DOWNSIDE REVERSAL DAY ON HEAVY VOLUME ENDS RALLY ATTEMPT -- DOWNSIDE RISK STILL OUTWEIGHS UPSIDE POTENTIAL
NASDAQ LEADS DECLINE ON RISING VOLUME... In yesterday's wrapup I mentioned that the Nasdaq bounce off its May low lacked volume. That volume returned today. Unfortunately, it came on the downside. As a result, the Nasdaq (and the rest of the market) suffered a downside reversal day that appears to have ended the brief rally attempt. Chart 1 shows the Nasdaq opening higher this morning only to fall badly in the afternoon. The fact that the downside selling came on heavier volume than yesterday suggests that sellers are still being more aggressive than buyers. Although the Nasdaq suffered the biggest percentage loss, all the other major stock indexes suffered similar downside reversals.
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S&P BACK UNDER 200-DAY LINE ... The next three charts show today's downside reversal in the Dow, the S&P 500, and the NYSE Composite Index. All three opened sharply higher (largely on the back of an upwarde spike in Microsoft) only to give back their early gains and more in the afternoon. The Dow bounce failed at its 50- and 200-day moving average lines. The S&P 500 failed a test of its 50-day line before tumbling back below its 200-day average. The NYSE Composite Index is threatening its 200-day line. Notice today's heavy downside volume in the NYSE. Heavy downside volume isn't a good thing.
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MICROSOFT LOSES MOST OF ITS EARLY GAINS... This morning's upside gap in Microsoft to a new high for the year got the market off to a strong start. Although volume was heavy, the stock closed at the lowpoint of its daily price range and gave back most of its earlier gains. The fact that the stock failed to get through 30 may also have an ominous message to it. Chart 6 shows that MSFT may have failed a challenge of the high formed last September at 30. The weekly bars in Chart 7 also show that the 29-30 region represents a major resistance barrier extending back to the second half of 2002. It made a run at it today, but wasn't able to get through it.
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BIOTECHS TUMBLE 5% ... Biotechs were one of the day's biggest losers. The Biotechnology Index (BTK) tumbled 5% to the lowest level in seven months. The biggest reason was Invitrogen which was the biggest percentage loser on the Nasdaq. The biotech stock fell on massive volume.
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NEXTEL, SUNW, AND MOTOROLA HAVE BAD TECH DAYS... Three other tech stocks that spearheaded the day's technology decline are shown below. Nextel suffered a bad downside reversal day on heavy volume, and broke its moving average lines. Sun Microsystems failed an attempt to stay over its 50-day line. Motorola failed an attempt to climb back over its 200-day average.
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BOUNCING YIELD HURTS GOLD... After falling toward its 200-day moving average, the ten-year Treasury note yield has been climbing for the last two days. That gave a boost to the dollar, but had a negative impact on gold which fell $5 to end back under $400. As a result, the XAU Index closed just below its 50-day average. Most commodity markets fell as well which put some downside pressure on basic material stocks. Rising bond yields also caused profit-taking in rate-sensitive groups like homebuilders and utilities. Today's heavy downside selling in stocks completely negates any positive implications that were drawn from yesterday's oversold bounce. Until the market demonstrates otherwise, downside risk still appears to outweigh upside potential.
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