This is getting very interesting. The following ought to make it quite clear; here's our old friend Mr. SPX




Now that's not very good. We pinged the channel again and came off it, near the low of the day. That's four days outside.

Now look at this, our Good Buddy Nasdaq



That's the Nasdaq Composite. It is right at support, closing just above it this afternoon!

Now look at this one:




That's the DOW, of course, with some serious divergence - riding the top of the channel, but unable to hold a penetration that it attempted today. And by the way, the Transports are right at the bottom of their channel, not at the top. Dow Theory says that a confirmed break upward on the Dow 30 cannot happen without the Transports.

Judgement day tomorrow?

And, by the way, the OEX chart (S&P 100 - 100 largest companies) looks like the S&P, not the Dow.

So what we've got here is some serious divergence. That does not bode well for the technical stability of the market at this juncture.

On technicals the DOW has not yet posted a SELL. The OEX has posted a SELL on the MACD but has not confirmed on Stochastics, nor on my proprietary indicator. In fact, right now the DOW is the only "BUY" that is currently uncontroverted.

The OEX has a SELL on the MACD but neither of the other indicators confirms that.

The SPX has a SELL on the MACD and Stochastics, but not on my proprietary indicator.

The Nasdaq Composite posted a confirmed sell today on MACD, Stochastics and my proprietary indicator turned negative today. This is a decisive SELL - if I still had positions in the Qs (I don't) I'd be out in the morning and considering a short! Oh wait - I did short (bought QID) the other day. We'll see what tomorrow brings on that one - if support is broken I'm buying more of those.

The Russell 2000 also has a confirmed SELL on it and in fact the RUT posted a SHORT signal this afternoon! It is below support and all three primary indicators I use are now solidly negative. Hmmm... maybe I need to look at an Ultrashort Russell 2000 ETF.....

The deterioration appears to have started with the small caps and techs this time, and is spreading upwards into the larger cap names.

I made a comment about the 10 year bond being a bellweather - it crossed the 4.70% level today, closing at 4.71. While this is not decisively out of its trading range, it is deeply troubling, because it signals that traders are selling US Treasuries. That implies that money flow is net negative, perhaps into foreign markets.

There is simply no way the DOW can hold up the broader markets. Money flows today were awful outside of the DOW 30. The S&P had money flows of 2:1 on the decline side, while posting an AD line of 2:3. This says that the sellers were more vigorous than the buyers in their money flows and when it exceeds the A/D percentage it shows conviction in the trend.

I am not yet ready to call the party over, but given that the market "saw through" the CPI headline number - the internals of that release were in fact quite bad - one cannot expect the run to continue unless the rest of the market comes along for the party!

In 1999, the SPX led the party poopers, followed by the other indices. This time around it looks like the Russell and the Nasdaq are the leaders, with the RUT going into SELL territory first, now the Nasdaq, with the SPX close behind it and the DOW still doing its best to defy gravity.

This does not necessarily presage a "plunge", but it may well presage a decline that is protracted and serious, much as it was in 2000.

By the way, you also have others picking up on the liquidity-driven (as opposed to fundamental-driven) market. Specifically, Fidelity International's Bolton said this:

"Fidelity International Ltd.'s Anthony Bolton, the fund manager who helped turn the company into the U.K.'s largest mutual fund company, said shares may be about to fall because there's too much risk in financial markets. "

'Ya think?

Oh, he's put his money where his mouth is too - he apparently has shorted certain segments of the market. No big surprise!

Then there's this on homebuilder confidence:

"The National Association of Home Builders/Wells Fargo index of sentiment fell to 30 this month from 33 in April, the Washington-based association said today. The reading matched the figure for last September, which was the lowest since February 1991. Readings below 50 means most respondents view conditions as poor."

Anyone surprised? I'm not! Gee, how many signals do you need to know what's up?

• Consumer spending down (WalMart and other same-store sales.)
• Homebuilder confidence is in a homeless shelter.
• The spring home-selling season is officially a bust (as of this morning's numbers); no more of this "weather" nonsense. Nobody is buying - period.
• Home prices are down - the other shoe.
• 1Q GDP is under 1%, adjusted. Probably 0.7% or so.

If we're not already in the big "R", we're about to be.

How well do equities perform during recessions?

By the way the VIX didn't spike and my CALL bet might turn out badly - I've only got tomorrow. Such is life - that's why I didn't bet more than the lunch money. Of course it did close near the high of the day, so there's still the possibility that we get a rout tomorrow, giving me a profit anyway. As of right now there's no bid, so absent that move tomorrow they're a zero.

By the end of this week we will, I suspect, know the answer on the broader market, at least in the short term. The divergence must converge, and we now have imminent confirmation from the Nasdaq Composite.

One more day like today, and top-level support is gone on the 'Daq.