NASDAQ STILL LEADING MARKET ADVANCE -- DOW FINALLY BREAKS 9000 BARRIER
NASDAQ IS STILL DOMINANT... One of the tools we use at MurphyMorris Money Management to determine the health of the market is a ratio of the Nasdaq market to the NYSE. That enables us to determine which is the dominant index. The Nasdaq had assumed a leadership role at the beginning of May. At the end of May, our relative strength measure was still indicating that the Nasdaq is the dominant market. The equity markets are typically less volatile and more productive when the Nasdaq is dominant.
Chart 1
INTEREST RATES ARE POSITIVE... Although falling rates haven't been especially good for stocks over the past few years, there's some evidence that bonds and stocks may be "recoupling". Since April, bond and stock prices have been rising together. At the same time, stock prices and bond "yields" have been diverging. That means that falling bond yields may finally be having a positive impact on the stock market.
Chart 2
Chart 3
MARKET BREADTH STILL IMPROVING... Since the Nasdaq is the dominant market, we're using a Nasdaq Summation Index to measure market breadth. This is the highest summation reading in many months. Although the direction is important, so is the level. At high levels, most corrections in the past have been rather subdued. The current level also indicates that upside participation is the best since the 2000 top. Our High/Low measure has been solidly bullish for the past two months. Historically, this has been our best intermediate trend capturing tool.
MOVING AVERAGE TREND IS POSITIVE... The trend of the Nasdaq is above its 50-day moving average and making new yearly highs. Its 200-day moving average turned up over a month ago. The 50-day has also crossed over the 200-day day, which is another positive sign.
Chart 4
INTERMEDIATE TREND IS STILL UP... Our Decision Model shows that the market remains in a positive environment. Although we remain nervous about the possibility of a short-term setback, the intermediate trend (which is the trend we trade) is still moving in a positive direction. We'll stay with the uptrend for as long as it lasts. Getting the direction of the trend right is a cornerstone of successfull investing. [The May 30 Money Management Model Update can be found in the yellow box on the upper right of the MurphyMorris.com home page].
BLOOMBERG TV ON THURSDAY MORNING... I'm scheduled to do an interview on Bloomberg TV tomorrow (Thursday) morning at 7:54 am. I'll be discussing how the Fed's battle against deflation is impacting on the various markets. Tune in if you're awake at the time. In the meantime, please read the three updates posted earlier today. They talk about the possible "recoupling" of bonds and stocks, the likelihood for a rebound in the dollar, and what we believe is an imminent upside breakout in the Dow Industrials.
DOW CLOSES OVER 9000... The Dow closed over 9000 today for the first time in ten months. The puts it just shy of the August 22 closing high near 9054. The Dow is the last of the major stock indexes to exceed its December high. Three of the Dow's leaders today were Hewlett Packard, Disney, and American Express. Airlines stocks surged 7% today to lead the tranports higher. The Semiconductor (SOX) Index hit the highest close in ten months. Financial indexes also registered the highest levels in nearly a year.
Chart 5
