NASDAQ FALLS UNDER 2000 LEVEL -- DOW BREAKS 50-DAY AVERAGE -- MATERIALS FALL HARDEST -- SARA LEE AND CONAGRA RALLY
NASDAQ BREAKS 2000 LEVEL... The Nasdaq Composite Index took a more serious turn for the worse today when it closed beneath the 2000 level for the first time this year. That level is important for two reasons. First, it represents the previous low hit a couple of weeks ago and threatens to extend the downtrend that started in the middle of January. Second, and more important, the area around 2000 marks the highpoint reached during the first week of December. During a downside correction, the first line of support is that last price peak. That was 2000. Once that's broken, the next support level becomes the last reaction low. That's 1887, which was hit in mid-January. That level would also bring the Nasdaq closer to its 200-day moving average. Continuing deterioration in the Nasdaq market is finally spilling over to the rest of the market.
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DOW BREAKS 50-DAY AVERAGE... The Dow Industrials has started to roll over as well. Chart 2 shows the Dow falling beneath its 50-day moving average. The Dow is now threatening the low it hit at the end of January. The fact that the 14-day RSI line has just slipped under the 50 level signals that there's more downside to come. The daily MACD lines have stayed negative throughout the recent consolidation. The weekly chart shows that a Dow downturn from current levels carries some longer term significance as well. The weekly bars in Chart 3 show that the Dow has been up against a formidable resistance barrier at its early 2002 highs. The 14-week RSI line is starting to fall from overbought territory over 70.
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S&P 500 TRIANGLE HAS BEEN NEGATED... Late last week, I talked about the S&P 500 looking like an "ascending triangle", which opened up the possibility for another "short-term" move to the upside. This week's downside action, however, appears to have negated that possibility. Chart 3 shows the S&P 500 breaking the lower trendline. In addition, the daily stochastic lines have turned negative while the MACD lines never turned positive. Even though the S&P has held up better than the other averages, it now looks like its short-term trend is turning down as well. A close under its 50-day average would be another negative sign.
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MATERIAL SECTOR IS BIGGEST LOSER... The biggest sector loser today was Materials. The daily chart shows the Materials Select Sector SPDR falling under its 50-day average after failing a test of its early January peak. The relative strength line is also instructive. The second peak formed last week fell short of its early January peak. That reflects loss of market leadership. Material stocks were among the Dow's biggest losers today.
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ALCOA, DUPONT, AND INTERNATIONAL PAPER DRAG DOW DOWN... All three stocks have now fallen under their 50-day averages on rising volume. All three charts also show potential "double tops" in the making. DuPont is already threatening its 200-day moving average. The relative strength line for Alcoa shows that stock weakening relative to the Dow.
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CONAGRA AND SARA LEE GAIN GROUND... With the market on the defensive today, consumer staples were the only group to end up in positive territory. Two of the day's best performers in that category are shown below. Sara Lee hit a new 52-week high and is moving up toward the high reached near the end of 2002. Its relative strength has also been improving. Conagra looks even stronger. Its monthly bars show that stock already trading at the highest level in nearly five years. It's also showing good relative strength.
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