EURO PLUNGES TO SEVEN-MONTH LOW -- GOLD AND OIL RECOVER MOST OF EARLY LOSSES -- OVERBOUGHT MARKET PULLS BACK

EURO FALLS ON FRENCH VOTE... The Euro tumbled to the lowest level in seven months after the French voted against the European constitution over the weekend. Needless to say, that gave the dollar a big boost, but pushed gold prices lower. By day's end, however, gold regained some ground to finish only $2 lower. Chart 2 shows that bullion is still holding over its February low near $410. After some early selling, gold shares closed only marginally lower. The weekly bars in Chart 3 show the XAU Index trying to bounce off its spring 2004 bottom.

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OIL CLOSES HIGHER ... After some early selling in the oil pits, crude oil closed 12 cents higher at 51.97. Its daily chart shows crude bouncing off its 200-day moving average last week. To turn its short-term higher again, however, it still needs to clear its 50-day average. The afternoon rebound in oil also helped oil stocks. Chart 5 shows the Oil Service Holders (OIH) closing over their 50-day average for the second consecutive day. The rebound in oil may be one of the factors contributing to today's stock selling.

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NASDAQ 100 BACKS OFF FROM RESISTANCE... The Nasdaq market, which has led the recent rebound, has two short-term problems. One is the proximity to chart resistance at the March high. The other is an overbought condition. The 9-day RSI line is Chart 6 has formed a small "double top" over 70 which constitutes a short-term negative divergence. That usually leads to some type of pullback. I recently gave an upside target for the Nasdaq Composite Index at 2100, which is its early March peak. It's still 25 points shy of that target. Chart 7, however, shows the Nasdaq 100 having already reached its March high near 1550. That may be enough to cause some short-term profit-taking. Initial chart support for the NDX is at the 1500 level which was the early April peak. Today's pickup in trading volume also suggests that the short-term trend may be weakening.

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BOND YIELDS DIP BELOW 4% ... Last week I wrote about the 10-year T-note yield testing important chart support at 4%. After bouncing off that level, it fell sharply again today to end right at that key spot. Some excitement was created when it dipped under 4% during the trading day. While that didn't help the stock market much, it did help rate-sensitive stocks (like homebuilders, REITS, and utilities) end the day in the black.

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