STEEP FOREIGN LOSSES PULL U.S. STOCKS LOWER -- COPPER STOCKS LEAD MATERIALS LOWER -- SEMIS PLUNGE BELOW 200-DAY AVERAGE AND THREATEN TO DO SAME FOR TECHNOLOGY SPDR -- DOW FALLS TO FIVE-MONTH LOW AS SPX FALLS BELOW 200-DAY LINE
DOW JONES GLOBAL INDEX CONTINUES TO PLUNGE ... Foreign losses continue to deepen. European stocks are down another -1%, while Chinese stocks are losing more ground. EAFE ishares are down -2%, while Emerging Markets iShares (EEM) are falling -3%. [A stronger dollar is hurting foreign stocks ETFs even more because they're quoted in dollars]. Yesterday, I showed a foreign stock index (ex-USA) falling below their 200-day average. Today, I'm showing the Dow Jones Global Index ($DWW) doing the same. The $DJW includes U.S. stocks. That's not good for the U.S. As I suggested yesterday, foreign stock indexes have a positive correlation with U.S. stocks. So it's not too surprising to see the U.S. market suffering bigger losses today. The stronger dollar is pushing commodity prices sharply lower which is hurting commodity stocks (including gold and silver). Copper shares are the weakest part of a very weak material sector. A plunge in semiconductors threatens to pull the Technology SPDR below its 200-day average. With bond prices rising, the only winners today are defensive groups like consumer staples, utilities, and REITs.
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Chart 1
COPPER STOCKS LEAD MATERIALS LOWER ... With commodity prices plunging, it makes sense that commodity-related material stocks would suffer as a result. And they are. Chart 2 shows the Materials Sector SPDR (XLB) plunging today to the lowest level in six months. Copper stocks are the weakest part of that sector. Chart 3 shows Freeport McMoran (FCX) plunging 7% to a new 52-week low. The red line below Chart 2 shows copper prices plunging again today to a new 2015 low. Gold and silver shares are also plunging along with the commodities. A strong dollar, combined with falling Chinese shares, have a lot to do with that.
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Chart 2
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Chart 3
SEMICONDUCTORS PULL TECHNOLOGY SPDR BELOW 200-DAY LINE... Technology stocks are the second weakest group today, after materials. Chart 4 shows the Technology SPDR (XLK) trading below its 200-day average. That's not a good sign for it or the Nasdaq market, which is dominated by technology stocks. Semiconductors are the weakest part of the XLK. Chart 5 shows the Semiconductor iShares (SOXX) down -2.5% today and plunging below its 200-day line to a five-month low. Technology weakness is bad for the rest of the market.
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Chart 4
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Chart 5
DOW AND S&P 500 FALL BELOW 200-DAY LINES... Chart 6 shows the Dow Industrials falling to a new five-month low after dropping below its 200-day line yesterday. Chart 7 shows the S&P 500 in danger of breaking its 200-day line today. A close by the SPX below that support line would signal that U.S. stocks are entering a downside correction -- along with the rest of the world.
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Chart 6
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Chart 7
NYSE COMPOSITE INDEX FOLLOWS RED LINE LOWER... Chart 8 shows the NYSE Composite Index falling to the lowest level in five months as well. The red line represents the percent of NYSE stocks above their 200-day average. Last Wednesday, I showed the negative divergence between the two lines with the red line well below 50% (now at 43%). I asked how a bull market could exist on the New York Stock Exchange when more than half of its stocks are in downtrends (below their 200-day averages). The answer is that it can't. Remember that the stock market is a market of stocks. When most stocks are falling, the market indexes usually follow suit. The U.S. also can't hold up when most foreign stocks are falling.
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Chart 8
DOLLAR SURGES... Chart 9 shows the US Dollar Index (UUP) jumping to the highest level in a month. The U.S. dollar is rising against all major currencies except the yen, which is viewed as a safe haven currency. The rising dollar is one of the reasons commodity prices (and their stocks) are falling sharply. That also includes commodity producers and their currencies. Yesterday, I showed the Aussie dollar plunging to a six-year low. Chart 10 shows the Canadian Dollar close to doing the same. That's not good for Canadian stocks which are hurt by weaker commodities. As mentioned earlier, the stronger dollar causes foreign stock ETFs to fall faster than their cash markets. It also hurts emerging markets -- especially EM markets tied to commodities. A rising dollar also puts downside pressure on large cap U.S. stocks which depend on foreign business. It's a bad day for risk assets like stocks and commodities, but a good day for bonds, staples, utilities, and REITS.
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Chart 9
