US markets headed into the Labor Day holiday weekend on a downbeat note erasing a large part of Thursday's gains. Although the Russell 2000 (^RUT) registered an inside day and still seems to be targeting the 760 level, a more worrying development was seen among the technology stocks that struggled with an earnings statement from Dell that showed increased sales but with diminishing margins.

The chart for the Nasdaq 100 (^NDX) reveals a drop of 2.2% and also a fall below two key moving averages. The index came to rest at a quite critical level astride the 20-day EMA and also on the threshold of a trendline through the lows since early July.

Several sector funds in the technology area also revealed weakness with violations of key levels on relative upticks in volume despite the lacklustre trading of the last Friday in August. Asset allocators have been favoring technology for several months and further weakness in semiconductors etc would place even more of an onus on a continuing recovery in the financials to placate the long only fund managers.



In last week's commentary I alluded to the plight of sterling which is not only evident on the cross rate with the dollar but also against the euro. The 80-pence level has been definitively broken as new all time lows are registered for the UK currency against the euro.

Irony abounds as the UK Chancellor, following some surprisingly candid remarks about the dire state of the economy, is now being scapegoated in the popular press for causing a sterling crisis!

In line with the reflex thinking inspired by the Economics 101 courses taken by journalists and politicians, weakness in the pound is also now being heralded by some as providing a tonic for the UK economy. The reasoning, if it can be called that, is that it should be a boost to exporters. Somewhat overlooked in this scenario is the fact that all commodities priced in US dollars are now 10% more expensive than they were just a month ago and the reality is that the supposed beneficiaries, UK manufacturers, are a relatively small part of the total economy.

The financial services sector is unlikely to see a boost in demand as sterling seeks out levels perhaps another ten percent below current levels. Moreover Britain's favorite form of economic activity, i.e. homeowners selling ever more expensive homes to each other, has more or less ground to a halt.



The Rogers Commodity Index (^RCT) appears to be vulnerable to a breakdown as the 200-day EMA level has presented a strong barrier to upward progress and the triangular formation requires a directional resolution.



Many of the truly export-focused economies of Asia are feeling the effects of a global slowdown. The KOSPI Index of South Korea shows the recent plunge below a descending wedge pattern while the local currency, the won, continues to slide precipitously against the dollar.



XLK, an ETF that tracks US technology stocks, dropped below key moving averages on increased volume and underlines the concerns expressed above about the chart for the Nasdaq 100.



The chart for the Ultra Short Semiconductor fund, SSG, reveals recent accumulation as some traders are counting on further weakness in the sector.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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