Could the Bears get squeezed harder before this rebound is over?

All sectors fell.

Industrial and Technology sectors fell the least.

Utilities and Consumer Discretionary sectors fell the most.

Crude Oil prices rose again after closing above their August downtrend line on 8/24/07.

Price momentum oscillators have worked off their oversold readings.

On Monday, major stock price indices opened lower and fell further on news of trouble in the housing market. Existing home sales fell to the lowest level in five years, and the inventory of unsold single-family homes rose to the highest level in 16 years. Stocks finished near their worst levels of the day.

On the NYSE, declines led advances by 2.5 to 1, and the volume of declining stocks beat the volume of advancing stocks 3 to 1.

It was an Inside Day of Consolidation on Monday. An “Inside Day” is a trading day where the high-low range is contained within the range of the previous session. There is a lower high and higher low. It is an indecisive day, or a day of rest. Generally, the existing short-term trend resumes.

The major stock price indices have corrected their oversold condition, according to most of the standard short-term oscillators. Now, the Bears are hoping for a test or breaking of the August lows. But since Put/Call Ratios have been running significantly above their long-term median since 7/24/07, the Bears could get squeezed harder before this rebound is over.

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

50.41% , GTW , GATEWAY
6.57% , FXI , China 25 iS, FXI
0.47% , PHW , Hardware & Electronics, PHW
7.49% , DISCA , Discovery Holding Co.
5.35% , PGJ , China LargeCap Growth G D H USX PS, PGJ
1.62% , SUNW , SUN MICROSYS
2.26% , NVDA , NVIDIA
1.64% , HD , HOME DEPOT
4.87% , TIF , TIFFANY
1.02% , MMC , MARSH & MCLENNAN
2.72% , WFMI , Whole Foods Market Inc
2.39% , LMT , LOCKHEED MARTIN
0.29% , KSE , KEYSPAN
1.71% , DLTR , Dollar Tree Stores Inc
2.13% , EKH , Europe 2001 H, EKH
1.20% , FLR , FLUOR
2.02% , ITW , ILLINOIS TOOL
1.29% , MO , ALTRIA GROUP
1.20% , CSCO , CISCO SYSTEMS
0.81% , ITT , ITT INDS
2.27% , MHP , MCGRAW HILL
1.41% , CMCSA , COMCAST HOLDINGS STK A
0.92% , QCOM , QUALCOMM
3.35% , SANM , SANMINA
0.42% , NWL , NEWELL RUBBER
0.86% , K , KELLOGG
1.10% , NTAP , NETWK APPLIANCE
0.55% , EWH , Hong Kong Index, EWH
0.34% , NCR , NCR
0.27% , THC , TENET HEALTHCARE
0.76% , BDX , BECTON DICKINSON
0.47% , VWO , Emerging VIPERs, VWO
0.25% , PID , Dividend International, PID
0.14% , WHR , WHIRLPOOL
1.20% , EFX , EQUIFAX
0.20% , CAG , CONAGRA FOODS
0.14% , IXP , Telecommunications Global, IXP
0.28% , UST , UST
0.90% , GR , GOODRICH CORP
0.18% , WMT , WAL MART STORES
0.05% , SCHW.O , CHARLES SCHWAB
0.41% , BUD , ANHEUSER BUSCH
0.40% , LVLT , LEVEL 3 COMMUNICATIONS
0.18% , BMET , BIOMET
0.30% , AGG , Bond, Aggregate, AGG
0.24% , ESRX , EXPRESS SCRIPTS
0.01% , CAH , CARDINAL HEALTH

