BANKS LEAD MARKET LOWER -- CITIGROUP AND KEYCORP ARE BIGGEST BANK CASUALTIES -- SENSITIVE BREADTH MEASURE TURNS NEGATIVE FOR FIRST TIME IN TWO MONTHS -- SO DO DAILY MACD LINES

CITIGROUP AND KEYCORP LEAD BANKS LOWER ... Once again, financial stocks are leading the rest of the market lower. Bank stocks were hit especially hard today. Two of the biggest casualties were Citigroup and Keycorp. Chart 1 shows Citigroup falling more than 2% and threatening its summer low. Keycorp fell more than 5% and is already at a 52-week low. The pickup in trading volume over the last two days is a negative sign of some urgent selling taking place. That's worrying the rest of the market.

Chart 1

Chart 2

BANK INDEX DROPS BELOW 50-DAY LINE... Chart 4 shows the PHLX Bank Index falling back below its 50-day moving average. Its relative strength ratio has fallen to a new low. One of our readers asked about the importance of the 102 level on the traditional point & figure chart for the BKX. Chart 4 shows the BKX nearing a test of that important support level. A close at 100 or lower would constitute a major sell signal for the banks. That would also break the five rising support line (blue line) which is drawn at a 45 degree angle. A breakdown like that wouldn't be good for the banks or the rest of the market.

Chart 3

Chart 4

SENSITIVE BREADTH MEASURE TURNS NEGATIVE... One reader asked today if there were any signs of a downturn in the NYSE Advance-Decline figures. Chart 5 shows a more sensitive variation of the NYSE Advance-Decline line called the McClellan Oscillator (chart shown courtesy of DecisionPoint.com). The NYSE McClellan Oscillator is a short-term momentum measure of NYSE advance-decline figures. The oscillator value is gotten by comparing the 19 and 39-day EMAs of the number of net advances each day on the NYSE (advances-decliners). The McClellan Oscillator fluctuates above and below a zero line. A short-term buy is generated when it crosses over zero; a short-term sell when it falls below. [Those zero line crossings are caused when the shorter EMA crosses above or below the longer EMA]. The last positive crossing took place in mid-August. Over the past month, the oscillator has stayed flat while the NYSE has moved higher. The oscillator has just fallen below zero for the first time in two months which is a a "short-term" sell signal. A downside crossing of the McClellan Oscillator means that the McClellan Summation Index (which is a longer-term version of the Osc) also turns down. But I'll leave that interpretation for another day.

Chart 5

DAILY MACD LINES TURN DOWN... Price is starting to deteriorate along with breadth. Today's market selling turned the daily MACD lines negative for the first time in two months (Chart 6). The pickup in trading activity on market drops is another sign of profit-taking. The NYA closed right on its 20-day moving average (dashed line) which is usually the first line of support on a pullback. If that doesn't hold, expect a drop to the lower Bollinger band which presently sits at 9870.

Chart 6