STOCK RALLY FADES ON RISING VOLUME-- HEALTHCARE IS DAY'S WEAKEST SECTOR -- WEAKER DOLLAR PRODUCES COMMODITY BOUNCE
MAJOR AVERAGES CLOSE LOWER ON HIGHER VOLUME... What started out as an encouraging bounce turned into a bad technical day. After jumping this morning, all the major averages reversed to the downside on rising volume. That's a bad combination. Also bad is the fact that the Dow Diamonds and the Nasdaq 100 QQQ closed back under their 200-day moving averages. We were hoping for more upside volume. What we got was more downside volume.
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INTRA-DAY CHARTS SHOW DOWNSIDE VOLUME... One of the best ways to see which way the heavier volume was flowing is with intra-day charts. Charts 3 and 4 plot 30-minute bar charts for the QQQs and the S&P 500 SPDRs. The bigger red bars to the bottom right of each chart show that volume was heavier during the afternoon selloff than it was during the morning rebound. Chart 3 shows that the QQQ wasn't able to penetrate intial chart resistance near 35.40. The S&P SPDR broke through initial resistance at 110.75 this morning, but ended the day well below it. All things considered, not a good day.
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HEALTHCARE WEAKENS... One by one, defensive stock sectors are rolling over. Consumer staple and energy ETFs have recently fallen beneath their 50-day moving averages. The last holdout -- healthcare -- fell beneath that support line today. In fact, healthcare was the day's weakest sector. Chart 5 also shows heavy downside volume since the start of the week. A lot of today's selling came from the biotech group. Chart 6 shows the Biotech Index falling heavily today and threatening to break its 200-day average.
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COMMODITIES JUMP -- DOLLAR IS OVERBOUGHT... Part of the reason for today's late stock selloff may be a 96 cent jump in the price of crude oil. Interestingly, energy stocks sold off again today. A $7 bounce in the price of gold boosted gold stocks. The CRB Index rose 4.83 points today. Fifteen of the seventeen commodities closed higher. New signs of weakness in the dollar may account for the bounce in commodities. Chart 7 shows the Dollar Index threatening to fall back beneath its 200-day average. Last week's move to a new recovery high wasn't confirmed by its short-term indicators. The daily RSI and MACD lines are showing negative divergence. Needless to say, any dollar selling usually translates into commodity buying.
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