Stock Market: confirming deflation.

CRB Index of commodity prices fell to a new 5-year low, confirming deflation.

Crude Oil January futures contract fell to a new 3-year low at 46.82.

U.S. Treasury Bond futures contract price rose again to another new high. Money has been fleeing to safety, and that trend has accelerated.

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.

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

On Tuesday, major stock price indexes opened higher and trended upward for 3 hours until about 12:30 p.m. But stocks reversed to the downside and gave back all their gains by 2:25 p.m. Prices whipped around again in the final 95 minutes to close near their highest levels of the day. The Standard & Poor's 500 cash index (848.81) closed up 32.60 points, or 3.99%. Total NYSE volume rose 4%, suggesting somewhat greater demand for stocks.

CATS Covered Short the SPY at 83.47 at the Open on Tuesday, 12/2/08. CATS did not buy long. CATS Sold Short the SPY at 87.30 at the Open on Tuesday, 11/25/08. From 9/8/08 to 12/2/08, CATS’ Cumulative Equity soared by more than 99% to new all-time highs. The 32-year Compound Annual Growth Rate is 38.69%. All figures are based on computer simulation on historical data, and not on actual trades, and assume 50% margin, that is, 2 to 1 leverage. Fees and transaction costs are not included. CATS is the Colby Algorithmic Timing System. 

Judging by media reports, many investors want to believe that the U.S. government can rescue all the failing large corporations. Indeed, the dollar amounts of the bailouts are staggering, but the problems might be even bigger. The only proven 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, and that assumption seems good until proved otherwise. 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
11.38% , EWD , Sweden Index, EWD
3.58% , EWO , Austria Index, EWO
4.25% , NY , Value LargeCap NYSE 100 iS, NY
3.07% , TBH , Telebras HOLDRS, TBH*
13.61% , GE , GENERAL ELECTRIC
5.00% , PJP , Pharmaceuticals, PJP
14.62% , ICF , Realty Cohen & Steers, ICF
14.41% , RWR , REIT Wilshire, RWR
6.94% , EWP , Spain Index, EWP
51.74% , BC , BRUNSWICK
0.47% , PBJ , Food & Beverage, PBJ
4.57% , JKG , MidCap Blend Core iS M, JKG
6.59% , MAT , MATTEL
4.61% , JKF , Value LargeCap iS M, JKF
13.94% , LM , LEGG MASON
3.35% , PTE , Telecommunications & Wireless, PTE
9.32% , RHT , Red Hat Inc.
8.56% , CSC , COMPUTER SCIENCE
6.72% , HMA , HEALTH MGMT STK A
19.96% , MBI , MBIA
8.92% , STJ , ST JUDE MEDICAL
13.77% , IYR , Real Estate US DJ, IYR
26.07% , S , SPRINT NEXTEL
6.19% , THC , TENET HEALTHCARE
4.96% , HSIC , Henry Schein Inc
5.18% , HHH , Internet H, HHH
9.95% , CBS , CBS CORP.
13.35% , SHLD , SEARS HOLDINGS
17.29% , PFG , PRINCIPAL FINL
7.08% , YHOO , YAHOO
13.29% , VNQ , REIT VIPERs, VNQ
2.97% , PBE , Biotech & Genome, PBE
8.42% , EBAY , EBAY
3.64% , ADRA , Asia 50 BLDRS, ADRA
5.41% , BSX , BOSTON SCIENT
3.70% , SWH , Software H, SWH
4.18% , PWJ , Growth Mid Cap Dynamic PS, PWJ
1.50% , RPV , Value S&P 500, RPV
8.60% , RKH , Bank Regional H, RKH
13.17% , AES , AES

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name
-5.30% , IIH , Internet Infrastructure H, IIH
-2.54% , PHW , Hardware & Electronics, PHW
-7.56% , EMN , EASTMAN CHEM
-6.70% , MU , MICRON TECH
-5.34% , HGSI , Human Genome Sciences Inc

9 Major U.S. Stock Sectors
Ranked on Latest One-Day Price Change
% Price Change, Sector ETF, Symbol
8.15% Financial SPDR, XLF
4.65% Consumer Discretionary SPDR, XLY
4.62% Industrial SPDR, XLI
3.87% Materials SPDR, XLB
3.53% Technology SPDR, XLK
3.38% Energy SPDR, XLE
2.60% Utilities SPDR, XLU
2.58% Health Care SPDR, XLV
1.45% Consumer Staples SPDR, XLP

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.

