BIOTECHS AND BROKERS WEIGH ON OVERBOUGHT MARKET -- DOLLAR SLIPS, GOLD JUMPS
MARKET SHOWING NEGATIVE DIVERGENCE... Once again, the short-term picture for the market is showing signs of weakening. Earlier today we charted the S&P 500 showing "negative divergence" from some of its short-term oscillars. This evening we'll look at the Nasdaq 100 which, in my opinion, is the most important of all. That's because the NDX is comprised of the largest tech stocks in the Nasdaq. As such, it exerts a strong pull on the Nasdaq market. The Nasdaq, in turn, exerts a strong pull on the rest of the market. In today's selloff, the NDX lost 1.78% and was the biggest percentage loser (the Nasdaq Composite lost 1.70%). By contrast, the S&P and the Dow were down 1.5% and 1.2% respectively. That means the Nasdaq 100 is pulling the rest of the market lower. The daily chart carries some negative signs. First, the NDX hasn't reached the upper Bollinger Band on this latest rally. Secondly, the stochastic lines haven't even made it back above 80 -- and show a short-term negative divergence with the NDX. Thirdly, the NDX still hasn't exceeded the intra-day high of two weeks ago. All of which makes for a probable short-term correction. The first line of defense is the (dashed) 20-day average around 1200. If that doesn't hold, a further correction to the lower band (currently near 1138) is likely. That would also bring the NDX back to its 50-day moving average. Actually, the biggest losers in the NDX today weren't high tech, but biotech. Three of the top five losers were HGSI, GENX, and MLNM -- all biotechs. The biotech Index was down 5% to make it the day's biggest loser. Please see our midday update for a chart analysis of the Biotech Index.
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BIG VOLUME LOSERS... the four charts shown below were among the day's biggest losers on the Nasdaq on the big board. Forest Labs tumbled badly and helped lead the healthcare group lower. Human Genome Sciences was the weakest of the biotechs and broke its 50-day moving average -- as did Morgan Stanley in a weak brokerage group. All fell on heavy volume. General Electric, a big board bellwether, didn't suffer any serious price damage. But the dramatic pickup in trading as it slipped under 30 is a caution sign.
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MOTOROLA AND QUALCOMM JUMP... The day wasn't a complete loss. Motorola and Qualcomm jumped impressively on heavy volume. And both are back over their moving average lines. That's pretty impressive given all the selling in the rest of the market
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GOLD STOCKS STILL MY TOP PICK... Groups that bounced today were gold, oil service, and utilities. Gold gained $4 as the dollar weakned against the Euro. Gold stocks broke out earlier this week and remain my favorite stock group. Oil service stocks bounced off their 50-day average even as oil slipped under $30. Utilities were also higher today. I suspect they're being carried by the recent move into high-dividend paying stocks as short-term money market rates slip under 1%. That money has to start going somewhere. A lot of that money has been going into high-yield (junk) bond funds which have been especially strong. That may too risky for some. Utilities may be a safer option.
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