rose to a new 10-year high.

Health Care (XLV) Neutral, Market Weight. On 11/20/08, XLV/SPY Relative Strength Ratio rose to a new 4-year high.

Energy (XLE) Bearish, Underweight. On 10/10/08, the XLE absolute price hit another new 18-month intraday low.

Consumer Discretionary (XLY) Bearish, Underweight. On 11/21/08, XLY absolute price fell to its lowest level in 10 years. The Relative Strength Ratio (XLY/SPY) has been trending down since 1/5/05 and fell to a new 7-year low on 11/19/08.

Technology (XLK) Bearish, Underweight. On 11/21/08, the XLK absolute price fell to a new 5-year low.

Industrial (XLI) Bearish, Underweight. On 11/21/08, the XLI absolute price fell to a new 5-year low.

Materials (XLB) Bearish, Underweight. On 11/20/08, the XLB absolute price fell to a new 5-year low.

Financial (XLF) Bearish, Underweight. On 11/21/08, the XLF absolute price hit another new 10-year low. In addition, the XLF long-term trend of Relative Strength Ratio (XLF/SPY) has been trending down since 2/20/07 and fell to a new 10-year low on 11/21/08.

The relative performance measurements of the 9 major sectors have indicated for many months a clear preference for defensive stocks that are insulated to a degree from economic downturns.

Foreign stock index EFA Relative Strength Ratio has sharply underperformed the S&P 500 since 11/27/07. EFA absolute price fell to a new 5-year low on 11/20/08 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. Relative Strength has been underperforming the S&P 500 since 8/14/08. On 11/21/08, the absolute price made another new 5-year low, reconfirming absolute long-term trend weakness.

Growth Stock/Value Stock Relative Strength Ratio has been trending down since it peaked on 7/15/08.

The Small Cap/Large Cap Relative Strength Ratio has been trending down since it peaked on 9/19/08.

Crude Oil January futures contract rose above its highs of the previous 5 trading days but could not hold its gains. Oil has been attempting to stabilize over the past 5 trading days after falling to a new 22-month low on 11/21/08. The main trend is still 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 has outperformed Crude Oil since 10/9/08.

Gold futures contract price consolidated with another Inside Day (lower high and higher low). On 11/24/08, Gold rose to a new 5-week high, turning the trend Bullish for the short-term. Gold remains in an intermediate-term downtrend since the peak of 1,033.90 on 3/17/08.

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

U.S. Treasury Bond futures contract price rose above the highs of the previous 4 trading days. It rose sharply to a new 30-year high on 11/20/08, thereby indicating a Bullish trend for the Long term. Money has been fleeing to safety in November.

iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF absolute price and LQD/TLT Relative Strength Ratio both fell to multi-year new lows on 10/10/08. That ratio just made a new 7-week low. Bond investors appear to be seriously concerned about the economic outlook.

iShares Lehman TIPS Bond (TIP) ETF Relative Strength Ratio (TIP/TLT) signals deflation. On 11/24/08, the Ratio fell to a new 5-year low and has been in a persistent major downtrend since 7/3/08.

The U.S. dollar price rose above the highs of the previous 3 trading days, thereby mixing signals for the short term. On 11/24/08, the dollar broke down to new 2-week lows, which should have been a Bearish signal for the short term. The U.S. dollar has lost all upside momentum since 10/27/08 and, therefore, could be in either consolidation or transition from Bull to Bear.

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 record high levels of volatility. Investors might be wise to focus on risk control.

Sentiment/Contrary Opinion: There were 29.0% Bulls versus 44.1% Bears as of 11/26/2008, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 0.66, down from 0.71 the previous week. This still indicates pessimism. The ratio’s 38-year range is 0.28 to 17.51, and the median is 1.47. Contrary Opinion must be tempered with other timing tools, of course.

VIX Fear Index, now at 55.84, has fallen substantially. Its 18-year high was 80.86 set on 11/20/08. Its 18-year 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 56.05, rose slightly. Its 7-year high was 80.64 set on 11/20/08. Its record high was 114.23 on 10/8/98. Its record 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 0.70, which indicates Neutral 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 1.37, which indicates moderately 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 credit market crisis has derailed that engine. Economic statistics and corporate earnings have been weakening and seem likely to weaken further over the next several quarters.

