A LOT OF INDEXES ARE FAILING AT 200-DAY AVERAGE, INCLUDING CONSUMER DISCRETIONARY SPDR, REITS, NASDAQ -- AIRLINES WEAKEN AS OIL BOUNCES OFF 200-DAY LINE -- SMALL CAPS FAIL TEST OF JUNE HIGH -- S&P 500 ROLLS OVER FROM BEARISH WEDGE

CONSUMER DISCRETIONARY STOCKS FAIL IMPORTANT TEST ... Last Friday I showed the Consumer Discretionary SPDR (XLY) testing its 200-day moving average. So far, it looks like that test is failing. Chart 1 shows two unsuccessful attempts to get through the major resistance line over the past week. Charts 2 and 3 show similar pictures. Chart 2 shows the S&P Retail SPDR (XRT) failing at its 200-day average, while Chart 3 shows S&P Homebuilder SPDR doing the same. Chart 4 shows a similar picture for the MSCI REIT Index (RMZ). REITs are part of the financial sector which, along with discretionary stocks, have led the market lower over the past two days. Those aren't the only groups that appear to be failing at their 200-day lines.

Chart 1

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NASDAQ BACK BELOW ITS 200-DAY LINE ... Chart 5 shows the Nasdaq Composite Index falling back below its 200-day as well. It's not hard to see why. Chart 6 and 7 show the Interactive Internet Index and the Semiconductor (SOX) Index doing the same. The 200-day line is a logical spot for a bear market bounce to fail. But there's more.

Chart 5

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OIL BOUNCE PRESSURES AIRLINES ... Here's another example of 200-day lines at work. Chart 8 shows the Airline Index (XAL) meeting resistance at its 200-day resistance line. That's putting transportation stocks under pressure. Part of the reason for the airline selling comes from Chart 9 which shows the United States Oil ETF (USO) bouncing off its 200-day support line. That's giving a boost to energy stocks which are bouncing as well. [The CRB Index is also bouncing off its spring low at 380 as an overbought dollar is pulling back]. The commodity bounce comes on the same day that the PPI number showed that headline and core inflation is still a big concern. Gold is bouncing as well. I'm inclined to view the commodity bounce as temporary in nature. Even so, that's not going to help the rest of the market.

Chart 8

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SMALL CAPS ALSO FLUNK TEST ... Last Friday I also showed Russell 2000 Small Cap Index starting to back off from an important test of its June high. I warned that a failure there could signal the end of the entire rally attempt. That's because small caps had been among the strongest market groups. Chart 10 shows the RUT failing that test. Not surprisingly, the large cap S&P 500 (solid line) is falling as well. All of the evidence points to the recent rally attempt having run its course.

Chart 10

RISING WEDGE PATTERN LOOKS COMPLETE... A few readers asked for a look at the "rising wedge" pattern that appears on some of the major market indexes. Chart 11 shows that pattern on the "hourly" bars of the S&P 500. A rising wedge is characterized by two rising trendlines that converge on one another. It's generally a bearish pattern. The fact that the lower trendline has been broken is the usual signal that the rally has ended. Chart 12 shows another reason why this is a logical spot for the rally to end. It plots the 13- and 34-day exponential moving average combination. In my experience, that EMA combination generates excellent buy and sell signals. The last sell signal was given in early June when the red line crossed below the blue. The faster 13-day EMA rose up to test the 34-day this week. That test, however, appears to be failing. The black line below the chart plots the difference between the two EMA lines. Notice that the black line is starting to weaken at the zero line. That's a logical spot for more selling to appear. And it appears to be doing so. The message in all of these charts is the same. Several key group and market indexes rallied to important resistance points and have started to weaken again. That's a strong sign that the market is rolling over again.

Chart 11

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FOREIGN MARKETS HIT NEW LOWS ... Another drag on the US market is the free-fall in foreign shares. Charts 13 and 14 show the EAFE iShares and Emerging Market iShares falling to new 52-week lows. Both relative strength lines have been tumbling versus the US market. As I suggested last week, the US bear market won't be over until the global bear comes to an end. There's no sign of that yet.

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Chart 14