NASDAQ LEADS MARKET DECLINE ON HIGHER VOLUIME -- JUMP IN BOND YIELDS HURTS FINANCIALS -- DOLLAR DROP BOOSTS COMMODITIES

NASDAQ 100 DROPS ON HIGHER VOLUME... The Nasdaq 100 had a bad chart day. It was the biggest percentage loser of the major stock indexes. And it fell on rising volume. That's bad for two reasons. It continues the pullback from its 50-day moving average -- thereby preventing an upturn in its trend. And its relative strength ratio dropped. That was negative not only for the Nasdaq but for the rest of the market. The blue chip averages, which had been challenging recent highs, also fell on rising volume. Not an encouraging day.

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DOW DIAMONDS ALSO DROP ON HIGHER VOLUME ... The Dow Diamonds fell back from a challenge of its late December high. Part of the reason had to do with the fact that its 9-day RSI had reached overbought territory over 70. It's also backing off from its upper Bollinger band. Volume was the biggest in a week. That suggests some serious profit-taking around the recent high. That could pave the way for a test of either its 20- or 50-day moving average which are fairly close together (see green circle).

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JUMP IN BOND YIELDS HURTS FINANCIALS ... Aside from technical considerations, the market may have been concerned about a jump in bond yields today arising from Mr. Greenspan's testimony. That also caused some selling in rate-sensitive financial stocks and pushed the Financials Select Sector SPDR (XLF) back under its 50-day average. Its relative strength line has also been dropping over the last week. That raises another concern for the stock market. I've written a lot recently about the importance of technology leadership. Financial leadership is also important. Financial stocks have a long history of peaking ahead of the rest of the market. The only good news today was that the drop in the financial ETF came on light volume. I'm not sure the market can withstand the loss of financial and Nasdaq leadership at the same time.

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DOLLAR DROP BOOSTS COMMODITIES... The dollar continues to drop. Its daily chart chart shows the Dollar Index falling after its RSI line reached overbought territory over 70 and major chart resistance near 85. Its daily MACD lines have also turned down. Dollar weakness normally translates into commodity strength. And that's exactly what we're seeing. The CRB Index gained more ground after breaking through its January/ February highs. Gold and copper rose today as did stocks tied to those commodities -- like Phelps Dodge and Freeport McMoran Copper and Gold.

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PUTTING IT ALL TOGETHER... I had been looking for a retest of the recent highs by the blue chip averages and we got one. Unfortunately, that test has failed -- at least so far. The big question now is whether today's setback constitutes a top or just a continuation of a sideways trading range. And what to do with that information. As you know, I've recommended selling into the rally on the belief that it could be the final phase in the cyclical bull market that started in October 2002. I haven't seen anything so far to change my mind. I'll take a more in-depth look at things tomorrow and try to put things together. I don't think it's going to be a bullish story.