Yesterday's message showed bond yields falling (and bond prices rising) in a flight to the safety of government bonds. And further suggested that fears of the Chinese virus spreading was most likely behind that more defensive tone. Bond yields are falling even further today as that defensive mood continues, and is starting to cause some nervous selling in stocks. But not just any stocks. Stock groups being hit the hardest today are the most vulnerable to the fallout from the Chinese virus. They include airlines, cruise ships, gambling stocks (with close ties to Macau), and hotel stocks (with big exposure to China). Those last three groups are weighing heavily today on cyclical stocks.
Chart 1 shows the Consumer Discretionary SPDR (XLY) being one of today's weaker sectors; and in danger of falling below its 20-day average (green line) for the first time in nearly two months. The two top boxes show its 14-day RSI line also weakening; and its MACD lines turning negative. Those are warning signs of more profit-taking to come in this economically-sensitive sector. Which may also be spreading to the broader market.
Editor's Note: This is an excerpt of an article that was originally published in John Murphy's Market Message on Friday, January 24th at 1:46pm ET. Click here to read the full article, which includes Charts 2-5.