VERITAS PLUNGES -- SOX THREATENS YEARLY LOW -- STOCK INDEXES BREAK MOVING AVERAGE LINES -- OIL CLIMBS TO MONTHLY HIGH
VERITAS PLUNGES ON HEAVY VOLUME ... One need only to look at Chart 1 to see where the bad technology day started. Veritas Software plunged 36% on massive volume. Although several technology stocks opened lower, and got the day off to bad start, this was the biggest casualty. Things got worse from there as the entire technololgy sector fell heavily and pulled the rest of the market with it. The technology-dominated Nasdaq market lost 2% and was the day's weakest index. The Nasdaq market was also hurt by a 4% plunge in the Semiconductor (SOX) Index.
Chart 1
SOX THREATENS 2004 LOW... Last week we showed the SOX Index failing another challenge of its 200-day moving average. Since then, things have gone from bad to worse. The SOX plunged 18 points today and is threatening its early May low. The relative strength line (measured against the Nasdaq) has already fallen to a new low. It's pretty tough for the technology-dominated Nasdaq market to withstand that kind of relative weakness in such a key industry group.
Chart 2
NASDAQ BREAKS MOVING AVERAGE SUPPORT... The Nasdaq Composite Index ended the day under both its 50- and 200-day moving averages. And it fell on rising volume. That's enough to turn any chart reader cautious. Its relative strength line has also started to slip over the last week. Upside Nasdaq leadership has been an important part of the market rally that started in May. Loss of Nasdaq leadership is negative.
Chart 3
DOW AND S&P 500 BREAK 50-DAY LINES... Technical damage was suffered over on the big board as well. The Dow Industrials and the S&P 500 both closed beneath their 50-day moving averages. That in itself is a reason to turn more cautious. Of more concern is the fact that both indexes are now threatening their 200-day averages.
Chart 4
Chart 5
CRUDE OIL JUMPS OVER A DOLLAR... One of the reasons for today's heavy stock selling is the rise in the price of crude oil to the highest level in a month. While that hurt the stock market, it gave a boost to energy stocks which were the day's only sector winners. Chart 7 shows the Energy Select Sector SPDR moving higher today -- although it closed off its high and has yet to clear its June peak at 32. Its relative strength line hit a new recovery high. The overall market usually doesn't do well when energy is the strongest sector which has pretty much been the case since the start of the year. Defensive consumer staples also held up pretty well. Some short-term chart damage was done today. Volume picked up, which isn't good, but was still low by historical standards. We think today's selling warrants a more cautious short-term view. But we'll need more time to determine if today's selloff is the start of a more serious decline. We'll also have to see if the market can build on this afternoon's late bounce.
Chart 6
Chart 7
