UTILITY AND TRANSPORTATION STRENGTH INCREASES ODDS FOR HIGHER DOW INDUSTRIALS
INDUSTRIALS NEAR BREAKOUT... The Dow Industrials are challenging chart resistance along the highs of the past month near 8500 and are stalling a bit today. The odds for an upside breakout are very good however. For one thing, the sideways pattern in the Industrials since mid-March looks like an "ascending triangle" which is usually bullish. Two other reasons why we expect higher Industrials is the fact that the two other Dow Averages -- the Transports and the Utilities -- have already broken out to the upside. Chart 2 shows the Transports surging to a three-month high. We suggested earlier in the week that was due primarily to lower oil prices. Chart 3 shows the Dow Utilities surging higher as well. When two of the Dow Averages are trending higher, odds are pretty good that the third one will follow suit.
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TRANSPORTATION LEADERS... Transportation leadership is coming from the rails and truckers. Ryder System has been surging on strong volume and is now trading over its 200-day moving average. Among the rails, Norfolk Southern is moving up to challenge its January high. The most impressive chart pattern, however, belongs to Burlington Northern. Its chart shows that rail leader breaking out to a new seven-month high.
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CHEMICALS BENEFITING FROM LOWER OIL... In addition to transportation stocks, another group that usually benefits directly from lower oil prices is chemical stocks. That probably explains the strong performance in the next two chemical stocks. Hercules has exceeded its 200-day line, and has risen to a five-month high. Dow Chemical has also risen on strong volume and is challenging the previous high hit last November. The weekly chart for Dow Chemical shows that the big chemical stock has already broken a down trendline starting from the fourth quarter of 2001.
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AFLAC TUMBLES TODAY... Aflac is having a terrible chart day. The big insurance stock is tumbling in massive volume. That's causing some nervous selling in other insurance stocks and financial stocks in general today. The weekly chart shows that Aflac was in the process of testing major overhead resistance near 35. Obviously, it failed that test. Where's the Aflac duck when we need him?
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DOW COMPOSITE STILL MOVING HIGHER -- BUT OVERBOUGHT... The final two charts plot the Dow Jones Composite Average, which includes all 65 stocks in the three Dow Averages plotted above. The 14-day RSI line along the top is near overbought territory and is showing some minor "negative divergence". The daily MACD lines beneath the chart, however, remain positive. While the market may hesitate a bit over the short-term to digest its recent gains, the weekly chart supports a move to 2500 -- the top of the trading range in effect since October. The upper Bollinger Band also sits near 2500. In addition, the weekly MACD lines are still postive, which overrides any short-term signs of weakness. The market's entitled to a short-term breather here. But the intermediate trend still appears higher.
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