TECHS LAGGING THE BROADER MARKET -- DOW STALLS AT RESISTANCE -- THREE DOW COMPONENTS HIT RESISTANCE -- DOLLAR GETS WHACKED AGAIN -- YEN AND CANADIAN DOLLAR SURGE

NASDAQ LAGS NYSE... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor

Investor appetite for risk remains weak as the Nasdaq continues to lag the NY Composite. With stricter listing requirements on the NYSE, the Nasdaq attracts more speculative (riskier) issues. This is where you will find promising startups involved in biotechnology, software, networking, telecommunications and the Internet. With increased speculation comes increased risk. We can gauge investor appetite for risk by comparing the performance of the Nasdaq with the NY Composite. This can be done by looking at the two charts or by creating a price relative, which is a ratio of the two. Chart 1 shows the two indices overlaid together. The NY Composite surged to its early February high this week (green arrow), but the Nasdaq fell well short (red arrow). This shows relative weakness on the part of the Nasdaq. The bottom window shows the price relative ($COMPQ:$NYA Ratio). This indicator rises when the Nasdaq leads and falls when the Nasdaq lags. The price relative dropped to new lows in January and again in February. With the Nasdaq leading the way lower this year, it is clear that investors have little appetite for risk right now.

Chart 1

DOW STALLS AT RESISTANCE... The Dow Industrials is a price-weighed average where stocks with the highest price carry the most weight. IBM, Exxon, Chevron, Boeing and 3M are the highest priced components and carry the most weight. Tuesday's surge in IBM lifted the Dow. Energy components Chevron and Exxon are up sharply in February and this also helped the Dow. Despite this leadership, the Dow remains stuck at resistance from the 50-day moving average and broken support (Chart 2). On Tuesday, John Murphy pointed out that both the Dow and the S&P 500 were meeting resistance from the 50-day lines. With lots of indecision today, the Average formed a doji to further validate this resistance area.

Chart 2

DOW COMPONENTS AT RESISTANCE... In addition to the Dow and the S&P 500, I found three Dow components that are also meeting resistance at their 50-day moving averages. Chart 3 shows 3M (MMM) stalling just above 80 over the last few weeks. Resistance in this area stems from the 50-day moving average and the October trend line. In addition, the Jan-Feb advance marks a 50-62% retracement of the Dec-Jan decline. This looks like a pretty stiff resistance area.

Chart 3

Chart 4 shows United Technologies (UTX) meeting resistance around 74 over the last four weeks. The stock surged in late January and hit a brick wall at the 50-day line. This resistance area also coincides with a 62% retracement of the Dec-Jan decline. Also notice that the 200-day moving average is getting into the act (red line). UTX needs a strong move above 74 to exorcise these resistance demons.

Chart 4

Chart 5 shows McDonalds Corp (MCD) meeting resistance around 57. This resistance area stems from the 50-day moving average and also marks a 50% retracement of the Dec-Jan decline. Of these three Dow components, MCD is the only one trading above its 200-day moving average. In addition, the 50-day moving average remains above the 200-day moving average. Despite a better looking long-term picture, there is considerable resistance at 57 and MCD looks vulnerable after today's sharp decline.

Chart 5

DOLLAR GETS HIT AGAIN ... Weighed down by comments from the Fed and the ECB, the U.S. dollar dropped sharply again on Wednesday. On Tuesday, Fed Vice Chairman Donald Kohn noted that the credit crunch and economic woes were more of a problem than inflation. Wednesday, Fed Chairman Ben Bernanke said the Fed is ready to lower rates if conditions warrant. In contrast to the doves at the Fed, ECB policy maker Axel Weber noted on Wednesday that inflationary pressures could prevent euro zone interest rates from dropping (Source: Bloomberg). It is a powerful combination. The Fed is jawboning U.S. interest rates lower, while ECB jawboning is keeping euro zone rates steady. As an example, 2-year government euro bonds yield 3.36%, while 2-year U.S. Treasuries yield just 2%. This makes euro-denominated bonds more attractive than US dollar-denominated bonds, which in turn increases demand for euros. As a result, the PowerShares DB US Dollar Index Bearish Fund (UDN) and the Euro Trust ETF (FXE) surged to new highs today.

Chart 6

Chart 7

YEN AND CANADIAN DOLLAR ALSO SURGE... The Japanese Yen Trust ETF (FXY) also surged over the last few days. Chart 8 shows FXY with a falling flag correction back towards the 50-day moving average. The ETF held just above this key moving average and then broke flag resistance with a big surge over the last two days. On Chart 9, the Canadian Dollar Trust ETF (FXC) took a big hit in November, but managed to firm around 98 the last three months. Even though FXC broke the 50-day line, it found support from its 200-day moving average and formed a triangle. The surge over the last three days carried the ETF above triangle resistance. With Canada full of natural resources, this currency surge could be related to recent strength in gold and oil.

Chart 8

Chart 9