SMALL CAPS AND TRANSPORTS CONTINUE TO LEAD STOCKS LOWER -- STOCK INDEXES UNDERCUT 20-DAY AVERAGES -- AND ARE THREATENING 200-DAY LINES -- BOND PRICES RALLY -- EUROZONE BOND PRICES RISE ON MORE DOVISH ECB -- A PLUNGING EURO PUSHES DOLLAR TO TWO-YEAR HIGH
GLOBAL STOCKS TURN DOWN FROM OVERBOUGHT TERRITORY... Several of the writers on this site have been pointing out that the strong 2019 stock rally had become over-extended, and was up against formidable chart resistance at their November high. So it's not a big surprise to see some profit-taking taking place in the U.S. and in foreign stocks. Some parts of the market, like small caps and transports, failed a recent test of their 200-day averages and are continuing to lead the selloff in U.S. stocks. Several sector ETFs have fallen below their 20-day averages, as have all the major stock indexes. That includes financials which have fallen back below their 200-day average. Banks failed at that resistance line. Bank selling is resulting from falling Treasury bond yields as investors seek the safety of bonds here and in Europe. Eurozone bonds are rallying after the ECB cut its forecast for eurozone growth and inflation. A more dovish ECB has pushed the euro down to a 20-month low, and the dollar to the highest level in two years. That's potentially negative for exports of large U.S. multinational stocks. Foreign stocks are also under pressure led by selling in Europe and Asia. Nine stock sectors in the states are in the red led by materials, industrials, financlals, and technology. The only two winners are bond proxies like utilities and REITS. Some short-term technical damage is being done.
STOCK INDEXES WEAKEN: Chart 1 shows the Dow Industrials falling below their 20-day average (green line) today for the first time since the start of January. That shows the Dow's short-term trend turning down and signals that a retest of its red 200-day average is probably next. Its 14-day RSI line (upper box) has turned down from an overbought 70 level and is now threatening its midline at 50. More importantly, its daily MACD lines (middle box) have turned negative for the first time in two months. Chart 2 shows the S&P 500 already threatening to fall below its 200-day line. That's an important test. Chart 3 shows the Nasdaq Composite Index already trading below its red line. The February move above 200-day lines was a positive sign for the market. The big challenge now is for the three major stock indexes to stay above those long-term support lines.
(click to view a live version of this chart)
Chart 1
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Chart 2
