MARKET DROP CONTINUES -- S&P 500 NEARS TEST OF RECENT LOWS -- ENERGY STOCKS LEAD MARKET DECLINE

STOCK MARKET INDEXES WEAKEN FURTHER ... The stock market slide that started yesterday afternoon is continuing this morning. Yesterday's selling on rising volume raised bearish concerns along with the fact that moving average lines were broken as well. The Dow Diamonds (DIA) in Chart 1 have fallen back below their 200-day line. The daily MACD lines for the DIA have turned negative again. The Nasdaq 100 Shares (QQQQ) in Chart 3, which have been the strongest of the indexes recently, has slipped back under its 50-day line. The most critical, however, may be the S&P 500 SPDRs (SPY). Chart 2 shows why. The SPY is heading down for a test of its late August/mid-September lows and which isn't too far from the 200-day moving average. The 12-day ROC oscillator has fallen back below the zero line. A weak service industry report, combined with a record high in prices paid, is giving the market a double whammy. Higher inflation, combined with weaker growth, is a recipe for stagflation. Small cap stocks are especially weak. Energy stocks are also falling hard. Problem is there's nothing else to pick up the slack. All market sectors are in the red. The fact that we're in the dangerous month of October isn't comforting either. MORE LATER.

Chart 1

Chart 2

Chart 3