Resistance of last month's "swing highs" in most of the major indices
triggered a broad-based round of selling yesterday. After opening lower, stocks
attempted to recover throughout the morning session, but the bears resumed
control in the afternoon, causing the main stock market indexes to fall below
their opening lows. The Nasdaq Composite declined 1.0%, the S&P 500 1.8%,
and the Dow Jones Industrial Average 1.9%. The small-cap Russell 2000 and
S&P Midcap 400 lost 1.7% and 1.5% respectively. All the major indices
finished near their intraday lows.
Turnover was mixed. Total volume in the NYSE rose 7% above the previous day's
level, but volume in the Nasdaq eased 1%. The higher volume selling in the NYSE
caused the S&P 500 to register a bearish "distribution day," the second in a
week. The Nasdaq narrowly avoided having the same label. Market internals were
worse in the NYSE, where declining volume exceeded advancing volume by a margin
of 4 to 1. The Nasdaq adv/dec volume ratio was negative by just 2 to 1.
As commodities continue to get hammered, the U.S. dollar continues to
strengthen. Yesterday, the euro fell below a five-month base of support, versus
the U.S. dollar. This enabled our long position in the PowerShares U.S. Dollar
Index (UUP) to break out and close above its 200-day moving average for the
first time in about a year. UUP also broke out above its primary downtrend line,
indicating a serious change of long-term bias for the dollar. The UUP breakout
above its long-term downtrend line is shown on the weekly chart below: 
Yesterday's sell-off came right as the S&P 500 and Dow Jones Industrial
Average tested key resistance of their "swing highs" from July 23. When the
major indices approach such obvious and pivotal areas of resistance, it's not
uncommon for stocks to "shake out the weak hands" by giving the appearance that
the rally attempt is dead. However, the daily charts of the S&P and Dow show
that yesterday's sell-off was not damaging on a technical level. In fact, both
indexes merely pulled back to support of their intermediate-term uptrend lines.
This is shown on the daily charts of the S&P and Dow below:
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