SAME OLD STORY -- FALLING FINANCIALS AND RISING OIL HURT MARKET -- FINANCIALS ARE PULLING THE DOW DOWN -- OIL SERVICE AND NATURAL GAS ETFS HIT NEW HIGHS -- STEEL STOCKS HAVE STRONG DAY -- UTILITIES ARE BOUNCING WHILE TRANSPORTS CONTINUE TO WEAKEN

FINANCIALS WEIGH ON DOW ... One of our readers asked why the Dow is acting so much worse than the Nasdaq 100. Chart 1 shows the disparity. While the Dow is nearing a test of its March low, the Powershares QQQ Trust (QQQQ) has held up much better. To answer that question, I looked at the five weakest Dow stocks over the last month. The weakest was General Motors (-29%). The next four are financials: Bank of America (-23%), AIG (-19%), Citigroup (-14%), and JP Morgan (-14%. It seems clear that financial stocks are primarily responsible for the Dow's weaker performance. By contrast, the QQQQ is dominated by large cap technology stocks which have been holding up better.

Chart 1

FINANCIAL COMPARISONS... Another reader asked why the Financials SPDR (XLE) was hitting a new low while the UltraShort Financials ProShares weren't hitting new highs. Chart 2 shows the Dow Jones Financials Index (on which the SKF is based) trading below its March low. Chart 3 shows the UltraShort Financials ProShares (SKF) still challenging its March high. I suspect that minor discrepancy will be resolved shortly by an upside breakout in the SKF. The fact that the SKF hasn't hit a new high doesn't mean it hasn't done its job. The SKY is supposed to rise twice as far as the financials fall. From the May top to today's close, the DJUSFN has fallen 20%. At the same time, the SKF has risen 50% from its May low. I don't think anyone has reason to complain that the SKF hasn't done its job and more.

Chart 2

Chart 3

ENERGY ETFS HIT NEW HIGH ... Rising energy prices kept uptrends intact in energy shares and ETFs. Two ETFs that hit new highs today were AMEX Oil Service Holders (Chart 4) and First Trust Natural Gas ETF (Chart 5). Basic materials also had a strong day. Steel stocks were the big winners there. US Steel hit a new record high (Chart 6), while General Steel Holdings (Chart 7) hit an eight-month high on very heavy volume. A firm dollar kept gold prices in check today.

Chart 4

Chart 5

Chart 6

Chart 7

TRANSPORTS SELLOFF WHILE UTILITIES BOUNCE... The Dow Transports continue to drop after falling a test of the July 2007 high (Chart 8). Airlines were the hardest hit today (-6%); truckers lost -3% and rails fell -1.6%. I suggested in a previous message that a peak forming in the transports, which had been the market's strongest group, isn't a good sign for them or the market. The more defensive utilities appear to be attracting some new money (Chart 9). Volume was on the light side today. A lot of traders appear to be awaiting the outcome of this week's Fed meeting. Not so much for what its does (which will probably be nothing) but what it says about inflation. "Jawboning" is about all it can do.

Chart 8

Chart 9