DOW BREAKS NOVEMBER LOW -- FINANCIALS LEAD LOWER -- SHAREHOLDERS BAILOUT OF CITIGROUP -- GE TRADES LIKE A BIG BANK -- DOW STOCKS UNDER $10 -- MACD TURNS BEARISH FOR THE NASDAQ -- EUROSTOXX ETF TESTS SUPPORT ZONE

DOW CLOSES BELOW NOVEMBER LOW... Today's Market Message was written by Arthur Hill. - Editor

As noted yesterday, a close below 7552.29 in the Dow Industrials would confirm a Dow Theory sell signal. The Dow Transports already did its part with a close below the November (closing) low on 20 Jan. Chart 1 shows the Dow falling just below its 50-day moving average in late January and early February. The decline over the last seven days pushed the Dow to its November lows. Today was the straw that broken the camel's back as the Dow closed below 7500 for the first time since October 2002. Chart 2 shows monthly candlesticks for the Dow Industrials. This key Average is now testing its 2002-2003 lows. It took around 5 years to advance from 7500 to 14000, but less than 18 months to give it all back.

Chart 1

Chart 2

FINANCIALS CONTINUE TO WEIGH... Another outsized loss from the financial sector weighed on the overall market. Chart 3 shows the Financials SPDR (XLF) losing over 5% on Thursday. The ETF tried to firm last week with an inside day and hammer, but there was no follow through to confirm these potential reversals. Instead of follow through, XLF broke triangle support with a gap down and plunged below 8 today. The ETF is down around 40% year-to-date.

Chart 3

LEVERAGE LEADS LOWER... It is no secret that the big banks are still heavily leveraged. A number of analysts have estimated leverage levels for the big banks, and two banks consistently rank at the top of the most-leveraged list: Citibank (C) and Bank of America (BAC). I am not going to get into the fundamentals of leverage because the charts speak for themselves. Charts 4 and 5 show these two stocks getting hit hard again today. In addition to excessive leverage, the "nationalization" word has been creeping into the trader's narrative. Today's selling pressure confirms that shareholders are nervous and jumping ship before it is too late.

Chart 4

Chart 5

GE SHOWS ITS TRUE COLORS... Chart 6 shows General Electric (GE) with a decline similar to Citibank and Bank of America, the two most leveraged banks. Turns out that GE is not your average industrial stock. However, GE is still the largest holding for the Industrials SPDR (XLI) and accounts for over 11% of this ETF. Chart 7 confirms the GE effect as XLI recorded a new 52-week low today. Even though GE is technically an industrial stock, the company also scored high on the most-leveraged list. The chart tells the truth because GE is currently trading more like an over-leveraged bank than an industrial. GE dipped below 10 intraday and remains in a strong downtrend.

Chart 6

Chart 7

DOW COMPONENTS UNDER $10... With components like GE, Citigroup and Bank of America, no wonder the Dow has been struggling this year. Chart 8 shows year-to-date performance for these three stocks. GE is down over 35%, Citigroup is down over 60% and Bank of America is down over 70%. With GE dipping below $10 per share today, five of the thirty Dow components traded below $10 per share today. You can conveniently view all Dow components with the CandleGlance Charts applet.

Chart 8

NASDAQ TAKES A PUNCH... All of the major indices were down on the day with the Nasdaq and Nasdaq 100 leading the way lower. After holding up relatively well in 2009, techs started showing some relative weakness this week. Losing one of its leaders is the last thing this market needs. Chart 9 shows the Nasdaq failing to hold above its 50-day moving average in early February. The index gapped down on Tuesday and broke below the trend line extending up from the November low. The bottom indicator window shows MACD moving below its signal line and into negative territory this week. With momentum turning bearish, it looks like another leg down is starting.

Chart 9

DOWNSIDE LEADERS IN TECHNOLOGY ... The next four charts show some of the downside leaders in the technology sector. Chart 10 shows Apple (AAPL) hitting resistance around 100 in early February and breaking its January trend line with a gap down this week. Chart 11 shows Hewlett Packard (HP) gapping below triangle support with a big decline today. The company disappointed with its earnings report and the related stocks fell in sympathy. Chart 12 shows Intel (INTC) plunging over 5%. The stock is now testing support from the January low and triangle trend line. Chart 13 shows Broadcom (BRCM) failing at resistance in early January and plunging back below the 50-day moving average with a sharp decline today.

Chart 10

Chart 11

Chart 12

Chart 13

EUROPEAN DOW ALSO BREAKS SUPPORT... Chart 14 shows the DJ Euro Stoxx 50 ETF (FEZ) with characteristics similar to the Dow. As its name implies, this ETF is based on 50 top European stocks including Total, Sanofi-Aventis, Banco Santander, Seimens, France Telecom and Nokia. You could say it is the European equivalent of the Dow Industrials ($INDU). The EuroStoxx 50 ETF is also testing support from the November lows. FEZ bounced in October and November to establish a support zone. The ETF declined to this support zone with a sharp decline in January, consolidated with a triangle and declined to support again this week. On a closing basis, the ETF closed below the November closing low. After consolidating from late October to early February, a break down is occurring. This reinforces the bigger downtrend by signaling a continuation of the Sep-Oct decline. Chart 15 focuses on 2009 with performance charts for the DJ Euro Stoxx 50 (FEZ) and the Dow Industrials ETF (DIA) in the indicator window. FEZ has consistently underperformed DIA this year as Europe bears the brunt of selling pressure this year. DIA is down around 14% this year, while FEZ is down around 24%.

Chart 14

Chart 15