STOCKS SUFFER ANOTHER BAD CHART DAY -- WEAK RETAILERS WEIGH HEAVILY ON CONSUMER DISCRETIONARY SECTOR -- MONEY FLOWS INTO CONSUMER STAPLES -- DEFENSIVE ROTATONS, AND WEAK CHART ACTION, RAISE RISKS FOR A SPRING TOP
ANOTHER DOWN DAY IN HEAVIER TRADING ... The Nasdaq market continues to lead the rest of the market lower. Chart 1 shows the Power Shares QQQ Trust falling to another two-month low after falling below its 50-day line on Friday. Relative weakness by the Nasdaq (and small caps) is usually bad for the rest of the market. Heavy downside volume is another bad sign. Chart 2 shows the S&P 500 SPDRS (SPY) losing more than 1% in another day of heavy trading. A drop below its March low near 184 and its 50-day average would signal even more selling. Chart 3 shows the Dow Diamonds (DIA) losing another 1% in heavy trading as well. A close below its 50-day line would signal a bigger downside correction. Bond prices jumped as stocks fell. Sector rotations were also negative. While most sectors fell, consumer discretionary fell the most with a 2% loss. Retailers were a big reason why. Food stocks led consumer staples higher. Utilities also held up well and were unchanged on the day. Rising bond prices, and falling yields, are also boosting the appeal of dividend-paying stocks in those two defensive sectors.
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Chart 1
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Chart 2
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Chart 3
CONSUMER DISCRETIONARY SPDR HURT BY WEAK RETAIL... Earlier messages have pointed out the relatively poor performance of consumer discretionary stocks and how that could weigh on the rest of the market. Their technical situation got even worse today. Chart 4 shows the Consumer Discretionary SPDR (XLY) losing near 2% today which made it the day's weakest sector. The XLY has fallen below its March low and is bearing down on its 200-day line (red arrow). Retail weakness is a big reason why. Chart 5 shows the S&P Retail SPDR (XRT) losing more than 2%. It's already threatening its 200-day line. The XRT had already formed a pattern of "lower peaks" since the start of the year. The XRT/SPX ratio (top of chart) has also been falling since January. These are one of the most economically-sensitive parts of the stock market. Their relative weakness shows less confidence in the economy and the stock market.
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Chart 4
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Chart 5
MONEY FLOWS INTO CONSUMER STAPLES... As usually happens when the market is under stress, money flows out of economically-sensitive stock groups and into defensive ones like consumer staples (and utilities). That's pretty much what's been happening over the last couple of weeks, and again today. The price bars show the Consumer Staples SPDR (XLP) closing slightly higher today to keep its uptrend intact. The big story there is its stronger relative performance. The XLP/SPX ratio (above chart) jumped today to the highest level since December. The biggest gainers came from food (Kellogg, General Mills), household products (Colgate Palmolive, Procter & Gamble) , and soft drinks (Pepsico). These defensive rotations, combined with deteriorating charts, strengthen my belief that the market may be putting in a spring high, as described in my weekend message.
