MARKET FALLS ON RISING VOLUME -- 50-DAY AVERAGES MAY BE RETESTED

NASDAQ 100 FALLS BELOW BREAKOUT POINT... Yesterday we showed the Nasdaq 100 closing above its April peak in an apparent upside breakout. Today's price drop, however, pushed it back below the breakout point at 37.50. In chart work, a close beneath a breakout point negates the breakout. Equally disturbing is the fact that today's volume was heavier than yesterday's. Today's action pushed the QQQs back into their four-month trading range and increases the odds for more short-term selling. Chart 1 shows the Nasdaq 100 Shares testing initial support at the (green) 20-day average. If that's broken, a further decline toward the (blue) 50-day average is possible. That would also bring the QQQs into the proximity of more substantial chart support along the June lows.

Chart 1

SOX FALLS 4%... A 4% drop in the Semiconductor (SOX) Index led today's selloff in the technology sector. Chart 2 shows that the SOX tried unsuccessfully to climb over its (red) 200-day average and its June peak at 490. That failure took the wind out of the technology rally. One of the biggest SOX losers was Intel. Chart 3 shows the chip bellwether falling under its 50-day average to a six-week low. And it did so on rising volume. That increases the odds for more short-term sellling.

Chart 2

Chart 3

DOW DIAMONDS FALL ON RISING VOLUME... Chart 4 shows today's downside action in the Dow Diamonds ETF. The heavy downside volume is the most disturbing feature. That raises the odds for a retest of moving average support in the 103-102 range. A drop to 102 would also represent a fifty percent retracement of the rally from mid-May. In my opinion, the longer range pattern still holds the promise of another upleg. A setback from current levels could provide a better buying opportunity at lower levels. We'll be watching the test of moving average support lines very closely in the day's ahead as well as the volume patterns.

Chart 4