STOCKS UNDERGO MORE SELLING -- NASDAQ CLOSES BELOW 50-DAY AVERAGE -- DROP IN BOND YIELDS PUSHES UTILITIES TO NEW RECORD WHILE BANK STOCKS WEAKEN -- WEAKEST SECTORS ARE ENERGY, COMMUNICATIONS, CONSUMER CYCLICALS, AND TECHNOLOGY
STOCK INDEXES LOSE MORE GROUND...Majorstock indexes moved further away from their July peak today and some short-term chart damage was done, especially in the Nasdaq market. Chart 1 shows the Dow Jones Industrial Average losing -142 points (-0.53%) and ending right on its 20-day average (green line); its blue 50-day average is just below. But its daily MACD lines turned slightly negative for the first time in a month. Chart 2 shows the S&P 500 in a similar situation. More short-term damage was done, however, to the Nasdaq market. Chart 3 shows the Nasdaq Composite Index closing below its 50-day average for the first time in three weeks. That suggests that last week's failed test of the summer highs could lead to a period of choppier trading.
The more defensive market mood was also reflected in the fact that the 10-Year Treasury yield fell 6 basis points to 1.63% which was the lowest level in three weeks. That helped push utilities to a new record high, and boosted other bond proxies like staples and real estate. Falling bond yields, however, pushed bank stocks lower along with the rest of the financial sector. Eight of the eleven market sectors lost ground with the biggest losses in energy, consumer cyclicals, communications, and technology.
WEAKEST SECTORS...Energy was the day's biggest loser thanks to another drop in the price of crude oil. Chart 4 shows the Energy SPDR (XLE) falling further below its 200-day moving average in rising volume. Chart 5 shows the Communications SPDR (XLC) ending below its 50-day line in heavy trading. The XLC was led lower by Internet stocks. Chart 6 shows the Consumer Discretionary SPDR (XLY) also closing below its 50-day line in heavier trading. The XLY was led lower by autos and retailers. Chart 7 shows the Technology SPDR (XLK) closing right on its 50-day line on rising volume. But its daily MACD lines (lower box) turned negative; and its 14-day RSI line (upper box) slipped below 50. Both indicators show weakening momentum (as do the XLC and XLY in Charts 5 and 6). Semiconductors led the XLK lower.
VIX CLIMBS TO THREE-WEEK HIGH...As normally happens when stocks weaken, volatility rose. Chart 8 shows the CBOE Volatility (VIX) Index climbing 2 points (+13.75%) today to reach the highest level in three weeks. The VIX also ended above its 200-day moving average (red line). The VIX still remains below long-term psychological resistance near 20 and its August highs; so today's upturn wasn't enough to trigger a serious market warning. But today's climb in volatility might be enough to signal that September could end the month with stocks still trading between their July highs and their August lows.
