STOCKS SELL OFF ON MORE TRADE TENSIONS -- SOME 20-DAY AVERAGES ARE BEING BROKEN -- DAY'S BIGGEST LOSERS ARE FINANCIALS, INDUSTRIALS, CYCLICALS, AND TECHS -- BIG DROP IN BOND YIELDS BOOSTS UTILITIES AND REITS -- BUT HURTS BANKS
STOCK INDEXES UNDERGO PROFIT-TAKING... Increased trade tensions are contributing to profit-taking in stocks today. That and the fact that major stock indexes were already in overbought territory and vulnerable to short-term profit-taking. All three have fallen below their 20-day moving averages which could lead to a test of 50-day lines. Chart 1 shows the Dow Industrials gapping below its green 20-day average today for the first time in two months. The next level of potential support is its blue 50-day line. The Dow has already fallen back to the flat trendline drawn over its July/September peaks which is another potential support level. Its 14-day RSI line has weakened (upper box); while its daily MACD lines (middle box) have turned negative for the first time since early October. The other two major stock indexes shown below have similar patterns.
Chart 2 show the S&P 500 gapping below its 20-day average. It remains further above its 50-day average and potential support along its summer highs. Its 14-day RSI and MACD lines have also weakened. So far, this has the look of a normal pullback within an over-riding uptrend. But it does suggest that the holiday rally may experience more volatility. Chart 3 shows the Nasdaq Composite falling below its 20-day line as well. But it remains well above more serious support levels below.
Nine stock sectors are falling today with the biggest losers in financials (more on that shortly), industrials, cyclicals, and technology. A big drop in transportation stocks is taking a toll on the Industrial SPDR (XLI). Trade sensitive semiconductors are weighing on the tech sector. A big drop in bond yields is supporting utilities and REITS. But is hurting banks.
10-YEAR TREASURY YIELD TUMBLES...Global bond yields are also dropping sharply today on increased trade tensions. Chart 4 shows the 10-Year Treasury yield dropping 12 bps to 1.70%. That puts the TNX below its 50-day moving average and trading at the lowest level in a month. That puts in some doubt the staying power of the upturn in bond yields that started during September. That's putting downside pressure on rate-sensitive stocks like banks and insurers which are leading financial stocks lower today.
Chart 5 shows the KBW Bank Index gapping lower today as well. Its short-term indicators are also weakening. The BKX, however, remains well above its 50-day average; and the flat trendline drawn over its 2019 highs. Today's pullback isn't enough to jeopardize those positive longer-range uptrends. And looks more like a normal pullback in a short-term overbought market.
VIX BOUNCES... Chart 6 shows the CBOE Volatility (VIX) Index jumping today to the highest level since mid-October. This is the third time since April that the VIX rebounded off support along the 12 level. The two previous upturns during May and August coincided with a stock pullback. So did the upturn starting in late September. So far, the current upturn is smaller in magnitude. The last red bar shows it touching a downtrend line drawn over its August/September peaks before pulling back to the middle of the day's range. A decisive close above 18 is probably needed to signal more profit-taking to come.