The Dow Theory last reconfirmed a Primary Tide Bear Market on 11/20/08, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their previous lowest closing prices of 2005-2008. These two Averages originally signaled a Primary Tide Bear Market on 11/21/07, when both closed below their closing price lows of August, 2007.

Shock and Fear. There is nothing new under the sun. The Dow Theory described this type of market many decades ago. From my book, The Encyclopedia of Technical Market Indicators , Second Edition : “The second Bear phase is marked by a sudden mood change, from optimism and hope to shock and fear. One day, the public wakes up and sees, much to its surprise, that "the emperor has no clothes". Actual fundamental business conditions are not panning out to be as positive as previously hoped. In fact, there may be a little problem. The smart money is long gone, and there is no one left to buy when the public wants out. Stock prices drop steeply in a vacuum. Fear quickly replaces greed. Repeated waves of panic may sweep the market. Transactional volume swells as the unsophisticated investor screams, "Get me out at any price!" Sharp professional traders are willing to bid way down in price for stocks when prices drop too far too fast. The best that can be expected, however, is a dead-cat bounce that recovers only a fraction of the steep loss.”

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 11/20/08, the Cumulative Daily Advance-Decline Lines for the NYSE and for the NASDAQ both fell to new 2-year lows, reconfirming that the 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 (896.24):

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
1,238.807, Fibonacci 78.6% of 1,576.09 high
1,220.03, high of 9/25/2008
1,077.08, Fibonacci 61.8% of 2002-2007 upmove
1,044.31, high of 10/14/2008
1,007.51, high of 11/4/2008
916.88, high of 11/14/2008

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 (896.24):

Potential Support
741.02, low of 11/21/2008
602.07, Fibonacci 38.2% of 1,576.09 high