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

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 fell to a new 3-year low at 46.82. Oil fell to a new 22-month low on 12/2/08. 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 tried to recover a fraction of Monday’s steep loss. On 12/1/08, Gold broke down sharply below last week’s lows, giving a Bearish signal 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 again to another new high. Bonds reconfirmed a Bullish trend for the Long term. Money has been fleeing to safety, and that trend has accelerated.

iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF relative to 20+ Years US Treasury Bonds (that is, the LQD/TLT Relative Strength Ratio) fell to multi-year new lows on 12/1/08. 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 stalled out. 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 62.98, turned down again. 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 62.48, turned down again. 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 0.75, 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 1.10, 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 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 (848.81):

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 (848.81):

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

14.62% Realty Cohen & Steers, ICF
14.41% REIT Wilshire, RWR
13.77% Real Estate US DJ, IYR
13.29% REIT VIPERs, VNQ
11.38% Sweden Index, EWD
8.60% Bank Regional H, RKH
8.26% Financials VIPERs, VFH
8.25% Ultra MidCap400 Double, MVV
8.15% Financial SPDR, XLF
7.41% India Earnings WTree, EPI
7.36% China 25 iS, FXI
7.28% Financial DJ US, IYF
7.05% Ultra S&P500 Double, SSO
6.98% South Korea Index, EWY
6.94% Spain Index, EWP
6.87% Value SmallCap S&P 600, RZV
6.82% Euro STOXX 50, FEZ
6.77% Hong Kong Index, EWH
6.66% Financials Global LargeCap Value, IXG
6.46% Building & Construction, PKB
6.40% Ultra QQQ Double, QLD
6.40% Telecom Services VIPERs, VOX
6.32% Emerging Markets, EEM
6.28% Financial Services DJ, IYG
6.25% Italy Index, EWI
6.24% France Index, EWQ
6.20% Value EAFE MSCI, EFV
6.18% Value SmallCap VIPERS, VBR
6.15% EMU Europe Index, EZU
6.15% Homebuilders SPDR, XHB
6.12% Dividend High Yield Equity PS, PEY
6.08% Dividend Leaders, FDL
6.03% Telecom DJ US, IYZ
5.91% Value SmallCap S&P 600 B, IJS
5.86% Micro Cap Zachs, PZI
5.81% Nanotech Lux, PXN
5.80% Value MidCap S&P 400 B, IJJ
5.76% Japan LargeCap Blend TOPIX 150, ITF
5.70% Small Cap VIPERs, VB
5.66% Value SmallCap Russell 2000, IWN
5.61% Microcap Russell, IWC
5.57% Emerging VIPERs, VWO
5.50% China LargeCap Growth G D H USX PS, PGJ
5.45% WilderHill Clean Energy PS, PBW
5.45% Germany Index, EWG
5.43% EAFE Index, EFA
5.41% Value SmallCap Dynamic PS, PWY
5.35% United Kingdom Index, EWU
5.35% Industrials VIPERs, VIS
