BASIC MATERIAL BREAKOUT -- ENERGY BREAKDOWN -- BOEING LEADS DOW HIGHER
MATERIALS SELECT SECTOR SPDR HITS NEW HIGH... Earlier today I talked about how rising industrial metal prices (and commodity prices in general) were giving a big boost to basic material stocks and were keeping them in a market leadership role. That trend was evident again today as the Materials Select Sector SPDR was the strongest of the sector groups (gaining 1.3%) and broke out to a new 52-week high. The weekly bars in Chart 2 shows, however, that the group is heading for a challenge of the highs formed during 2001 and 2002. That will be an important test. The rising ratio line under Chart 2 shows superior performance by the basic material group. Most of the leading stocks were linked to industrial metals. Alcoa (aluminum), Nucor (steel), and Phelps Dodge (copper) all hit 52-week highs. Newmont Mining also hit a new high as gold prices rose $3.50. The only commodity group that isn't doing well is Energy. That's due to weak energy prices.
Chart 1
Chart 2
CRUDE OIL DROPS BELOW $29... Crude oil dropped .65 cents today to close beneath $29. The inability of energy prices to rally is keeping the energy sector in a role of market laggards. Crude oil peaked near $40 earlier in the year and has been on the defensive since then. Crude recently failed another attempt to get thorugh resistance at $32.50. As a result, the PHLX Oil Service is now threatening to break its July low. Its relative strength line has been falling against the S&P 500 all year. Rising industrial metals and weak oil, however, are a good recipe for the economy.
Chart 3
Chart 4
GROUP BREAKOUTS... Several group indexes hit new 52-week highs today. And all were symptomatic of economic strength. They were the Morgan Stanley Cyclical Index, the S&P 600 Small Cap Index, and the Dow Transports. The next chart shows the Dow Transports reaching a new eighteen-month high. The relative strength line along the bottom is a ratio of the Dow Transports versus the Industrials. The Transports have been leading all year. I've indicated before that transportation leadership is sign of economic strength. Rising transports are tied to weak energy.
Chart 5
BOEING LIFTS THE DOW... The Dow gained 26 points today and was the biggest gainer of the major stock indexes. The main reason for the Dow's relative strength was Boeing. The daily chart shows BA jumping 2.46 points on extremely volume. The stock also appears to be on the verge of breaking through its early September peak. The weekly bars show that would be a new 12-month high. The relative strength line along the bottom of Chart 7 shows that Boeing has been outperforming the Dow since April. That makes it a Dow leader.
Chart 6
Chart 7