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

5.46% Networking, PXQ
4.84% Semiconductor SPDR, XSD
4.44% Hardware & Electronics, PHW
3.93% Dividend Growth PS, PHJ
3.47% Nanotech Lux, PXN
3.34% IPOs, First Tr IPOX-100, FPX
2.95% Ultra MidCap400 Double, MVV
2.91% Financial Services DJ, IYG
2.71% Switzerland Index, EWL
2.63% Financials VIPERs, VFH
2.53% SmallCap PS Zacks, PZJ
2.51% Financial SPDR, XLF
2.46% Bank Regional H, RKH
2.44% Aerospace & Defense, PPA
2.43% Dividend SPDR, SDY
2.36% Ultra Dow30 Double, DDM
2.34% Financial DJ US, IYF
2.33% Industrials VIPERs, VIS
2.32% Industrial LargeCap Blend DJ US, IYJ
2.30% Dividend International, PID
2.27% Ultra S&P500 Double, SSO
2.27% South Korea Index, EWY
2.20% Microcap Russell, IWC
2.19% Value SmallCap Russell 2000, IWN
2.18% Capital Markets KWB ST, KCE
2.18% Dividend High Yield Equity PS, PEY
2.17% Industrial SPDR, XLI
2.15% Canada Index, EWC
2.13% Value LargeCap iS M, JKF
2.10% Pharmaceutical H, PPH
2.09% Utilities VIPERs, VPU
2.04% Value SmallCap Dynamic PS, PWY
2.04% Value SmallCap iS M, JKL
2.02% Value SmallCap VIPERS, VBR
1.99% Utilities H, UTH
1.96% Utilities, PUI
1.92% Pharmaceuticals, PJP
1.89% Utilities DJ, IDU
1.87% Water Resources, PHO
1.85% Value MidCap iS M, JKI
1.83% Value Large Cap DJ, ELV
1.82% Food & Beverage, PBJ
1.81% Value S&P 500 B, IVE
1.79% United Kingdom Index, EWU
1.79% Telecom DJ US, IYZ
1.76% Utilities SPDR, XLU
1.76% Telecom Services VIPERs, VOX
1.72% SmallCap S&P 600, IJR
1.71% Dividend Leaders, FDL
1.68% Dividend DJ Select, DVY
1.65% Value LargeCap Fundamental RAFI 1000, PRF
1.64% Value MidCap Russell, IWS
1.55% Value SmallCap S&P 600 B, IJS
1.54% Consumer Discretionary SPDR, XLY
1.53% Growth BARRA Small Cap 600, IJT
1.52% Consumer Staples SPDR, XLP
1.50% Growth SmallCap VIPERs, VBK
1.49% Pacific ex-Japan, EPP
1.46% Value SmallCap S&P 600, RZV
1.41% Value VIPERs, VTV
1.40% Dividend Achievers PS, PFM
1.38% Growth SmallCap iS M, JKK
1.37% LargeCap Blend Core iS M, JKD
1.37% Financials Global LargeCap Value, IXG
1.36% Insurance, PIC
1.34% Dividend Appreciation Vipers, VIG
1.34% MidCap S&P 400 iS, IJH
1.31% Value S&P 500, RPV
1.30% Health Care SPDR, XLV
1.28% DIAMONDS (DJIA), DIA
1.28% Consumer Staples VIPERs, VDC
1.26% S&P 500 SPDRs LargeCap Blend, SPY
1.24% Health Care VIPERs, VHT
1.24% Bond, 20+ Years Treasury, TLT
1.23% Value MidCap Dynamic PS, PWP
1.21% Blend Total Market VIPERs, VTI
1.21% Extended Mkt VIPERs, VXF
1.19% Healthcare Global, IXJ
1.19% Value LargeCap NYSE 100 iS, NY
1.19% LargeCap Blend S&P 100, OEF
1.18% Micro Cap Zachs, PZI
1.18% MidCap S&P 400 SPDRs, MDY
1.17% LargeCap Rydex Rus Top 50, XLG
1.16% Value MidCap S&P 400 B, IJJ
1.15% Growth SmallCap Dynamic PS, PWT
1.14% Growth SmallCap R 2000, IWO
1.14% LargeCap Blend S&P 1500 iS, ISI
1.13% Value LargeCap Russell 3000, IWW
1.12% Internet H, HHH
1.12% MidCap Russell, IWR
1.11% Value 1000 Russell, IWD
1.10% Small Cap VIPERs, VB
1.10% LargeCap Blend Total Market DJ, IYY
1.08% Consumer Non-Cyclical, IYK
1.04% LargeCap Blend S&P=Weight R, RSP
1.04% Australia Index, EWA
1.03% LargeCap Blend Socially Responsible iS, KLD
1.03% Healthcare DJ, IYH
1.03% LargeCap VIPERs, VV
1.01% S&P 500 iS LargeCap Blend, IVV
1.01% MidCap VIPERs, VO
1.01% Telecommunications & Wireless, PTE
1.00% SmallCap Russell 2000, IWM
0.99% Biotech H, BBH
0.97% Global 100, IOO
0.95% WilderHill Clean Energy PS, PBW
0.94% LargeCap 1000 R, IWB
0.94% LargeCap Blend NYSE Composite iS, NYC
0.94% Telecom H, TTH
0.92% Short 200% QQQ PS, QID
0.91% Taiwan Index, EWT
0.89% Growth MidCap 400 B, IJK
0.88% MidCap Blend Core iS M, JKG
0.88% Wilshire 5000 ST TM, TMW