5.29% Telecommunications Global, IXP
5.28% Latin Am 40, ILF
5.26% SmallCap Russell 2000, IWM
5.22% Pacific VIPERs, VPL
5.19% Value VIPERs, VTV
5.18% Internet H, HHH
5.16% Mexico Index, EWW
5.14% European VIPERs, VGK
5.07% Materials VIPERs, VAW
5.06% Ultra Dow30 Double, DDM
5.05% Japan Index, EWJ
5.00% Pharmaceuticals, PJP
4.98% Developed 100 BLDRS, ADRD
4.97% Growth EAFE MSCI, EFG
4.96% Value LargeCap Russell 3000, IWW
4.91% Capital Markets KWB ST, KCE
4.90% Europe 350 S&P Index, IEV
4.90% Dividend SPDR, SDY
4.86% Pacific ex-Japan, EPP
4.80% Europe 100 BLDRS, ADRU
4.75% Growth SmallCap VIPERs, VBK
4.67% Netherlands Index, EWN
4.65% Consumer Discretionary SPDR, XLY
4.64% Growth BARRA Small Cap 600, IJT
4.64% Telecom H, TTH
4.62% Extended Mkt VIPERs, VXF
4.62% Industrial SPDR, XLI
4.61% Value LargeCap iS M, JKF
4.61% Emerging 50 BLDRS, ADRE
4.61% Metals & Mining SPDR, XME
4.59% Pharmaceutical H, PPH
4.58% Dividend DJ Select, DVY
4.57% MidCap Blend Core iS M, JKG
4.57% Switzerland Index, EWL
4.56% MidCap S&P 400 iS, IJH
4.55% Taiwan Index, EWT
4.53% Water Resources, PHO
4.51% Industrial LargeCap Blend DJ US, IYJ
4.50% Global 100, IOO
4.49% SmallCap S&P 600, IJR
4.48% LargeCap Blend S&P 1500 iS, ISI
4.48% Value LargeCap Fundamental RAFI 1000, PRF
4.43% Growth SmallCap R 2000, IWO
4.42% MidCap S&P 400 SPDRs, MDY
4.40% Australia Index, EWA
4.37% Consumer D. VIPERs, VCR
4.35% Value MidCap iS M, JKI
4.31% LargeCap Rydex Rus Top 50, XLG
4.29% Growth MidCap 400 B, IJK
4.29% Energy Global, IXC
4.26% Value 1000 Russell, IWD
4.25% Value LargeCap NYSE 100 iS, NY
4.23% Basic Materials DJ US, IYM
4.19% Brazil Index, EWZ
4.18% Growth Mid Cap Dynamic PS, PWJ
4.16% Growth MidCap Russell, IWP
4.16% Value S&P 500 B, IVE
4.14% LargeCap VIPERs, VV
4.10% LargeCap 1000 R, IWB
4.08% Malaysia Index, EWM
4.07% Dividend Achievers PS, PFM
4.03% LargeCap Blend Russell 3000, IWV
3.94% Blend Total Market VIPERs, VTI
3.94% S&P 500 iS LargeCap Blend, IVV
3.90% MidCap Russell, IWR
3.88% MidCap VIPERs, VO
3.87% Materials SPDR, XLB
3.86% Software, IGV
3.85% S&P 500 SPDRs LargeCap Blend, SPY
3.81% LargeCap Blend Total Market DJ, IYY
3.77% LargeCap Blend S&P=Weight R, RSP
3.75% Healthcare DJ, IYH
3.73% Aerospace & Defense, PPA
3.72% Singapore Index, EWS
3.71% Energy VIPERs, VDE
3.70% Software H, SWH
3.68% MidCap Growth iS M, JKH
3.68% SmallCap PS Zacks, PZJ
3.66% Value MidCap Russell, IWS
3.64% Asia 50 BLDRS, ADRA
3.63% Value Large Cap DJ, ELV
3.58% Austria Index, EWO
3.58% Transportation Av DJ, IYT
3.57% Health Care VIPERs, VHT
3.55% LargeCap Blend S&P 100, OEF
3.53% Technology SPDR, XLK
3.52% South Africa Index, EZA
3.52% Value MidCap Dynamic PS, PWP
3.45% Value 40 Large Low P/E FT DB, FDV
3.44% Value SmallCap iS M, JKL
3.38% Energy SPDR, XLE
3.38% Silver Trust iS, SLV
3.35% Telecommunications & Wireless, PTE