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

-1.82% , SWH , Software H, SWH
-4.92% , CEG , CONSTELL ENERGY
-2.55% , XLU , Utilities SPDR, XLU
-0.82% , PBJ , Food & Beverage, PBJ
-5.34% , UIS , UNISYS
-3.88% , DUK , DUKE ENERGY
-3.63% , AEP , AM ELEC POWER
-1.00% , ELV , Value Large Cap DJ, ELV
-4.84% , PPL , PPL
-4.71% , PEG , PUBL SVC ENTER
-1.22% , IJK , Growth MidCap 400 B, IJK
-3.98% , EIX , EDISON INTL
-2.62% , XHB , Homebuilders SPDR, XHB
-3.43% , SNV , SYNOVUS
-4.91% , COH , COACH
-3.96% , SNDK , SanDisk Corporation
-2.79% , VPU , Utilities VIPERs, VPU
-2.95% , PNW , PINNACLE WEST
-0.85% , IGE , Natural Resource iS GS, IGE
-4.10% , EXC , EXELON CORP
-1.34% , IWR , MidCap Russell, IWR
-2.94% , IDU , Utilities DJ, IDU
-5.00% , DHI , D.R. HORTON, DHI
-3.42% , ETR , ENTERGY
-1.22% , IXG , Financials Global LargeCap Value, IXG
-3.08% , DTE , DTE ENERGY
-1.01% , IXC , Energy Global, IXC
-3.06% , TE , TECO ENERGY
-1.78% , AEE , AMEREN
-3.87% , AES , AES
-1.33% , CCU , CLEAR CHANNEL
-1.76% , SIRI , Sirius Satellite
-3.12% , GAS , NICOR
-2.45% , D , DOMINION RSCS
-4.18% , BSC , BEAR STEARNS
-0.20% , BDH , Broadband H, BDH
-2.48% , PGN , PROGRESS ENERGY
-2.19% , SO , SOUTHERN
-2.37% , YHOO , YAHOO
-1.60% , FRE , FREDDIE MAC
-1.43% , EZA , South Africa Index, EZA
-1.67% , XL , XL CAPITAL STK A
-2.66% , PCG , PG&E
-3.63% , SRE , SEMPRA ENERGY
-0.84% , PHJ , Dividend Growth PS, PHJ
-2.41% , ED , CON ED
-3.38% , XEL , XCEL ENERGY
-1.87% , LUV , SOUTHWEST AIRLS
-1.41% , LRCX , LAM RESEARCH CORP
-2.40% , VIA , VIACOM INC. (New)


Sectors: among the 9 major U.S. sectors, all 9 fell.

Major Sectors Ranked for the Day
% Price Change, Sector

-0.23% Industrial
-0.44% Consumer Staples
-0.54% Technology
-0.69% Health Care
-0.89% Materials
-1.16% Financial
-1.23% Energy
-1.38% Consumer Discretionary
-2.55% Utilities

Looking beyond the daily fluctuation to the major trends (listed in order of relative strength):
Energy (XLE) Bullish. Relative strength turned up on 8/7/07. Longer term, XLE has been strong compared to the S&P since 3/12/03. Overweight.
Technology (XLK) Bullish. XLK has been in a correction since its price peak on 7/19/07. Longer term, XLK has been relatively strong compared to the S&P since its low on 7/24/06. Overweight.
Industrial (XLI) Bullish. Outperformed since 8/17/07, following a brief period of underperformance from 8/3/07 to 8/17/07. Longer term, XLI has been relatively strong compared to the S&P since 8/9/06. Overweight.
Materials (XLB) Improving. Outperformed since 8/17/07. Relative strength trending higher since 9/27/2000. Overweight.
Consumer Staples (XLP) Bearish. This defensive sector’s relative strength made a new 4-month high on 8/15/07 but has underperformed since. Underweight.
Utilities (XLU) Deteriorating. This defensive sector turned up and outperformed from 7/30/07 to 8/9/07 but has sharply underperformed since 8/9/07. Underweight.
Health Care (XLV) Bearish. Short-term, this defensive sector’s relative strength made a new 7-week high on 8/15/07 but has fallen sharply since. Longer term, relative strength made a new 5-year low on 7/19/07, thereby confirming a major downtrend. Underweight.
Consumer Discretionary (XLY) Bearish. Price hit a new 10-month low on 8/16/07. Relative strength made a new 11-month low on 8/17/07. Underweight.
Financial (XLF) Bearish. Relative strength made a new 6-year low on 8/3/07, turned up for two weeks, now is in a falling trend again. Major trends are down. Underweight.

Foreign stocks eased slightly within their 7-day uptrend. The short-term, July-August market shakeout hit global markets harder than the U.S. market. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) has substantially outperformed long term, since the Bull market started in 2002, and the secular trend still may be Bullish.

NASDAQ relative strength rose again. NASDAQ has outperformed since 8/17/07, underperformed 8/9/07 to 8/17/07, and outperformed since 5/17/07. Longer term, NASDAQ has outperformed for more than a year, since 8/8/06.

Growth outperformed Value since 8/20/07. Also, Growth outperformed Value since 5/16/07. It could be a trend.

Small Caps have underperformed Large Caps since 4/19/06. I would give this trend respect.

Crude Oil prices rose again after closing above their August downtrend line on 8/24/07. The short-term correction since the high on 8/1/07 appears to be over, and the longer-term trend still appears Bullish: the U.S. OIL FUND ETF (AMEX: USO) remains in its uptrend since its shakeout low at 42.56 on 1/18/07.

Energy stocks outperformed the USO since 8/3/07 but underperformed since 5/30/07. Longer term, since 3/12/03, the stocks in the Energy Select Sector SPDR ETF (XLE) have significantly outperformed crude oil as a commodity, as well as the S&P 500. So, the Relative Strength major trend is Bullish for the energy stocks.

