VIX IS STARTING TO RISE -- BLUE CHIP AVERAGES SLIP FURTHER -- NASDAQ TESTING 200-DAY LINE -- DOLLAR BOUNCE HURTS GOLD
DOW AND S&p 500 SLIP UNDER CHART SUPPORT... The blue chip averages continued to deteriorate today. Both the Dow and the S&P 500 closed below their late February lows. Financial stocks were among the day's biggest losers as long-term interest rates rose again. The next major support level for both indexes are their late January lows which puts them close to their 200-day moving averages.
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NASDAQ INDEXES TEST 200-DAY LINE ... Both Nasdaq indexes are testing long-term support at their 200-day moving average. In the case of the Nasdaq Composite, there also appears to be some psychological support near the 2000 level. The ability of the Nasdaq market to stage a late comeback this afternoon helped stabilize the rest of the market. The Nasdaq is going to have to show a lot more strength, however, to reverse its 2005 downtrend.
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DOLLAR BOUNCES FROM OVERSOLD CONDITION ... The dollar had a nice rebound today. A lot of that was attributed to friendly comments from Asia. I think it was more technical. The daily chart of the US Dollar Index shows it finding support near its December low. Its 9-day RSI line has turned up from oversold territory. And the daily MACD lines are turning positive. As the chart shows, however, the USD is still well below its February peak and its 200-day moving average. Today's dollar bounce did cause selling in gold and other commodity markets. Gold stocks saw profit-taking as well.
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GOLD AND THE DOLLAR OVERLAY... Chart 6 overlays the price of gold (solid line) with the USD. Their inverse link is clearly seen. When the dollar falls, gold rises. When the dollar bounces, gold drops. That's what happened today. I don't view either move as a symptom of a major trend reversal. I think it's more a matter of an oversold dollar causing profit-taking in an overbought gold and commodity group. Bullion backed off from chart resistance at its December high near $445 and is now testing initial chart support at $430 (see arrows).
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WATCHING THE VIX ... I wrote a piece earlier today on the fact that the CBOE Volatility Index was starting to move higher. I suggested that a close over its January peak would be a bullish breakout and could have negative implications for the stock market. Here's another look at how both have done since the cyclical bull market in stocks began in October 2002. The inverse correlation between two is very obvious. The two peaks in the VIX in October 2002 and March 2003 (red arrows) coincided with bottoms in the S&P 500 (green arrows). If the VIX manages to break through its January 2005 high (and its long-term down trendline) that could spell more trouble for the S&P 500. It's time to start paying more attention to the VIX.
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MORE LINKS TO SHARPCHARTS 2 ... Stockcharts has made it easier for you to link to the SharpCharts 2 version that is nearing completion. One link can be found at the bottom of the left main menu on the Stockcharts.com homepage; the other can be found at the bottom of the John Murphy page. Have fun with it. It's got a lot of exciting new features -- including overlay charts.
