MAY'S GROUP LEADERS
SMALL CAPS SHOWING LEADERSHIP... During the month of May, the small-cap Russell 2000 Index was the biggest percentage gainer. The chart shows the RUT having exceeded its late 2002 high in decisive fashion and trading at the highest level since last July. That's pretty impressive chart action. We also note that the (blue) 50-day moving average has crosses over its (red) 200-day moving average. Although that's usually a late signal, it does confirm the bullish turnaround on the price chart. Finally, the "price relative" line has also broken out versus the large-cap S&P 500 Index. That puts small cap stocks in a stronger position than large caps. That's good for two reasons. One is that small-caps usually lead large caps in the early stages of a market bottom (and economic recovery). Secondly, small caps account for a large part of market breadth figures. [There are a lot more smaller stocks than bigger stocks]. That also confirms the recent signs of improvement in market breadth figures. The second strongest stock index for May was the Nasdaq Composite, which has also broken out to the upside. We've commented many times on the beneficial results of Nasdaq leadership. The Nasdaq was also the top performing stock index for the past week.
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ENERGY AND UTILITIES LEAD SECTORS... With oil prices gaining 12% during May, it shouldn't be a surprise to see energy stocks have a strong month. The Energy Select Select SPDR rose to a ten-month high this week. The relative strength line shows this group just starting to show some leadership after lagging behind the S&P 500 since the start of March. Utilities were also big winners during May. The Utilities Select Sector SPDR is challenging its high of last August. Its relative strength line has also risen to an eight-month high. The recent tax law lowering taxes on dividends may account for the sudden popularility of high-yielding utility stocks.
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INDUSTRY LEADERS ARE BIOTECHS, BROKERS, AND INTERNET... Internet stocks were the strongest part of the technology sector during May. The Interactive Internet Index (IIX) has climbed to a new 52-week high. It's moving average lines crossed positively at the start of the year and continue to strengthen. The relative strength line has also hit a 52-week high. The Biotech Index broke through its August high to initiate a new uptrend. Its relative line did the same. Over on the big board, brokerage stocks broke through their late 2002 highs to achieve a major bullish breakout. The rising relative strength line shows leadership. It's usually a good sign for the market when the brokers are leading it higher.
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BONDS AND STOCKS ARE UP, DOLLAR IS DOWN... Among the four asset classes, bonds gained over 6% and were the month's biggest gainers. Stocks came in second and commodities third. The biggest loser was the U.S. Dollar, which fell over 5%. The two trends shown below are linked. Rising bond prices translates into lower U.S. interest rates, which is pulling the dollar lower. The falling dollar has given a boost to gold and energy prices, which gained ground during May. MORE LATER.
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