Gold has underperformed the SPY since 8/15/07. Longer term, StreetTRACKS Gold Trust ETF (NYSE: GLD) has underperformed the S&P since the GLD top on 5/12/06.

Silver has substantially underperformed Gold since 6/5/07. Longer term, iShares Silver Trust (AMEX: SLV) broke down to a new 6-month low on 6/26/07 and underperformed GLD since 12/7/06. So, the main trend is relatively Bearish.

The Gold Miners Index (XAU) sharply underperformed Gold since 7/19/07. XAU also underperformed Gold since 1/31/06. In fact, Gold mining stocks have substantially underperformed both Gold and the S&P 500 for more than 20 years.

Inflation expectations are in a downtrend. The trend has been falling since 6/22/07. The ratio of the price of bond TIPS to 10-year U.S. Treasury Notes indicates declining inflation expectations.

U.S. Treasury Bond prices rose to a new 3-month high. But since the price peak at 97.66 on 6/16/03, the long-term trend appears more Bearish than Bullish for iShares Lehman 20+ Year U.S. Treasury Bond ETF (AMEX: TLT).

U.S. dollar recovered slightly. On Friday, it broke below the 61.8% retracement level of its short-term bounce up off the low on 8/6/07. That low was a new 15-year price low, and it confirmed the major trend as Bearish.

Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:

0.76% Paper
0.55% Hong Kong
0.54% 30Y T-Bond
0.46% Australian Dollar
0.17% Mexico
0.09% US Dollar Index
0.04% Canadian Dollar
0.03% Austria
0.00% British Pound
-0.06% Japanese Yen
-0.08% Switzerland
-0.13% Brazil
-0.15% Euro Index
-0.22% Swiss Franc
-0.23% Industrial
-0.33% Internet
-0.35% Hardware
-0.42% Dow Industrial
-0.44% Consumer Staples
-0.45% AMEX Composite
-0.48% Health Care Products
-0.49% Health Care
-0.49% Drugs
-0.54% Technology
-0.54% Chemicals
-0.55% Network
-0.55% France
-0.60% Nasdaq Composite
-0.60% Disk Drives
-0.61% Computer Tech
-0.69% S&P 100
-0.69% Health Care
-0.71% Nasdaq 100
-0.71% Oil
-0.72% Australia
-0.78% Retailers
-0.79% Japan
-0.80% Netherlands
-0.81% NYSE Composite
-0.84% DOT
-0.85% S&P 500
-0.85% Russell 1000
-0.85% Wilshire 5000
-0.86% United Kingdom
-0.88% Russell 3000
-0.89% Materials
-0.91% Canada
-0.98% Value Line
-0.98% Biotechs
-1.00% Dow Transports
-1.01% Hospitals
-1.01% Belgium
-1.04% S&P Mid Caps
-1.04% Insurance
-1.06% Italy
-1.07% S&P Small Caps
-1.09% Oil Services
-1.13% Airlines
-1.13% Commodity Related
-1.13% Spain
-1.16% Financial
-1.18% Dow Composite
-1.19% Russell 2000
-1.23% Energy
-1.29% Banks
-1.38% Consumer Discretionary
-1.55% Germany
-1.58% Broker Dealers
-1.65% REITs
-1.65% Semiconductors
-1.78% Malaysia
-1.85% Singapore
-2.02% Natural Gas
-2.08% South Korea
-2.13% Gold Mining
-2.26% Sweden
-2.40% Taiwan
-2.55% Utilities
-3.21% Dow Utilities
 
To sum up the current position of the U.S. stock market:

Traders appear to be adapting to the developing credit situation, which may or may not be as bad as feared. For the moment, at least, fear and volatility appear to be settling down, and market conditions appear to be returning to normal. That does not imply that the last word about it has been heard

Considering the big picture, beyond the recent short-term downside shakeout, the U.S. stock market has shown impressive Bullish resilience from the major low on 10/10/02 to the new all-time highs on 7/19/07. Stock prices have been buoyed by abundant global liquidly (following years of fiscal stimulation, rapid money supply growth, and rising corporate profits), M&A, and earnings comparisons above expectations.

Investors might perceive anything that threatens to end abundant global liquidly, M&A, leveraged buyouts, corporate stock buybacks, and the net balance of positive earnings surprises as threats to the popular Bullish scenario.

Stocks generally are fully valued to over priced by long-term historical standards. Although that alone does not mean that stocks cannot continue to trend higher (as they have the great majority of the time since 2003) nevertheless, it is good to remember that “no tree grows to the sky.” The cyclical nature of stock prices never really changes, although the turning points are not always easy to predict.

Best Wishes,
      

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