FINANCIALS AND RETAILERS LEAD MARKET DECLINE AS MORE SUBPRIME PROBLEMS ARISE

BANKS AND BROKERS ARE BIGGEST LOSERS... More subprime problems emerging from Europe have caused heaving selling in stocks around the world. Most of that scared money is contining to flow into Treasury Bonds which are up today. As has been the case recently on down days, financial stocks are the biggest losers. Bank and brokerage stocks both lost 3% by mid-day. Chart 1 shows the Broker/Dealer Index turning down this morning after retracing 50% of its July/August drop. That's why we've been using Fibonacci retracement lines to identify resistance barriers over the market. Retailers are also being discounted.

Chart 1

RETAILERS BACK BELOW 200-DAY LINE... It shouldn't be any surprise to also see retailers bearing the brunt of today's selling. That's because retail earnings are dependent on consumer spending, which is being hurt by the housing meltdown. Chart 2 shows the Retail Holders losing near 3% today and falling back below their 200-day moving average. The group's falling relative strength ratio shows them underperforming the S&P 500 since March.

Chart 2

MAJOR STOCK INDEXES WEAKEN ... The next three charts give a snapshot of the three major market indexes in early afternoon trading (1:30 NYT). The Dow is down more than 200 points and is back below its 50-day average (Chart 3). The S&P 500 is down near 2% after recovering just over half of its July/August drop (Chart 4). Chart 5 shows the Nasdaq Composite backing off from its 50-day moving average. If this rally attempt is going to fail (as I suspect it will), this is just about where it should start to happen. MORE LATER.

Chart 3

Chart 4

Chart 5