BANKS AND BROKERS PULL MARKET LOWER AS MORTGAGE CONCERNS GROW -- HOMEBUILDERS ARE ALSO FALLING HARD -- SHORT TERM MARKET BOUNCE APPEARS TO HAVE ENDED

SUBPRIME MORTAGE CONCERNS SPREAD ... To no one's surprise outside of Wall Street (and the Fed), subprime mortgage concerns continue to spread to financial shares and the rest of the market. Brokers are down more than 3% today and are threatening their 200-day average (Chart 1). Another downleg in homebuilders testifies to continuing damage in the housing sector (Chart 2). Weak retailers are also feeling the pinch of mortgage problems. Those factors are combining to pull the rest of the market lower. Bonds are rallying as stocks sell off in a repeat of the flight to safety that we saw a couple of weeks ago. Emerging markets in Asia and Latin America are starting to fall again as well. Chart 3 shows Emerging Market iShares failing at their 50-day average. While the dollar is dropping, the Japanese yen is rising against all major currencies again. In other words, many of the same negative global intermarket trends that started a couple of weeks ago are re-surfacing.

Chart 1

Chart 2

Chart 3

S&P FALLS AS VIX RISES ... After regaining nearly half of its recent price drop, the S&P 500 SPDRS appear to be resuming their decline (Chart 4). A retest of recent lows now appears likely. While stocks are dropping, the CBOE Volatility (VIX) Index is rallying again.

Chart 4

Chart 5

SHORT QQQ FUND RALLIES AS NASDAQ FALLS ... After yesterday's bounce on the lowest volume this year. the Nasdaq is falling 1.7% today and helping lead the rest of the market lower. It's also back below chart resistance at 2400 (Chart 6). Meanwhile, the ProShares Ultra Short QQQ is rising 2.6% (Chart 7). The QID recently pulled back to chart support near 55 and appears to be resuming its uptrend.

Chart 6

Chart 7

MORE AFTER THE CLOSE ...