RETAILERS LEAD MARKET DROP --DRUGS AND CONSUMER STAPLES PLAY SAFE HAVEN ROLE --- NASDAQ 100 CLOSES OVER 200-DAY LINE
HOME DEPOT AND WAL MART WEIGH ON DOW... Despite reporting solid numbers for the month of April, retailers got marked down today. It seems the prospect of higher interest rates is beginning to infect this group as well. After all, most retail items are bought on credit. Two of the hardest hit Dow stocks today were the retailers -- Home Depot and Wal Mart. Chart 1 shows HD falling to the lowest level in five months and ending under its 200-day moving average. Volume rose as price fell. The relative strength line shows the home improvement stock starting to underperform last November and again during April. The April selloff was most likely the result of rising rates. Wal Mart is also trading under its 200-day average. Today's 2% drop was on heavy volume as the stock made it to the big board's most active list. Its relative strength line also started dropping at the end of April. That was when bond yields started to surge higher. The yield on the 10-year T-note hit another eight-month high today.
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10-YEAR YIELD TESTING LAST YEAR'S HIGH ... Everyone is watching the 4.60% level very carefully. That's because it respresents the area where the 10-year yield peaked last summer. Yields closed right at that barrier today. Needless to say, a decisive close over that previous high (especially if it occurs on Friday) would represent an upside breakout in long-term rates. That wouldn't be good for either bonds or stocks. Another important test is taking place in the crude oil market. Crude is challenging its all-time high at $40. It closed down 9 cents today at 39.48. What oil does near that long-term resistance barrier will have an impact on the direction of interest rates and the stock market. It will also have an impact on the direction of energy stocks which slipped a bit today.
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DOW DRUGS RISE ALONG WITH PG... With the market falling today, investors turned to the relative safety of drug stocks. [Yesterday's Market Message talked about drug stocks supporting the healthcare sector]. The two biggest Dow gainers today were its drug stocks -- Johnson & Johnson and Merck. JNJ is challenging its spring high, while Merck closed over its 200-day moving average. Consumer staple stocks also played a safe haven role today. Within the Dow, Procter % Gamble broke out to a new 52-week high. Some other staple winners were Sara Lee, RJR Tobacco, Wrigley, and Coca Cola Enterprises.
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NASDAQ 100 HOLDS 200-DAY LINE... There are three important tests taking place this week. One is the 10-year T-note yield testing last summer's high near 4.60%. The second is crude oil testing its all-time high near $40. The third is the Nasdaq's test of its 200-day moving average. That's because the Nasdaq generally dictates the direction of the rest of the market. The good news is that Nasdaq 100 Shares (QQQ) closed in the upper end of today's price range -- and ended back over its 200-day moving average. After suffering heavy losses earlier, all the major stock indexes closed in the upper end of their price range. Tomorrow morning's job report will probably set the tone for the day and the week. That and the direction of crude oil and interest rates.
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