OIL HITS RECORD HIGH AND STOCK SELLING INTENSIFIES -- CYCLICALS, RETAILERS, AND TRANSPORTS LEAD DECLINE -- NASDAQ 100 BREAKS MAJOR SUPPORT LINES

CRUDE EXCEEDS $76... Crude oil surged $1.70 today to reach a new all-time high. A lot of that had to do with mideast tensions. It also had a lot to do with the big drop in oil inventories reported on Wednesday. And the fact that oil, like most commodities, is in a long-term bull market. That last point shouldn't be ignored. The media explain each day's move in crude oil (and gold) by that day's headlines. They operate under the misguided Wall Street belief that commodities are nothing more than a bubble being kept aloft by geopolitical events. There's some truth in the view that commodity markets are being boosted by international tensions. But it's not the entire truth. Commodities have been the strongest asset class since 2002 and remain the strongest asset class. Chart 2 shows the CRB Index (which gained 3.13 today) trading well above its 50-day moving average after bouncing off its 200-day line in mid-June. Chart 3 shows the StreetTracks Gold Shares (GLD) also trading over their 50-day line. It also bounced off its 200-day average in mid-June. A trader didn't have to read the day's headlines to see those bounces coming. All he or she needed to do was look at the their charts. The same is true with stocks. Today's selling is being blamed on geopolitical events. Readers of this site know that the technical situation has been deteriorating for months. The media has missed that story as well.

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RETAILERS CRUMBLE ... One of the market groups most sensitive to the direction of oil and gasoline prices is retail. I've written stories over the last year showing that rising energy prices usually result in relatively poor retail performance. We saw that again today. The Retail Holders tumbled to the lowest level in eight months. The group started to underperform the S&P 500 a year ago and has been slipping since then. Since consumer spending accounts for two-thirds of the economy, retail weakness has been warning that rising oil prices, and higher interest rates, were taking a negative toll on the stock market and the economy.

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CYCLICALS BREAK 200-DAY LINE ... Another sign of a slowing economy is selling of economically-sensitive cyclical stocks. They've been one of the weakest parts of the markets since May. The Morgan Stanley Cyclicals Index broke its 200-day moving average today. It's relative strength line peaked in May. The relative strength line just below that has been rising. That's because money coming out of economically "sensitive" cyclical stocks have been rotating into economically "resistant" consumer staples. Although all market sectors fell today, the one's that fell the least were consumer staples, utilities, healthcare, and energy. The one's that fell the most were basic materials (led by steel), industrials, consumer discretionary, and technology. That's a sign of a scared market. Transports also had a bad day.

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TRANSPORTS BREAK 50-DAY LNE ... The Dow Transports lost 2.7% today to register one of the day's worst performances. The selling was enough to push it below its 50-day moving average for the first time in a month. Most of the losses came from a 5% loss in airlines (Chart 8). Several rails and trucker also fell pretty hard as well. The transports were one of the few pillars of strength in the market. Now they're rolling over as well. The Dow Industrials ended back below their 200-day moving average as did the S&P 500 and most other market indexes. And they did so on rising volume. The Nasdaq market did even worse.

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NASDAQ 100 BREAKS MAJOR SUPPORT ... I recently showed the Nasdaq 100 testing important chart support at last October's low. I wrote that a breakdown would be bad for the Nasdaq and the market as a whole. That's because technology stocks act as a leading indicator for the rest of the market. Chart 9 shows the Nasdaq 100 Shares closing well below their October low at 37.28. Today's breakdown also saw heavier trading. The QQQQ relative strength line peaked in January and has been falling since then. That's a bearish sign for the market. Unfortunately, Chart 10 looks even worse. The weekly QQQQ bars show a two-year uptrend line being broken as well. The relative strength line for the QQQQ has fallen to a new three-year low. The only good news there is for those who are still short that part of the market. The same may be true for the rest of the market as well.

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FLIGHT TO BONDS ... When stocks fall, some money usually moves into the bond market in a flight to safety. We saw that today. Chart 11 shows the 7-10 year Treasury Bond ETF gaining ground over the last couple of weeks. The ability of the IEF to stabilize over its May low is a positive sign over the short-run. An even stronger sign would be a close over its June high and its 200-day moving average. Bonds are at a very crucial juncture at this point. Chart 12 shows why. It's a monthly bar chart of the yield on the 10-year Treasury Note. It shows the yield testing a 12-year down trendline. As I observed the last time I showed this chart, this would be a logical spot for bond yields to start to weaken and bond prices to strengthen. That would be especially true if the stock market and the economy are peaking -- as they appear to be.

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