3.34% Growth LargeCap NASDAQ 100, QQQQ
3.34% Lg Cap Growth PSD, PWB
3.33% Growth SmallCap Dynamic PS, PWT
3.33% Growth LargeCap Russell 3000, IWZ
3.32% Growth LargeCap NASDAQ Fidelity, ONEQ
3.31% DIAMONDS (DJIA), DIA
3.26% LargeCap Blend Socially Responsible iS, KLD
3.25% Wilshire 5000 ST TM, TMW
3.24% Info Tech VIPERs, VGT
3.17% Growth SmallCap iS M, JKK
3.17% LargeCap Blend Core iS M, JKD
3.16% Technology DJ US, IYW
3.10% Consumer Cyclical DJ, IYC
3.04% Technology GS, IGM
3.03% Value Line Timeliness MidCap Gr, PIV
3.00% Technology Global, IXN
2.99% Biotech SPDR, XBI
2.98% Dividend Appreciation Vipers, VIG
2.97% Growth S&P 500/BARRA, IVW
2.97% Biotech & Genome, PBE
2.94% Growth LargeCap iS M, JKE
2.91% Natural Resource iS GS, IGE
2.90% Growth Small Cap DJ, DSG
2.81% Belgium Index, EWK
2.81% SmallCap Core iS M, JKJ
2.77% Semiconductor H, SMH
2.76% Growth VIPERs, VUG
2.75% Leisure & Entertainment, PEJ
2.74% LargeCap Blend NYSE Composite iS, NYC
2.73% Healthcare Global, IXJ
2.60% Utilities SPDR, XLU
2.58% Health Care SPDR, XLV
2.50% Value LargeCap Dynamic PS, PWV
2.38% Energy DJ, IYE
2.37% Growth MidCap S&P 400, RFG
2.34% Retail H, RTH
2.26% Dividend International, PID
2.23% Utilities VIPERs, VPU
2.16% Value LargeCap Euro STOXX 50 DJ, FEU
2.13% Consumer Non-Cyclical, IYK
2.10% Oil & Gas, PXJ
2.07% Utilities, PUI
2.02% Growth 1000 Russell, IWF
2.01% Technology MS sT, MTK
1.89% Utilities DJ, IDU
1.72% Gold Shares S.T., GLD
1.71% Global Titans, DGT
1.66% Semiconductor iS GS, IGW
1.56% Semiconductor SPDR, XSD
1.50% Value S&P 500, RPV
1.50% Semiconductors, PSI
1.45% Consumer Staples SPDR, XLP
1.40% Software, PSJ
1.40% Consumer Staples VIPERs, VDC
1.22% Value Small Cap DJ, DSV
1.20% Biotech H, BBH
0.90% LargeCap Blend Dynamic PS, PWC
0.88% Bond, TIPS, TIP
0.87% Energy Exploration & Prod, PXE
0.83% Oil Services H, OIH
0.79% Growth Large Cap, ELG
0.76% Bond, Corp, LQD
0.72% Utilities H, UTH
0.65% Networking, IGN
0.52% Bond, 10 Year Treasury, IEF
0.47% Food & Beverage, PBJ
0.38% Bond, 20+ Years Treasury, TLT
0.29% OTC Dynamic PS, PWO
0.10% Bond, Aggregate, AGG
0.05% Commodity Tracking, DBC
0.00% Internet Architecture H, IAH
0.00% Internet B2B H, BHH
-0.01% Bond, 1-3 Year Treasury, SHY
-0.69% Dividend Growth PS, PHJ
-1.07% Broadband H, BDH
-1.07% Insurance, PIC
-1.23% Retail, PMR
-1.29% Growth S&P 500, RPG
-1.65% Networking, PXQ
-1.66% IPOs, First Tr IPOX-100, FPX
-1.90% Canada Index, EWC
-2.54% Hardware & Electronics, PHW
-3.23% Short 100% Dow 30, DOG
-3.43% Short 100% QQQ, PSQ
-3.48% Oil, Crude, U.S. Oil Fund, USO
-4.21% Short 100% S&P 500, SH
-4.84% Short 100% MidCap 400, MYY
-5.30% Internet Infrastructure H, IIH
-6.83% Short 200% Dow 30 PS, DXD
-6.84% Short 200% QQQ PS, QID
-7.69% Short 200% S&P 500 PS, SDS
-8.99% Short 200% MidCap 400 PS, MZZ
-9.86% Value MidCap S&P 400, RFV