MARKET SUFFERS BAD COMBINATION OF FALLING PRICES AND RISING VOLUME -- SMALL CAPS AND TRANSPORTS LEAD DECLINE -- CANADIAN STOCKS TUMBLE -- BOND YIELD BREAKS SUPPORT -- NASDAQ AND S&P 500 ARE NEARING TEST OF FEBRUARY LOWS
SMALL CAPS AND TRANSPORTS LEAD MARKET LOWER... Wednesday's stock drop was the weakest combination of falling prices and rising volume this year. Also disturbing are the number of former group leaders that have suffered short-term breakdowns. Chart 1 shows the Dow Transports falling to the lowest level in a month and threatening its 50-day moving average. Downside volume has been especially heavy this week. The 14-day RSI line (top of chart) has slipped below 50 for the first time since November. The daily MACD lines have also turned down. Chart 2 shows the Russell Small Cap Index closing below its 50-day line for the first time since November. Its RSI and MACD lines have turned down. The broader market suffered as well. Chart 3 shows the New York Composite Index slipping to a monthly low on rising volume. It looks like the market has finally put in a short-term top. A pullback to the late February low now appears likely.
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Chart 1
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Chart 2
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Chart 3
CANADIAN SHARES TUMBLE... Foreign stocks have been weaker than the U.S. since the start of the year (owing primarily to a stronger dollar). That includes Canada which has suffered from a weaker Canadian currency. Yesterday's drop, however, was very troubling. Chart 4 shows the Toronto Composite Index (TSX) tumbling 2% to the lowest level this year, and on rising volume. Chart 5 shows Canada iShares (EWC) also falling sharply. That's another troubling sign that global stocks are starting to weaken even more, which is a caution sign for an overbought U.S. market.
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Chart 4
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Chart 5
BOND YIELDS BREAKS SUPPORT... Chart 6 shows the 10-Year T-Note Yield (TNX) falling below its February low. That breaks the pattern of "rising highs and lows" that lasted from last November. The solid blue line shows the S&P 500 rising with bond yields since November. Yesterday's downturn in the TNX shows more pessimism, which is potentially negative for stocks. That also means that bond prices are bouncing, which usually happens when stock prices fall.
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Chart 6
WATCHING SHORT-TERM SUPPORT LEVELS ... The hourly bars in Charts 7 and 8 show the short-term levels to watch closely in two of the major market averages. Chart 7 shows the Nasdaq Composite bearing down on its March intra-day lows ranging from 3215 to 3205. The hourly bars in Chart 8 show the S&P 500 500 threatening its March intra-day lows ranging from 1546 to 1538. The weaker Nasdaq market is more danger of breaking support at this point. A close by the SPX below its March low would confirm that stocks have entered a short-term correction.
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Chart 7
