EMERGING MARKETS LEAD DECLINE IN GLOBAL STOCKS AND COMMODITIES -- S&P 500 IS RETESTING ITS 200-DAY AVERAGE --TRANSPORTS, REITS, AND CHIPS HAVE BROKEN 50-DAY LINES AS DOWNSIDE CORRECTION DEEPENS -- BONDS AND DOLLAR BOUNCE

S&P 500 RETESTS 200-DAY AVERAGE ... My final chart on Friday showed hourly bars for the S&P 500 SPDRs starting to back off from overhead resistance starting at 92.76 which translated into 927 for the S&P 500. I suggested that a failure at that resistance barrier could result in a retest of last Wedneday's low and the 200-day moving average. The hourly bars in Chart 1 show the S&P 500 falling more than 2% this morning and undercutting last week's low near 903. The daily bars in Chart 2 shows the S&P 500 retesting its 200-day average (at 900) and its 50-day MA (at 898). A close below both of those lines would signal a further drop to the May low near 880. Today's intermarket action continues to support the view that global stocks and commodities have entered a downside correction. Basic materials and energy are among the biggest stock losers. So are gold stocks. Emerging markets are leading the global retreat which makes sense since the bigger ones (Brazil, China, and Russia) are tied to the trend of commodities. Chart 3 shows the Claymore/BNY Bric ETF falling nearly 5% and threatening its 50-day moving average. The worst BRIC performer is Russia which is down 7% and has already broken its 50-day line (Chart 4). While stocks and commodities are dropping, the dollar and Treasury bonds are bouncing. The only stock group in the green is utilities which are defensive in nature while transports are among the biggest losers. None of these trends should come as a surprise to readers of our recent market messages.

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TRANPORTS LEAD INDUSTRIALS LOWER ... Last week, I wrote about the negative implications of the Dow Transports leading the Dow Industrials lower (a Dow Theory negative divergence). That negative trend is apparent again today. Chart 5 shows the Dow Industrials falling back below their 200-day average and threatening their 50-day line. Chart 6 shows theDow Transports down twice as much (-4%) and having already broken their 50-day line. While the economically-sensitive transports (like truckers and rails) are underperforming, the defensive Dow Utilities are attracting new money (Chart 7).

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REITS AND CHIPS FALL... Financial stocks are starting to roll over as well. Chart 8 shows the Financials Select SPDR threatening to drop below its 50-day average after failing to clear its 200-day line. REITs are among the biggest financial losers. Chart 9 shows the MSCI US Reit Index trading back below its 50-day line. Technology stocks are starting to weaken as well. Chart 10 shows the Semiconductor (SOX) Index slipping below its 50-day line. All of these trends are consistent with my advice given last week for shorter-term traders to start taking some profits.

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