SMALL CAPS LEAD MARKET DROP -- BONDS BOUNCE AS STOCKS PULLBACK FROM TOP OF TRADING RANGE -- TEXAS INSTRUMENTS WEIGHTS ON SEMICONDUCTOR HOLDERS -- OIL AND OIL STOCKS STILL RALLYING

RUSSELL 2000 SHOWS RELATIVE WEAKNESS... One of the factors aiding the recent market rebound was a simultaneous rebound in small cap stocks. That small cap support appears to be diminishing. Chart 1 shows the Russell 2000 Small Cap Index (RUT) backing off from the top of its three-month trading range in the 720-730 zone. The RUT/SPX ratio (bottom of chart) shows that small cap stocks helped lead large cap stocks higher in mid-January and mid-March. Today's drop in the small cap/large cap ratio, however, puts it at the lowest level in a month. That's putting some downside pressure on large caps as well. So far, no serious chart damage has been done. The hourly bars in Chart 2 show next chart support in the RUT at 684. A drop below that initial support level would have more negative implications.

Chart 1

Chart 2

S&P 500 BACKS OFF FROM 1400 BARRIER AGAIN ... The 1400 level continues to act as a resistance barrier over the S&P 500. Although today's pullback in relatively minor, it comes at a time when some short-term momentum indicators are in overbought territory. Like the Commodity Channel Index (CCI) line in Chart 3. The CCI is in overbought territory for the second time this month and showing a slight negative divergence (see down arrow). That may be contributing to today's selling. To signal a more substantial rally failure, the S&P would have to close below its mid-April low near 1325. It's not even close to doing that. But it is meeting some profit-taking at the top of its three-month trading range.

Chart 3

TEXAS INSTRUMENTS PULLS SEMIS LOWER ... Semiconductors are among the day's weakest stocks. Chart 4 shows the Semiconductor Holders falling 4%. The solid line in Chart 4 is the SMH/SPX ratio. That relative strength line had been bouncing since mid-January and helped stabilize the stock market. It looks like the RS ratio is rolling over. A lot of the blame goes Texas Instruments. Chart 5 shows that influential chip stock tumbling more than 6% today. It's relative strength line is falling as well. Whatever short-term boost the market got from the beaten-down semiconductors may be ending.

Chart 4

Chart 5

BONDS ARE BOUNCING ... While an overbought stock market is pulling back from overhead resistance, an oversold bond market is bouncing off support. Chart 6 shows the 7-10 Year Treasury Bond Fund bouncing off chart support along its mid-February low. The Commodity Channel (CCI) Index is in oversold territory. When bond prices bounce, bond yields drop. That's pushing the dollar lower today and commodity prices higher. The Euro is trading at a new record high.

Chart 6

OIL PRICES HIT NEW RECORD ... Another factor weighing on the stock market is daily record highs in the oil pit. Like today. Chart 7 shows the United States Oil Fund (USO) hitting a new high. The Commodity Channel Index shows that the USO has been in overbought territory for most of April. That's not a problem until the CCI dips back below the 100 line (signalling a short-term top). Bollinger bands have been expanding during oil's latest runup. That can be seen more clearly by the Band Width (BB) indicator on top of Chart 7. That line would have to start dipping to signal that oil is losing some upside momentum. Energy stocks continue to rally along with energy prices. Chart 8 shows the Enery SPDR (XLE) near a record high, but somewhat overbought as well.

Chart 7

Chart 8