DOW AND S&P 500 ARE THREATENING THEIR 50-DAY AVERAGES -- TECHNOLGY SELLING WEAKENS THE NASDAQ -- FINANCIALS AND TRANPORTS CONTINUE TO UNDERPERFORM -- VIX HITS FIVE-MONTH HIGH
DOW AND S&P 500 MAY BE SLIPPING BELOW 50-DAY LINES... The short-term trend for the market continues to weaken. Chart 1 shows the Dow Jones Industrial SPDR (DIA) trading below its 50-day average in early afternoon trading. The DIA hasn't closed below that support line since the November election. The same is true of the S&P 500. Chart 2 shows the S&P 500 SPDR (SPY) trading below its 50-day line as well. A glance at the volume bars along the bottom of Chart 2 shows that the red bars have been larger than the green ones. That means more recent selling than buying. In addition, the 14-day RSI line (top of Chart 2) remains below the 50 line. And, daily MACD lines (below chart) remain negative. All of those are cautionary signs.
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Chart 1
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Chart 2
NASDAQ MAY ALSO BE ROLLING OVER ... This week's technology selling is starting to take a toll on the Nasdaq market. Chart 3 shows the PowerShares QQQ moving closer to its 50-day line. Note that the 14-day RSI line (top of chart) failed to confirm the early April high in the QQQ, and is in danger of falling below its 50 line. Daily MACD lines overlaid on the chart have been falling for more than a month. This week's biggest technology losers are semiconductors. Chart 4 shows the PHLX Semiconductor iShares (SOXX) falling below its 50-day line for the first time in five months. That's a negative sign for technology and the Nasdaq.
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Chart 3
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Chart 4
FINANCIALS AND TRANSPORTS REMAIN WEAK ... Financial and transportation stocks continue to underperform the rest of the market. Chart 5 shows the Financial Sector SPDR (XLF) remaining well below its 50-day average and moving closer to its March low. The XLF/SPX relative strength ratio (red line) continues to weaken and has already fallen to the lowest level since November. Chart 6 shows the Transportation Average iShares (IYT) backing off from its 50-day average. Its red relative strength ratio continues to weaken.
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Chart 5
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Chart 6
STAPLES AND UTILITIES GAIN... The fact that consumer staples and utilities are the only sectors in the black today is another caution sign. Both defensive groups generally do better when the market is weakening. Chart 7 shows the Consumer Staples SPDR (XLP) gaining ground today. Its relative strength ratio (top of chart) is gaining. Chart 8 shows the Utilities Sector SPDR (XLU) also in the black. Its relative strength ratio (top of chart) is rising as well. By contrast, the day's two weakest sectors are economically-sensitive industrials and materials.
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Chart 7
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Chart 8
VIX INDEX HITS FIVE-MONTH HIGH ... Another sign that investors are turning more defensive is this week's climb in the Volatility (VIX) Index. Chart 9 shows the VIX rising above 15 for the first time since the election. That's normally a sign that option traders are paying more for put protection. [A put option profits when stock prices fall]. A rising VIX is usually associated with lower stock prices. So far, the rise in the VIX has been relatively mild. It would have to climb above 20 to signal a more serious stock correction. That would also break the falling trendline drawn over its June/November highs. But it's risen enough to inject more caution into stocks. The fact that gold has also hit a five-month high is another sign of nervousness.
