RISING WAGES FAN NEW INFLATION FEARS -- INTERNET STOCKS WEAKEN NASDAQ 100 -- S&P 500 BREAKS 50-DAY AVERAGE AS SHORT-TERM TREND WEAKENS

AMAZON AND GOOGLE FALL HARD... It wasn't hard to see where most of the damage in the Nasdaq 100 came from today and the past week. Two of the biggest weekly losers were Amazon.com (-15%) and Google (-12%). The ugly chart damage can be seen in Charts 1 and 2. Both Internet stocks plunged on heavy volume. Amazon has broken its 200-day moving average and Google the 50-day. The relative strength ratio on the Google chart shows that the big Internet stock has gone from a market leader to a drag on the Nasdaq 100. Not surprisingly, the weakest ETF on Friday and for the week was the Internet Holders (HHH) which has a heavy weighting in both stocks (Chart 3). The HHH is threatening its 200 day line. The plunging relative strength ratio shows how badly the HHH has done relative to the S&P 500 since the start of the year. Today's Internet plunge made the Nasdaq 100 the day's biggest index loser.

Chart 1

Chart 2

Chart 3

NASDAQ 100 SHARES FALL ON HEAVY VOLUME ... You don't have to be a chart reader to see that the Nasdaq 100 Shares (QQQQ) had a bad day. Not only did it end the week well below its 50-day average, it also undercut its mid-January low near 41. And it did so on rising volume. In fact, the two biggest volume bars over the last month (red bars) have been to the downside. Today's action turns the "short-term" trend down for the Nasdaq 100 and suggests a possible test of the next support level at 40.16. The Nasdaq 100 wasn't the only market index to suffer technical damage. The Dow Industrials and the S&P 500 ended back below their 50-day averages as well.

Chart 4

S&P 500 BREAKS ITS 50-DAY LINE ... Chart 5 shows the S&P 500 closing the week below its 50-day moving average. That suggests a further drop toward 1245. The daily MACD histogram bars also paint a short-term negative picture. They stayed below the zero line and failed to confirm the previous week's price bounce before weakening even further this week. That only affects the short-term trend. It's the weekly trend that I'm more concerned about.

Chart 5

WEEKLY LINES ARE STILL POSITIVE BUT WEAKENING... As a rule, signals on weekly charts are much more important than those on daily charts. While daily charts measure "short-term" trends, weekly signals measure "intermediate" trends which can last for several months. [Monthly signals measure "long-term" trends and can last for years]. I've applied the MACD lines to the weekly S&P bars in Chart 6. The MACD lines on the stop are still positive, but are weakening. A downside crossing by the shorter moving average would be the first intermediate sell signal since last September. The MACD histogram bars below the chart measure the difference between the two MACD lines. The trend is still up as long as the histogram bars are above the zero line which has been the case since the start of November. The problem is that the two lines are converging. [Some traders take that as reason enough to do some profit-taking]. That puts the intermediate trend of the S&P in some peril. It might only take another down week to turn the weekly MACD lines negative.

Chart 6

WAGE INFLATION IS NEW MARKET CONCERN ... The unemployment rate for January fell to 4.7% which was the lowest in four years. That should be good news. But the news was accompanied by another increase in wages paid to workers. That comes on the heels of yesterday's report of a drop in worker productivity and the biggest jump in wages paid in a year. That's raised market fears that wage inflation may cause the Fed to keep raising short-term rates. Higher wages also increases pressure on corporations to start passing along high raw material costs to their customers. Meanwhile, most commodity indexes have reached new record highs. That puts the Fed in a bind. If it stops raising rates, inflation pressures may get out of control. If it keeps raising rates (especially with a negative yield curve), the economy could suffer. Sounds a bit like the stagflation of the 1970's when we had a weaker economy and higher inflation. It looks like Mr. Greenspan got out of town just in the nick of time.