MARKET MANAGES MODEST BOUNCE BUT ON LOW VOLUME -- DOLLAR DROP BOOSTS GOLD AND OTHER COMMODITIES
SEMICONDUCTOR HOLDERS BOUNCE ON LIGHTER VOLUME... Technology analysts read a lot into today's bounce in the semiconductor group. Chart 1 shows part of the reason why. The Semiconductor Holders (SMH) bounced off their January low. The problem is they did it on lower volume. That's not nearly as good as a bounce on rising volume. Part of today's chip optimism was based on a good report from Texas Instruments and an early jump in the stock. Although the stock did gap higher on rising volume, it closed in the lower end of its daily range -- and below its opening price (Chart 2). That's not too encouraging either. But the chip bounce did help the market manage a modest gain today. Once again, however, the market bounce came on light volume.
Chart 1
Chart 2
NASDAQ 100 BOUNCES ON LIGHT VOLUME ... The Nasdaq 100 Shares (QQQQ) managed to gain a little ground today. But it's upside volume was much lighter than last week's downside volume. There's a little "gap" resistance at 35.5, with much more substantial resistance starting at 36. So far, the modest Nasdaq bounce doesn't look all that impressive.
Chart 3
DOW DIAMONDS STILL IN DOWNTREND ... Given all the encouraging talk in the financial media today, one would think that the market did something impressive on the upside. Every analyst that I heard interviewed seemed convinced that the market had bottomed. [Then again they choose their analysts very carefully. Down markets are bad for ratings]. I'll leave it to you to judge the significance of today's bounce on the chart of the Dow Diamonds. Yes, it's oversold and entitled to a bounce. But the bounce has been modest to stay the least and has occurred on lighter volume. It looks to me to be nothing more than a reflex rally following last week's big selloff. There's a lot of overhead resistance in the DIA near 103, which is its January low and its 200-day moving average.
Chart 4
DOLLAR DROP BOOSTS GOLD AND OIL... I wrote a piece earlier today that talked about why the recent drop in long-term rates was bad for the dollar but good for gold. The Dollar Index fell today to the lowest level in two weeks after recently failing a test of its February high and its 200-day moving average. Its daily RSI and MACD lines have turned negative. That's giving a boost to the gold market which moves in the opposite direction of the dollar. Chart 6 shows the Gold ETF (GLD) rising almost $6.00 today to a new April high. Gold stocks jumped more than 3%. Gold wasn't the only commodity to benefit from the dollar drop. Crude oil jumped over $2.00 while the CRB Index gained more than 6 points. It's too soon to tell if the commodity selloff has ended. But the RSI line on the CRB chart shows that the recent decline has taken it to an oversold condition. As I suggested earlier today, the recent drop in long-term rates has a ripple effect through the other markets. It weakens the dollar and gives a boost to gold and other commodities. I also suggested today that two other markets that were benefiting from the drop in rates were bonds and REITS. The recent drop in bond yields isn't good if it's hinting at a weaker economy. Maybe that's why bonds have been doing better than stocks and the dollar is starting to weaken.
Chart 5
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Chart 8
CINCINNATTI SPEECH IS AVAILABLE FOR VIEWING ... I gave a speech on March 10 at the Cincinnati chapter of the Market Technicians Association. I ran through many of the technical indications that turned me negative on the market during the first quarter including Elliott Wave Analysis. I explain how the sector rotations gave advanced warnings of market and economic problems. I even had time to explain the four-year presidential cycle and the similarities between today's markets and the 1970's. Stockcharts has made that speech available for viewing with all the accompanying charts. Go to the John Murphy tab, look under Appearances and Click to View. I think it's one of the best speeches I've ever given.
