NASDAQ CONTINUES TO LEAD MARKET LOWER -- ALONG WITH WEAK TECHNOLOGY STOCKS -- SEMICONDUCTOR ISHARES FALL TO LOWEST LEVEL IN SIX MONTHS -- SMALL AND MIDCAP INDEXES SLIP BELOW 200-DAY AVERAGES -- S&P 500 FALLS BELOW 50-DAY AVERAGE
THE NASDAQ 100 (QQQ) LEADS MARKET LOWER... Stock indexes are all under selling pressure again this morning. As has been the case of late, the technology-dominated Nasdaq market has been leading the rest of the market lower. Chart 1 shows the Invesco Nasdaq 100 QQQ Trust falling to the lowest level in more than two months. And its recent drop has come in heavier trading. That can be seen by the large red volume bars at the bottom of the chart. The next level of potential support for the QQQ is its late July intraday low at 173.96. One encouraging sign is that its 9-day RSI line (top box) has entered oversold territory below 30. The QQQ is being pulled lower by technology stocks which are this morning's weakest sector. Chart 2 shows the Technology Sector SPDR (XLK) looking pretty much like the QQQ in Chart 1. Recent loss of tech leadership can be seen by the XLK/SPX ratio (top box in Chart 2) which is already threatening its summer low. Semiconductor stocks continue to lead the tech sector lower.
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Chart 1
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Chart 2
SEMICONDUCTOR ETF FALLS TO SIX MONTH LOW ... Semiconductors have been the weakest part of the technology sector this month. Chart 3 shows the PHLX Semiconductor iShares (SOXX) falling today to the lowest level in six months. The SOXX fell below its 200-day average last Friday. Semiconductors account for 18% of the XLK and carry a lot of influence in the tech sector. This week's chart breakdown isn't a good sign for either one. The real test of the long-term uptrend in the chip group will be their ability to stay above their lows formed during the first half of the year. They appear headed toward a test of those previous lows.
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Chart 3
SMALL AND MIDCAP INDEXES TRADE BELOW 200-DAY AVERAGES... Small caps have led large cap stocks lower this month, and are undergoing an important test of their own. Chart 4 show the Russell 2000 Small Cap Index trading below its 200-day average in morning trading. That's a very important test for it and rest of the market. The RUT slipped below its 200-day line a couple of times during February and early April on an intraday basis. In both previous instances, however, it managed to stay above the red line on a closing basis. That makes today's closing price especially important. Since falling small cap stocks usually act as a drag on large caps, today's trading carries important implications for larger stocks as well. Chart 5 shows the S&P 400 Mid Cap Index ($MID) also trading below its 200-day average. That's putting more downside pressure on large cap stocks.
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Chart 4
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Chart 5
S&P 500 FALLS BELOW ITS 50-DAY LINE... When smaller stocks fall, larger stocks usually follow. And they're doing that today. Chart 6 shows the S&P 500 Large Cap Index falling below its 50-day average today for the first time in four months. It is also trading back below its January intra-day peak at 2872. The next test of potential support should be its 100-day moving average (green line) which hasn't been broken in six months. Most stock sectors are deeply in the red today. Defensive consumer staples and utilities are attracting safe haven money. There appears little doubt that the recent upside breakout in bond yields is causing investors to rethink their allocations to riskier parts of the stock market. And maybe even to the stock market itself.
