STOCKS SELL OFF AS OIL PRICE PLUNGES -- DOW AND S&P 500 PULL BACK FROM 50-DAY AVERAGES -- THE NASDAQ FALLS BELOW ITS 200-DAY LINE ON TECHNOLOGY SELLING
MAJOR STOCK INDEXES ARE UNDER HEAVY SELLING PRESSURE...The plunge in the price of the May crude oil contract below zero this week, and the continuing plunge in oil prices in general, is taking a toll on stock market sentiment and trading. All three major stock indexes are under heavy selling pressure today for the second day in a row. Once again, moving average lines are coming into play; and they're not very encouraging. Chart 1 shows the Dow Industrials backing off from its 50-day average and falling to the lowest level in two weeks. And its 14-day RSI line in the upper box is in danger of falling back below its 50-day line which would signal weaker momentum. Chart 2 shows the S&P 500 also backing off from its 50-day line and starting to trend lower. Chart 3 may be more concerning. It shows the Nasdaq Composite falling back below its 200-day moving average today for the first time in a week. Heavy selling in technology stocks today are weighing heavily on the Nasdaq. Technology is the day's weakest sector. Up to this week, technology stocks had been helping lead the market rebound. That may be changing for the worse.
BOND YIELDS FALL TO LOWEST LEVEL SINCE MARCH...While stocks are dropping, Chart 4 shows the yield on the 10-Year Treasury yield falling 6 basis points to 0.56% which is the lowest level since early March as investors rotate into safer Treasury bonds. All eleven stock sectors are in the red with the biggest losers in technology, communications, consumer cyclicals, and financials. Defensive consumer staples, real estate, and utilities are holding up a little better. So are energy stocks which is surprising considering another big drop in the price of oil.
VIX BOUNCES OFF SUPPORT...Chart 5 shows the CBOE Volatility (VIX) Index starting to bounce again after declining for the last month. The VIX is also bouncing off potential chart support along its late March intra-day low at 36.24 (and after losing a little more than 62% of its February/March gains). A rebound in the VIX would be consistent with a pullback in stock prices. Stock prices experienced an impressive rebound from their late March low after a bruising first quarter drop. Having regained about half of those losses, however, stock prices have run into overhead moving average resistance lines (and a collapsing oil market) which has turned short-term sentiment more negative. All of which suggests that stock prices are turning lower and likely to retrace some of their spring gains.
