INTERNET AND RETAILERS LEAD SELLING -- NASDAQ HITS NEW 2004 LOW -- OIL SPIKE PUNISHES STOCKS -- EVEN ENERGY SHARES ARE FALLING
RETAILERS BREAK NECKLINE... Retailers got marked down today in a big way. Same stores sales for July rose at the second slowest level in nine months. Economists blame higher energy prices. That's simple economics. Yet most economists dismissed the threat from rising oil prices through the first half of the year. If they can explain to us now why rising energy prices hurt retail spending and the economy, how come they didn't see the potential negative impact six months ago. We did. The next two charts compare the Retail Holders ETF to oil prices for the last year. First the retail chart. Today's selling broke a neckline in a head and shoulders topping pattern that started last November (see first circle). That was when oil prices started moving higher (see first box in Chart 2). The second big drop in retail stocks took place during April as oil surged again (see second box in Chart 2). The last big fall started at the end of June as oil prices spiked again (see third box in Chart 2). The relative strength line in Chart 1 peaked last November when crude started its upward run. For the record, I wrote several pieces earlier in the year warning that oil near $40 was traditionally bad for the economy and the stock market. The same people who dismissed that threat six months ago are explaining to us now why rising oil prices are a bad thing. It's a little late for that now. Crude jumped $l.57 today (3.6%) to hit a new record on the threat of supply disruptions from Yukos Oil, which is Russia's largest producer. As has been the case recently, a record high in oil produced heavy selling in stocks.

Chart 1

Chart 2
INTERNET LEADS NASDAQ LOWER... Internet stocks suffered the biggest percentage declines today (-2.5%) and suffered the worst chart damage. Chart 3 shows the IIX Internet Index falling to the lowest level since last December. Its relative strength line is sinking as well. Chart 4 shows AMEX Internet Holders (HHH) breaking their 200 day moving average. That helped push the Nasdaq market to new lows today.

Chart 3

Chart 4
NASDAQ FALLS TO NEW 2004 LOW... The Nasdaq fell 1.8% and was the biggest percentage loser among the major stock indexes. Chart 5 shows the Nasdaq Composite falling to a new low for the year. Chart 6 shows the Nasdaq 100 Shares (QQQ) also hitting a new 2004 low. The QQQ was also the most actively-traded stock today which is a bad combination. Its relative strength line is also hitting a new low which is a bad sign for the rest of the market which is heading in that direction.

Chart 5

Chart 6
DOW DIAMONDS AND S&P 500 SPDRS FALL ON VOLUME -- SMALL CAP GROWTH HITS NEW LOW... The next three charts also present a negative picture. The Dow Diamonds (Chart 7) and the S&P 500 SPDRs (Chart 8) are bearing down on their May lows. Both fell on heavier volume which is another negative sign. Small caps continue to fall harder than large caps. At the same time, growth stocks continue to fall harder than value stocks. Chart 9 shows the Russell 2000 Growth iShares already trading in low new ground. Small cap growth is getting hit the worst of all.

Chart 7

Chart 8

Chart 9
EVEN ENERGY STOCKS FELL ... Energy shares also fell today. Chart 10 shows the Oil Service Holders falling on very heavy volume. That's unusual in the face of record oil prices. In a broad market decline, even the leaders start to fall sooner or later. A breakdown in the energy sector would remove one of the few winners from the stock market scene. There wasn't anywhere to hide today. Every market sector was down. Until things start to get better, cash is still the best option.

Chart 10
ATLANTIC CITY MONEY SHOW... I'll be spending the entire day tomorrow (Friday) at the Atlantic City Money Show. As a result, I'll write my weekend update on Saturday after all the market dust has settled a bit. I can assure you, however, that it will have a negative tone.