GLOBAL MARKETS TUMBLE
DOW CLOSES JUST UNDER 10K -- 200 DAY LINES IN JEOPARDY... The day started ugly in Asia and Europe and stayed ugly throughout the day. The stock selloff that started on Friday hit the global markets over the weekend before coming back to haunt the U.S. market. Percentagewise, the losses here were much smaller than those in Europe and Asia. Nonetheless, the market lost more ground. The underlying technicals were also negative. Volume picked on the selling. Breadth figures were negative by a ten to one margin on the big board and four to one on the Nasdaq. Another bounce in the semiconductor group kept the Nasdaq losses relatively small. Even so, it wasn't a good day. The charts of the major stock averages show what happened. The Dow closed just below its March low, its 200-day moving average, and psychological support at the 10K level. The downside violation, however, was relatively minor and far from conclusive. The S&P 500 also broke its March low, but remains over its 200-day line. The Nasdaq Composite, which broke its 200-day line over a week ago, closed just a shade below 1900. Downide penetrations of support early in the week aren't as convincing as ones that take place on Friday. Although today's action was clearly negative, I'm inclined to reserve judgment on today's violations of major support levels to see if they last another day or two. All market sectors lost ground. For the first time in awhile, energy fell the hardest. A $1.00 drop in crude oil was partially responsible. Two other defensive groups -- consumer staples and healthcare -- succumbed to selling pressure today as well. Gold stocks managed a minor bounce.
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LOSING ENERGY... Throughout the first four months of the new year, energy was the strongest sector. That was due to rising energy prices and crude oil challenging its all-time high at $40. A $1.00 drop in crude before the market opened contributed to today's heavy selling in energy shares. The Energy Select Sector SPDR gapped under its 50-day average on rising volume. Its relative strength line also slipped. There may ulitmatley be some good news in falling energy shares if it's hinting at lower oil prices.
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RISING RATES AREN'T NEW... As painful as today's market drop was, it's important to recognize that it's been slipping since the beginning of the new year. And the basic reason has been the same. Namely, rising interest rates. We've been writing for weeks about the fact that the market was starting to react badly to the threat of rising rates. That deterioration started in the techs, then spread to rate-sensitive issues, before finally spreading to the rest of the market. It even hit defensive shares today, especially energy. Charts help us to be better prepared for days like today. The fact that global markets fell so sharply shows how sensitive they are to higher interest rates here in the states, and is another demonstration of how closely linked global markets are.
