INTEL HELPS SOX BOUNCE -- BUT ENERGY AND MATERIALS ARE WEIGHING ON MARKET
BOTH GOOD AND BAD NEWS ... Energy and basic material stocks are the two weakest sectors of the stock market today. Chart 1 shows the Energy Select Sector SPDR heading down toward its 50-day moving average after issuing a short-term sell signal on Monday. There's good and bad news in that. Falling energy prices should help to relieve some pressure on the stock market. However, oil isn't the only commodity that's falling. Within the CRB Index (which is down 2.44 points today) thirteen of its seventeen commodities are lower. Gold prices are continuing to correct which is pushing gold stocks into a short-term downside correction. Copper is plunging 8% in one of its worst drops in years. Chart 2 shows heavy selling in the Materials Select Sector SPDR. The losses in those two groups are offsetting any early technology gains.
Chart 1
Chart 2
SOX IS BOUNCING... An early bounce in Intel is helping the Semiconductor Index (SOX) to bounce off of its 50-day moving average today. Yahoo is helping to support the IIX Internet Index which is holding over its 200-day moving average. That's helping to support the Nasdaq market. But the rest of the market is starting to look weak again. And therein lies a problem. Is the relatively modest bounce in the tech group enough to offset heavy losses in the commodity sector. I'm afraid not.
Chart 3
Chart 4
ENERGY AND MATERIALS ... Basic materials and energy have been the two strongest market sectors for several months. Now they're starting to fall in an apparent downside correction. If they're all that's been holding the market up, what's going to take their place? Technology is a logical choice, but Nasdaq gains are fairly modest. Two other logical candidates -- consumer staples and healthcare -- aren't showing much bounce. When market leaders stumble, something else has to take over market leadership. Otherwise the market itself will stumble. Although I suspect some money may start flowing into technology and some other oversold groups, I don't think that will be enough to offset the bigger commodity losses. That being the case, the market may continue to struggle until a new leader emerges.
