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Support Broken

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Last night in the Index Wrap, I queried whether the rising wedges seen on some of the indices might soon lose their relevance if no upside or downside break occurred within the next couple of days. For the OEX and SPX, the downside break came this morning. According to market pundit Pring, a downside break of a rising wedge usually results in a quick fall, but the oversold hourly oscillators and lingering buy-the-dip sentiment may prevent that quick fall for these indices.

Foreign markets got the slide started, with the Nikkei, FTSE 100, CAC 40, and DAX all falling beneath recent resistance or psychologically important levels before our markets opened. After the release of our jobless numbers at 8:30 and the disappointment engendered by the no-rate-hike decisions by the BOE and ECB, the slide continued, with the worsening sentiment in the foreign markets affecting our markets and vice versa. The DAX, trading longer than the other European bourses, tumbled the hardest as it was affected the most by our declining markets. The DAX closed down 3.91%, with the FTSE 100 closing down 1.6% and the CAC 40 closing down 2.80%.

Still, bullish traders might be troubled and bearish traders cheered by the action on some of the indices, as the SPX, OEX, DJI, and NDX each opened beneath daily pivots and since have touched or fallen beneath their weekly pivots. The minutes of the March FOMC meeting were released at 2 ET, with Greenspan and company vowing to react promptly to any signs of weakness. Perhaps that avowal reassured markets or perhaps they were merely bouncing from potential intraday double-bottoms hit at the same time, but most indices attempted a bounce beginning right after the release of the minutes. At the time of this writing, those bounces were going nowhere fast, with small-bodied candles stringing out in horizontal consolidation just above or below key support. As of this writing, the major U.S. indices trade down between .81% (DJI) and 1.9% (SOX).

As James mentioned in the Monitor, WFMI and CHS fell sharply, about 12 and 8%, respectively, on brokerage downgrades, demonstrating the shift in sentiment. CLX fell more than 3% after reporting sluggish sales. Even KO, up almost 5.5% yesterday on a brokerage upgrade, fell prey to profit-taking today, with the stock currently being down about 1%. (note: WFMI's demise was also due to future earnings guidance toward the lower end of their expected range.)

Early in the trading, the SOX fell within four points of the important 200-ema and currently drifts back toward the day's low of 337.65. The RLX and DJUSHB (DJ US Home Construction Index) traded positive until about 2:30 ET, but now the only sectors in the green on my personal sector list are the Oil Services Sector (OSX), the XAU, the Utility Sector Index (UTY), and the Merrill Lynch Early Cyclical Index (XE), and the XE is slipping from the day's high. The XE is a basket of stocks that should do well in the early part of an economic recovery. I haven't been able to locate a component list for this index, but according to the AMEX site, it is a capitalization-weighted index, and includes automobile, building materials, household equipment, retail and homebuilding stocks from the SPX. The index has been performing well since the middle of March, but has recently found resistance and looks to be rolling over on a daily chart. Daily stochastics still slant up, but MACD and RSI have been showing bearish divergence, slanting down while prices have equal highs.

As of this writing, today's volume stood just under a billion for the NYSE and just over 1.2 billion for the Nasdaq. Adv/dec ratios have been bearish all day, but more so for the Nasdaq-traded issues than for the NYSE-traded issues. Current ratios are .81 for the NYSE and .62 for the Nasdaq. Down volume has exceeded up volume all day, too, and here, too, more selling has been seen in the Nasdaq. Currently, down volume is about 2.5 times up volume on the NYSE and 3.5 times up volume on the Nasdaq, with these ratios remaining relatively steady through the last hour. The new highs/new lows pattern diverges from the other volume patterns as it did yesterday, alerting traders to keep a heads-up on the divergence. Either the new highs/new lows ratio shows more strength than is apparent from the other patterns, or the other patterns show more weakness than is apparent in the new highs/new lows figure.

Linda Piazza

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