OVERSEAS SELLING LEADS TO LOWER U.S. MARKET -- AIRLINES AND BROKERS BREAK 50-DAY LINES -- MONEY ROTATING TO CONSUMER STAPLES AND DRUGS
NIKKEI FALLS BELOW 10,000... Today's selling started in Asia. The biggest drop came in Japan with a 3.7% loss. Hong Kong fell 1.7%. In Europe, French and German stock markets lost an average of 3%. Chart 1 shows the Nikkei breaking chart support at its September low and falling beneath 10,000 for the first time in more than three months. Asian markets have been global leaders all year. Any hint of weakness there is caution sign for other global markets. Strength in Asia has been closely correlated with a strong Nasdaq market. Given the overbought nature of the Nasdaq, the stage was set for some new selling to appear. Not surprisingly, technology was the day's weakest market sector.
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QQQS TEST 50-DAY AVERAGE... The Nasdaq 100 Shares (QQQ) are testing testing the 50-day moving average. They're also testing the trendline drawn under the August, September, October lows. That rising trendline has been touched three times prior to today. That makes it an important trendline. Any closing violation of that trendline (and the 50-day average) would be a turn for the worst in the Nasdaq market. Today's pickup in volume wasn't encouraging either. In addition to the increase in Nasdaq volume, downside volume exceeded upside volume by a three-to-one margin. The negative volume ratio was five-to-one for the NYSE. Both markets had three times more decliners than advancers.
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BOND YIELDS DROP, DOLLAR BOUNCES, GOLD SELLS OFF... Stock selling today produced bond buying. As bond prices rose, yields fell. Chart 3 shows the 10-year T-note yield falling to a six-week low today. Falling bond yields (and rising prices) are usually associated with weaker stock prices. Chart 4 shows the U.S. Dollar Index bouncing off its October low. The bouncing dollar contributing to a $6.50 drop in gold bullion. Gold traders have apparently decided to take some profits near psychological resistance at $400.
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AIRLINES AND BROKERS BREAK 50-DAY LINES... The AMEX Airline Index and the Broker/Dealer Index both closed beneath their 50-day moving averages. Heavy selling in Charles Schwab had a lot to do with the downturn in the brokerage group.
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CONSUMER STAPLE LEADERS... Consumer staples were relatively steady today. Two of the day's better performers are shown below. Clorox climbed on rising volume and is nearing a test of its April high. Its relative strength line peaked back in the spring when the rest of the market turned up. Now it look like its relative strength is starting to climb as the market turns more defensive. Wrigley also gained ground today on rising volume. Its relative strength may also be bottoming. It seems that money rotating out of former leaders like airlines, brokers, and technology is finding its way into defensive groups like consumer staples and healthcare. Chart 11 shows the AMEX Pharmaceutical Index climbing to a four-month high last week. When the market starts to look sick, traders usually turn to drug stocks to feel better.
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