THE NASDAQ SHOWS RELATIVE WEAKNESS AND MAY HOLD KEY TO MARKET DIRECTION -- S&P 500 BOUNCES OFF 50-DAY LINE

THE NASDAQ REMAINS IN SHORT-TERM DOWNTREND... The tech-dominated Nasdaq market continues to show relative weakness.    Chart 1 shows the Nasdaq Composite trading well below its 50-day average and in a short-term downtrend.    Prices are attempting a rebound today from yesterday's heavy selling.   If that low doesn't hold, the next level of potential support lies along its March reaction lows and its 200-day moving average.   The Dow and S&P 500 have held up much better and remain above their 50-day lines.

NASDAQ RELATIVE WEAKNESS...  Chart 2 plots a ratio of the Nasdaq divided by the S&P 500 which has fallen to the lowest level since last June.  It's pretty hard for the rest of the market to ignore that level of relative weakness.   A lot of that relative weakness, however, reflects rotation out of growth stocks into more value-oriented cyclical stocks.

S&P 500 BOUNCES OFF 50-DAY LINE...Chart 3 shows the S&P 500 bouncing today off its 50-day moving average.   Prices are rebounding today despite higher than expected producer prices for April.   Yesterday's surprisingly high consumer price report pushed stocks sharply lower.  It remains to be seen if stocks can build on today's buying.