TODAY'S DROP KEEPS MARKET IN BEARISH CONSOLIDATION PHASE -- THE NASDAQ APPEARS READY TO RESOLVE BEARISH TRIANGLE TO THE DOWNSIDE

MARKET STILL IN BEARISH TRIANGLE... Today's market drop has kept the market in what appears to be a bearish consolidation pattern. The first three daily charts show the Dow, the S&P 500, and the Nasdaq Composite still trading well below their 50-day averages and their early February peaks. Technical odds still favor a retest of the February lows and, most likely, a resumption of the bear trend. Last week I described the pattern in the Nasdaq Composite Index as a bearish "symmetrical triangle". Nothing has happened to change that view. In fact, the sideways pattern in the other stock indexes are also beginning to resemble triangles (see converging trendlines). Since we started with the Nasdaq market last week, let's take a closer look at its short-term pattern.

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A CLOSER LOOK AT NASDAQ TRIANGLE... A symmetrical triangle is a consolidation pattern identified by two converging trendlines. The hourly bars show the Nasdaq triangle much more clearly. An ideal triangle will usually show three peaks before starting to break down. It's possible that this morning's early spike formed the third peak (see arrows). If that's the case, the Nasdaq (and the rest of the market) appear ready to start dropping again. The signal to watch for will be a break of the lower trendline. The Nasdaq isn't far from doing that.

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BONDS BOUNCE AS DOLLAR DROPS... Bad news for stocks is usually good news for bonds. Chart 5 shows the TIP Bond Fund bouncing off its 50-day moving average today as yields dropped. The drop in U.S. rates hurt the dollar which fell today. The dollar drop kept the commodity rally alive. Gold and most other commodities gained more ground today. Crude oil lost a couple of dollars on a buildup in weekly inventory.

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MORE ON BONDS TOMORROW... Last Friday I wrote a piece on T-bond ETFs which prompted an unusually large number of questions. I'll try to respond to some of them tomorrow. I'll elaborate on why investors are shortening their bond maturities and why the recent upturn in commodities is provoking more interest in TIPS. I'll also have more to say on the relative maturities of some bond funds, including TIPs.