WAL-MART SINKS RETAILERS WHICH WEIGH ON MARKET -- JUMP IN BOND YIELDS HASN'T CHANGED MARKET'S TREND BUT DOES RAISE THE RISK LEVEL
STOCK PLUNGES 3.4% ... Retailers are the day's weakest stock market group. The main reason is today's 3.4% plunge in the stock of Wal-Mart which is the world's largest retailer. In so doing, the stock is suffering some serious chart damage. Just recently, WMT had risen above its August high, and it's 200-day average, in a late attempt to join the rally in the retail group. Today's price plunge, however, has pushed the stock well below its original breakout point at 55 and has pushed it below both moving average lines. And it's doing it on heavy volume. A bad combination all around. That's unsettled the entire retail group and, possibly, the rest of the market.
Chart 1
RETAILERS LEAD MARKET LOWER... With the holiday shopping season having already started, the direction of retail stocks has an important psychological impact on the rest of the stock market. That's why today's drop in the retailers may be contributing to some of today's market weakness. Today's jump in bond yields may also be causing some nervous profit-taking in both. Chart 2 shows the Retail Holders (RTH) falling to a two-week low on rising volume. More significant is the drop in its relative strength line just below the price chart (see second arrow). The Retail Holders had been helping to lead the market higher since early August (see first arrow). Its RS line, however, is now dropping. Loss of retail leadership comes at a bad time for the market. It also catches the market in a short-term overbought condition and on a day when long-term rates are jumping.
Chart 2
WAL MART PULLS DOW LOWER... Wal-Mart is the day's biggest Dow loser. Chart 3 shows why that's coming at a bad time for Dow. It's 14-day RSI line recently turned down from overbought territory over 70, which signaled a short-term top. In addition, its daily MACD lines have turned negative. Chart 4 shows a slightly different picture for the stronger Nasdaq 100 Shares (QQQ), but the interpretation is similar. The QQQ hasn't been able to hold this morning's probe into new high ground. Its RSI line is also dropping, and shows a slight negative divergence. The inability of the QQQ to touch its upper Bollinger Band also suggests a short-term loss of upward momentum and a likely drop to its 20-day moving average.
Chart 3
Chart 4
SHORT-TERM SWINGS ... Today's market setback doesn't necessarily change (or end) the fourth quarter market rally. You may recall that last week I talked about the need for a pullback (or consolidation) within that uptrend as a possible fourth wave in a five-wave advance. So today's rally does fit into that scenario. The market has three short-term concerns working against it. One is an overbought condition. The second is today's drop in retailers. The third is today's upside breakout in bond yields. Having said all of that, however, it seems only fair to point out that today's jump in yields does raise the risk level for stocks -- especially those groups most effected by rising rates. Naturally, I'll be watching any market decline very closely to ensure that no important support levels are broken.
