STOCKS DROP EVEN FURTHER AS BOND YIELDS PLUNGE -- THREE MORE CENTRAL BANKS LOWER RATES -- MONEY CONTINUES TO FLOW INTO SAFE HAVEN GOLD AND JAPANESE YEN -- U.S. STOCKS LOOK MORE VULNERABLE -- 200-DAY MOVING AVERAGES ARE BEING THREATENED
S&P 500 STILL LOOKS VULNERABLE...U.S. stocks are under pressure again today. Another plunge in global bond yields is undermining confidence in the global economy. Three more foreign central banks lowered rates today in New Zealand, India, and Thailand. That's feeding the "race to the bottom" by central bankers which is driving their currencies even lower. The one big exception is the Japanese yen which is rising today to an 18-month high. Gold continues to attract money as global traders seek a haven from falling rates and weaker currencies. Gold mining stocks are also having a strong day, while money is leaving stocks tied to industrial metals. That's another sign that traders are losing confidence in the global economy. Foreign stocks have been much weaker than in the U.S. for most of the year. Our first chart, however, shows that American stocks are also looking more vulnerable.
Chart 1 is the same chart shown over the weekend to make the point that the U.S. stock market was looking more vulnerable from a technical standpoint. It's gotten even weaker since then. The weekly bars show the S&P 500 backing off from a rising trendline drawn over its 2018 and 2019 highs. It has fallen below its blue 10-week average; and appears headed for a test of its red-40 week line (200-day average). It may even retest its early June low. That would be a very important test. Its weekly indicators have also gotten weaker.
My weekend message showed a negative divergence having formed in its 9-week RSI line (upper box). That line has since slipped below 50. A more serious warning is coming from the weekly MACD lines. The middle box shows its red histogram bars falling below zero for the second time since May, which has also turned the weekly MACD lines negative. The recent upturn in the histogram bars was much weaker than earlier in the year which was an earlier sign of impending weakness.
200-day moving averages are being threatened by major market indexes. The Dow touched that support line this morning. Industrial and Financials SPDRS are also testing their 200-day lines. Banks have fallen below that support line; as have small caps and transportation stocks. That's the market's first important test of support.
