GLOBAL STOCKS DROP SHARPLY -- OVERBOUGHT S&P 500 BACKS OFF FROM TRENDLINE RESISTANCE -- WHILE AN OVERSOLD VIX INDEX BOUNCES OFF CHART SUPPORT -- TRADE AND ECONOMICALLY SENSITIVE STOCKS LEAD THE SELLING -- BIG DROP IN BOND YIELD BOOSTS BOND PRICES

GLOBAL STOCKS SELL OFF WHILE BONDS RALLY... Stocks all over the world turned lower today. And they're doing it at a bad time. That's because the recent rebound has taken major U.S. stock indexes up to some formidable overhead resistance barriers. And they may be failing that test. Chart 1 shows the S&P 500 backing off from two converging overhead trendlines. The falling trendline is drawn over its October/December highs. The lower rising trendline is drawn under its triangular lows formed during October and November. That's an example of a previous support line turning into a new resistance line. The combination of those two resistance lines may be enough to cap the January rally. In addition, its 9-day RSI line (top box) is backing off from overbought territory at 70. The SPX ended last week above its 50-day average (blue line). Today's downturn may put that upmove in jeopardy. Today's stock selling is coming mainly from trade and economically-sensitive groups like industrials, transports, technology, cyclicals, energy, and materials. Defensive utilities and REITs are holding up better. A big drop in bond yields is also giving a boost to bond prices. Foreign stocks also came under heaving selling. That's especially true of emerging markets which have led the January global rebound. In addition, an oversold VIX Index is bouncing sharply off chart support formed during the fourth quarter.

Chart 1

Chart 2

OVERSOLD VOLATILITY INDEX BOUNCES OFF CHART SUPPORT ... Chart 2 (above) shows the Volatility (VIX) Index in the opposite technical position of stocks. The last price bar shows the VIX bouncing sharply off chart support formed by its November/December lows (red arrows), and its 200-day moving average (third red arrow). Its upper box also shows its 9-day RSI line turning up from oversold territory near 30. That combination makes this a logical chart spot for the VIX to attempt to rebound. If the VIX does turn up from here, that would be an added sign that the January rebound is stalling and may have run its course.