FINANCIALS AND CONSUMER DISCRETIONARY STOCKS LEAD MARKET LOWER -- SMALL CAPS AND NASDAQ ALSO WEAKEN -- TRUCKER DOWNGRADE WEIGHS ON TRANSPORTS -- BOND ETF HITS THREE-MONTH HIGH -- S&P 500 BEAR WEDGE STILL INTACT

FINANCIALS AND DISCRETIONARY STOCKS ARE FALLING... Little has changed from the market messages that I posted last week. Friday's low-volume bounce was just a minor interruption in the market's deteriorating technical condition. The market is starting the new week on a decided down note, and it's being led lower by the same groups that started to roll over last week. They include financials and consumer discretionary stocks. Chart 1 shows the Financials SPDR (XLF) unable to regain its 50-day average and falling today. It's the market's weakest sector. In second place is the Consumer Disretionary SPDR (XLY) which recently failed a test of its 200-day moving average. Chart 2 shows the XLY on the downside today. Small caps are also showing continuing signs of rolling over to the downside.

Chart 1

Chart 2

SMALL CAPS GETTING AND NASDAQ CONTINUE TO WEAKEN ... I pointed out last week that the Russell 2000 Small Cap Index had failed a test of its June high which could signal the end of the market's rally attempt. Today's downturn puts the RUT in danger of falling back below its 200-day line. The Nasdaq Composite fell back below its 200-day line last week. Chart 4 shows Friday's bounce being turned back by that resistance line. That's not a good sign for it or the market.

Chart 3

Chart 4

TRUCKER DOWNGRADE HURTS TRANSPORTS... A brokerage downgrade has put truckers on the defensive today. Chart 5 shows the Dow Jones US Trucking Index falling 4% and in danger of violating its 200-day average and its summer lows. That's helping make transports one of the day's weakest groups. Chart 6 shows the Dow Transports also threatening its 200-day average.

Chart 5

Chart 6

BONDS ARE RISING ... Bonds yields are falling along with stock prices. Chart 7 shows the 10-Year Treasury Note Yield threatening its July low. That's due primarily to two factors. One is the flight out of stocks to Treasury bonds which are rising. Chart 8 shows the 7-10 Year T-Bond ETF (IEF) reaching a three-month high today. [Bond prices rise when yields fall]. A second reason for bond buying is the recent drop in commodity prices which has eased inflation fears.

Chart 7

Chart 8

BEAR WEDGE STILL INTACT ... Last week I showed a bearish "rising wedge" pattern for the S&P 500. I wrote that the the S&P needed to rise above the lower trendline to negate that pattern. The hourly bars in Chart 9 show the S&P 500 backing off from that resistance line (see arrow). That's another sign that Friday's low-volume bounce didn't really change anything and that the market's technical condition continues to deteriorate. Bear in mind also that the market is also about to enter the seasonally dangerous months of September and October.

Chart 9