DOW AND S&P 500 REMAIN BELOW 200-DAY LINE -- COPPER AND OIL LEAD COMMODITY GROUP LOWER -- CHINESE WEAKNESS WEIGHS ON ENERGY AND MATERIAL STOCKS -- GOLD RALLIES -- INVESTMENT GRADE BONDS DROP
MARKET BOUNCE REMAINS CONTAINED ... The inability of major market indexes to reclaim (or stay above) their 200-day moving average is some cause for concern. Charts 1 and 2 show the recent bounce in the Dow Industrials and S&P 500 meeting with resistance at their 200-day line. The Nasdaq Composite did manage to climb back above that important long-term support line last week, but closed back below it today (Chart 3). That's not very encouraging. Today's global stock selling was accompanied by the usual intermarket trends. The dollar and Treasury bonds bounced while stocks fell. Most commodities fell with stocks, with the biggest losses coming in economically-sensitive markets like copper and oil. As a result, energy and material stocks were hit especially hard today. As has also been the case recently, gold trended higher
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Chart 1
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Chart 2
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Chart 3
COMMODITIES CONTINUE TO FALL EXCEPT FOR GOLD... There remains a close correlation between the direction of global stocks and economically-sensitive commodities. Both fell again today. The CRB Index fell nearly 1% with most commodities in the red (Chart 4). Charts 5 and 6 show crude oil and copper losing 2.4% and 1% respectively. Both remain below their 200-day averages (as does the CRB Index). Only gold escaped the commodity selling because of its safe haven status. Chart 8 shows bullion gaining $11 today after recently bouncing off support near its 50-day average. News of weaker manufacturing activity in China may have weighed heavily on economically-sensitive commodity prices. The same is true of stocks tied to those commodities.
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Chart 4
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Chart 5
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Chart 6
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Chart 7
ENERGY AND MATERIAL STOCKS PLUNGE... Energy stocks plunged near 5% today (with oil service stocks losing more than 7%). The middle bars in Chart 8 show the Energy SPDR (XLE) close to a nine-month low. Its relative strength ratio (below chart) show how weak energy stocks have been relative to the rest of the market. Material stocks look almost as bad. The Materials SPDR (XLB) lost more than 3% today (Chart 9). Both are trading well below their 200-day lines. We've pointed out several times that commodity assets are being pulled down by a weaker Chinese market. The red lines on the tops of Chart 8 and 9 show Hong Kong iShares (EWH) and Chinese iShares (FXI). Their resemblance to energy and material stocks is obvious.
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Chart 8
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Chart 9
INVESTMENT GRADE BONDS FALL ... I recently showed a sizable drop in the high yield corporate bond ETF (HYG) and warned that investment grade bonds may start weakening as well. That's started to happen. Chart 10 shows the Investment Grade Bond ETF (LQD) falling back below its 50-day average for the second time in the last month. The recent move to risk aversion leaves only Treasury bonds, the dollar, and gold as remaining safe havens.
