STOCK MARKET SURVIVES TEST OF SUPPORT AND RALLIES ON GOOD VOLUME -- INTERMARKET PICTURE IMPROVES
NYSE BOUNCES OFF OCTOBER LOW ON GOOD VOLUME... Last evening we showed the NYSE Composite Index testing critical chart support along its October lows. If a rebound were going to start, that would be the spot for it to happen. And today it did. The NYSE surged on good breadth and volume figures. There were more than two advancers for each decliner on the big board. The volume bar measuring today's trading reached the highest level in nearly three months. In addition, upside volume beat downside volume by a better than three-to-one margin. All in all, an impressive day. The daily indicators also show improvement. Along the top, the 9-day RSI line looks to be turning up from below 30. The RSI line has also shown a short-term "positive divergence" during the latest drop in the NYSE below 46. A move back over 50 by the RSI would be a sign of strength. The daily MACD lines also show some positive divergence, but haven't turned positive yet. We suspect this rally will carry at least to the February peak near 4800, which should bring prices into a test of the (blue) 50-day moving average. That will the first test of the strength of the current rebound. Another positive sign is relative strength in the Nasdaq 100, which gained over 6% today --almost twice as much as the Dow. Chart 2 shows the NDX climbing above its February peak to close at a six-week high. The NDX has also cleared both moving average lines.
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NDX TECH LEADERS... The next three tech stocks were standout performers in the Nasdaq 100 today -- both in terms of price and volume. All three surged above moving average lines on extremely heavy volume. They're the current leaders in the NDX. Altera also helped the Semiconductor (SOX) to an 8% gain today, making the SOX the group leader in the tech sector.
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SOX BREAKS 50-DAY AVERAGE -- AND THREE-MONTH DOWN TRENDLINE... The Semiconductor Index rose to an eight-week high today -- exceeding its 50-day moving average. That puts it in position to challenge its (red) 200-day average line. Chart 7 shows that the SOX has finally broken its three-month down trendline.
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OIL TUMBLES ALMOST $2.00... April crude oil tumbled close to $2.00 today. That puts oil prices close to breaking the trendline that's contained the uptrend since last November. That also keeps oil below the 1990 highs near $40 which it recently tested -- unsuccessfully. Not surprisingly, energy stocks were the only losing sector today. That of course is good news for the rest of the stock market. Gold prices tumbled another $10 to close at $336 -- a three-month low. The day started with a huge gain in the U.S. dollar, which hurt gold even further -- but supported the rally in stocks. With stocks turning in the best performance in months, the bond market suffered its worst losses in months. The 10-year T-note lost 1.25 points, while the 30-year T-bond tumbled l.84 points. [Please see our earlier update, which shows bond yields bouncing off their October lows -- along with stocks. And which also discussed how the selloff in gold has been hinting at a top in the euro and a rally in the dollar].
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OVERNIGHT EVENTS SET THE STAGE FOR INTERMARKET REVERSALS... The chain of events that started in overnight trading set the stage for today's intermarket reversals -- and is an excellent real-time example of how closely inter-related the financial markets markets are. Over the past few months, we've seen a weaker dollar along with rising gold and oil prices -- which has been bullish for bonds and bearish for stock markets all over the world. The recent selloff in gold hinted at a technical rebound in an oversold dollar and stocks. Finally, some good news on the war front sent the dollar to its biggest gain in seven months long before our markets opened. European markets surged 6% on the dollar rebound. When our markets opened, gold prices tumbled $11 and stocks soared. That caused bonds to tumble. The crack in oil prices was icing on the cake. [If you read our pre-opening comments from this morning, you'll see that the markets followed the expected intermarket script pretty closely]. Today was a good day -- and we think the short-term picture has shown dramatic improvement. It's the long-term view that we're still concerned about. The final chart shows the dollar rebound today. It may not look terribly impressive, but it was enough to get the bullish ball rolling. Notice the positive divergences in the RSI and the MACD lines. [A positive divergence exists when a market hits a new low, but the indicators don't]. That's usually a prelude to at least a short-term bottom. To signal a more signficant upturn, the dollar still needs to clear its 50-day average and its February high. We think it will challenge those levels. How long its rally lasts may help determine how long the stock market rally lasts.
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