DOLLAR DROP BOOSTS GOLD AND OIL -- UTX HURTS DOW WHILE JNJ BOUNCES -- NASDAQ STILL TESTING SUPPORT AT 2000

GOLD AND OIL STOCKS GAIN GROUND... Another drop in the dollar boosted gold prices by $5.50 today to $405. Once again the area around $400 has proved to be a stubborn support level. As a result, gold stocks had a strong day today. Chart 1 shows that the XAU Index has been in a downside correction since the start of the year. The daily chart also suggests that the gold group is trying to stabilize over the 200-day average line. The relative strength line along the bottom shows underperformance since the start of December. However, it's up slightly for the month of February. Gold stocks may be probing for a bottom in this area. However, the XAU still needs a close over 105 to turn its short-term trend back up again. Oil prices also gained ground today as did most commodities. The Oil Service Index (OSX) is close to another high for the year.

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UTX HURTS DOW...JOHNSON & JOHNSON IS TOP GAINER... For a change the Dow was the biggest percentage loser today. A large part of the reason was the drop in United Technologies. The daily chart shows the defense contractor having fallen to the lowest level in two and a half months on heavy volume. It's also broken its 50-day moving average. The entire defense group has been weak for the past two days. The top percentage gainer for the Dow was Johnson & Johnson. The big drug stock had recently broken out to the highest level in eight months. Its recent pullback has stayed above its November peak near 53 which is a sign of strength. Today's bounce also came on rising volume, which is another strong sign. JNJ's relative strength shows that's its been a Dow outperformer since mid-January. That's right around the time that money started rotating toward defensive stocks which includes the drugs. The drug group as a whole gained ground today in a down market.

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NASDAQ STILL TESTING 2000 LEVEL... The Nasdaq closed down only two points today and is still testing its December high near 2000. Although the loss was relatively small, it came on increasing volume. There were also more decliners than advancers and more downside than upside volume. This represents an important test. If it doesn't hold (and I don't think it will), the next support level will be the November low closer to 1900. The daily MACD lines are still negative. The daily stochastic lines are moving down toward oversold territory, but aren't there yet. Even those more sensitive lines are still negative. Although the 2000 level may also be providing some "psychological" support, I doubt if it's strong enough to turn the Nasdaq trend back up again. Chart 6 shows the Semiconductor (SOX) Index bouncing a bit off its early February low. That probably helped stabilize the Nasdaq market as well. Technical odds, however, favor a further fall in the SOX to the December low near 475.

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