OVERBOUGHT TECHNOLOGY SECTOR STARTS TO WEAKEN -- TODAY'S TECH SELLING IS HAVING A NEGATIVE IMPACT ON THE REST OF THE MARKET

NASDAQ PULLS BACK FROM OVERBOUGHT TERRITORY... It shouldn't come as surprise to read that the Nasdaq has been in overbought territory.   So is the technology sector.  And both are leading the market lower today.  The top box in Chart 1 shows the 14-day RSI line for the Technology SPDR (XLK) having reached the highest level since the start of the year.   That certainly qualifies as overbought territory.  For the record, its weekly and monthly RSI lines are also in overbought territory over 70.   That doesn't in itself signal a top.   But it does raise the likelihood that some type of pullback or period of consolidation is due.   That's why today's selling is worth paying attention to.

BOLLINGER BANDS ON THE XLK...The daily bars in Chart 2 apply Bollinger bands to the Technology SPDR (XLK).  If a pullback is starting, initial support would be expected at its dashed 20-day moving average which is usually the first line of defense (green arrow).   The fact that the XLK has moved so far above that short-term moving average is another warning of an over-extended uptrend.  Not surprisingly, today's technology selling is spilling over to the rest of the market which also appears due for some profit-taking.  Some money appears to be flowing into more defensive parts of the market (along with Treasury bonds) as we start the historically volatile month of September.  The fact that the RSI line in the upper box is slipping below 70 today is another sign of weakness (see circle).