MORE BAD NEWS ON HOUSING MAY HAVE ENDED RALLY ATTEMPT AS FINANCIALS, HOMEBUILDERS, AND SMALL CAPS LEAD MARKET LOWER -- S&P 500 IS IN DANGER OF SLIPPING BACK BELOW ITS 200-DAY AVERAGE

RECORD DROP IN HOME PRICES... The housing situation just keeps getting worse. The market lost some ground yesterday on news that the unsold inventory of homes was at a sixteen year high. Today's news that the price of homes fell by a record amount in the second quarter may have ended the recent market rally attempt. At least that's what this morning's market activity suggests. In a replay of the July market drop, today's fall is being led by homebuilders (-2%), financials (-1.7%), and small caps (-1.1%). Every market sector is in the red. Other big losers include consumer discretionary stocks, transports, and economically-sensitive cyclicals. The groups showing the smallest losses (or small gains) are in the defensive categories of utilities, consumer staples, and healthcare. Bond yields are falling again along with stocks (as bond prices rise). To make matters worse, the CRB Volatility (VIX) Index and the Japanese yen are bouncing . All of which suggests that the short-term market rally may have run its course. Some market indexes -- like the NYSE Composite and the S&P 500 -- are in danger of falling back below their 200-day moving averages. A lot will depend where the market closes today and the level of trading volume. Volume has been especially light (partially owing to normally light August trading). A lower close today (especially on heavier volume) could seal the fate of the market's recent rally attempt. MORE LATER.

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