0.86% LargeCap Blend Russell 3000, IWV
0.86% Growth MidCap Russell, IWP
0.86% European VIPERs, VGK
0.74% Value MidCap S&P 400, RFV
0.74% Building & Construction, PKB
0.72% Networking, IGN
0.70% Consumer Cyclical DJ, IYC
0.67% Materials VIPERs, VAW
0.67% MidCap Growth iS M, JKH
0.67% Consumer D. VIPERs, VCR
0.66% Short 100% QQQ, PSQ
0.66% Value LargeCap Dynamic PS, PWV
0.63% Belgium Index, EWK
0.63% Growth Small Cap DJ, DSG
0.61% Retail, PMR
0.59% Growth Large Cap, ELG
0.58% LargeCap Blend Dynamic PS, PWC
0.52% Growth 1000 Russell, IWF
0.43% Materials SPDR, XLB
0.39% Silver Trust iS, SLV
0.37% Growth Mid Cap Dynamic PS, PWJ
0.35% Europe 100 BLDRS, ADRU
0.35% Transportation Av DJ, IYT
0.35% Biotech SPDR, XBI
0.34% Europe 350 S&P Index, IEV
0.34% Growth LargeCap Russell 3000, IWZ
0.31% Bond, TIPS, TIP
0.30% Value Line Timeliness MidCap Gr, PIV
0.29% Growth LargeCap iS M, JKE
0.28% Value 40 Large Low P/E FT DB, FDV
0.23% Growth VIPERs, VUG
0.20% Growth S&P 500/BARRA, IVW
0.20% Bond, 10 Year Treasury, IEF
0.20% Internet Infrastructure H, IIH
0.15% Value LargeCap Euro STOXX 50 DJ, FEU
0.14% Basic Materials DJ US, IYM
0.13% Technology SPDR, XLK
0.07% Biotech & Genome, PBE
0.06% Bond, 1-3 Year Treasury, SHY
0.00% Lg Cap Growth PSD, PWB
0.00% Internet B2B H, BHH
-0.05% Growth EAFE MSCI, EFG
-0.05% EAFE Index, EFA
-0.07% Sweden Index, EWD
-0.08% Realty Cohen & Steers, ICF
-0.09% Gold Shares S.T., GLD
-0.12% Developed 100 BLDRS, ADRD
-0.13% Broadband H, BDH
-0.13% Value EAFE MSCI, EFV
-0.15% Global Titans, DGT
-0.18% Info Tech VIPERs, VGT
-0.19% Bond, Aggregate, AGG
-0.20% South Africa Index, EZA
-0.22% Pacific VIPERs, VPL
-0.27% Technology GS, IGM
-0.29% Bond, Corp, LQD
-0.33% OTC Dynamic PS, PWO
-0.34% Internet Architecture H, IAH
-0.37% Technology DJ US, IYW
-0.42% Growth LargeCap NASDAQ Fidelity, ONEQ
-0.42% Technology MS sT, MTK
-0.47% Value Small Cap DJ, DSV
-0.49% Software, PSJ
-0.58% Emerging 50 BLDRS, ADRE
-0.58% SmallCap Core iS M, JKJ
-0.58% Spain Index, EWP
-0.58% Hong Kong Index, EWH
-0.58% Euro STOXX 50, FEZ
-0.61% Software, IGV
-0.63% Growth S&P 500, RPG
-0.65% China LargeCap Growth G D H USX PS, PGJ
-0.65% Leisure & Entertainment, PEJ
-0.70% Technology Global, IXN
-0.70% REIT Wilshire, RWR
-0.71% Malaysia Index, EWM
-0.75% Homebuilders SPDR, XHB
-0.78% Growth LargeCap NASDAQ 100, QQQQ
-0.83% Retail H, RTH
-0.85% Energy Global, IXC
-0.86% Real Estate US DJ, IYR
-0.90% Metals & Mining SPDR, XME
-0.93% Netherlands Index, EWN
-0.94% Oil & Gas, PXJ
-0.97% France Index, EWQ
-1.01% Semiconductors, PSI
-1.01% Software H, SWH
-1.09% Short 100% S&P 500, SH
-1.12% Growth MidCap S&P 400, RFG
-1.17% Natural Resource iS GS, IGE
-1.19% Germany Index, EWG
-1.20% Semiconductor iS GS, IGW
-1.23% Ultra QQQ Double, QLD
-1.26% India Earnings WTree, EPI
-1.30% Asia 50 BLDRS, ADRA
-1.36% Japan LargeCap Blend TOPIX 150, ITF
-1.47% REIT VIPERs, VNQ
-1.48% Japan Index, EWJ
-1.51% Energy VIPERs, VDE
-1.53% Austria Index, EWO
-1.53% Short 100% MidCap 400, MYY
-1.60% Energy SPDR, XLE
-1.66% Telecommunications Global, IXP
-1.68% Oil Services H, OIH
-1.73% Singapore Index, EWS
-1.85% Energy DJ, IYE
-1.89% Short 200% Dow 30 PS, DXD
-1.89% Semiconductor H, SMH
-1.92% Emerging Markets, EEM
-1.96% Italy Index, EWI
-2.07% Short 200% S&P 500 PS, SDS
-2.08% EMU Europe Index, EZU
-2.12% Emerging VIPERs, VWO
-2.35% China 25 iS, FXI
-2.39% Mexico Index, EWW
-2.45% Short 100% Dow 30, DOG
-2.47% Energy Exploration & Prod, PXE
-2.87% Short 200% MidCap 400 PS, MZZ
-3.11% Brazil Index, EWZ
-4.02% Latin Am 40, ILF
-4.34% Commodity Tracking, DBC
-5.50% Oil, Crude, U.S. Oil Fund, USO