HUGE JUMP IN MANUFACTURING BOOSTS CYCLICALS -- CHEMICALS AND PAPERS LEAD -- BIOTECHS SURGE -- RISING COMMODITIES PULLING RATES HIGHER -- GERMANY AND JAPAN JUMP
PAPERS AND CHEMICALS LEAD CYCLICAL RALLY... Today's report that U.S. manufacturing saw the biggest gain in twenty years gave another big boost the economically-sensitive cyclical and basic material stocks. Two of today's strongest cyclical groups were the chemicals and papers. Charts 1 and 2 show today's strong performances. Chemicals are the stronger of the two groups. However, the papers are finally starting to show some upside leadership. That was also seen in the leadership within the Dow on Monday.
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DUPONT AND INTERNATIONAL PAPER LEAD DOW HIGHER... Dupont and International Paper were two of the Dow's biggest gainers. Both cyclical stocks jumped on respectable volume. Both stocks have been laggards up to now, but are starting to attract some attention. Other Dow leaders in the cyclical group were Alcoa and MMM -- both of which hit new 52-week highs.
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MATERIALS BREAK OUT... Basic materials are the building blocks of global economic growth. As a result, basic material stocks usually do especially well in a global economic recovery like the one we're in now. Last week we showed the Materials Select Sector SPDR challenging its 2001-2002 highs. As Chart 5 shows, the XLB has broken through those barriers to achieve a big bullish breakout. The XLB gained 2.5% today and was the day's top sector. That's a good sign for them and for the economy. It's also good for stocks in general, but not for bonds. That's why bond yields jumped to a three-week high today. Rising commodity prices are also bad for bonds. Commodities jumped today as well.
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RISING COMMODITIES LEAD TO HIGHER RATES... Historically, rising commodity prices eventually lead to higher long-term rates. It's no secret that commodity prices have been rising. The bond market may finally be getting the message. A weaker dollar, and higher commodity prices, are inflationary in nature. It's just a matter of time before that combination produces higher bond yields. The CRB Index jumped 4.46 points today. Fifteen of the seventeen commodities were up. Among the biggest gainers was copper, which surged 5%. Rising copper is an excellent barometer of global economic strength. The only two commodities to lose ground were crude and heating oil. That's also good for the economy. Gold prices jumped $5.80 today to close over $403. That's the first gold close over $400 in seven years.
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BIOTECHS SURGE... The AMEX Biotech Index surged over 3% today and was a standout performer. Most of the credit goes to Protein Design labs, which surged to a six-month high on massive volume. Chart 9 shows today's impressive breakout. Chart 10 shows that PDLI is starting to show upside leadership in the biotech group. But there are other biotech leaders.
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BIOTECH LEADERS... Applera Corp rose above its June high to reach a new 52-week high. Its rising relative strength line is plotted against the BTK Index. The RS line has been rising since August. Another potential leader is Biogen Idec. That stock broke out to a five-month high today. Its RS line is also starting to rise, which shows outperformance within the biotech group.
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GLOBAL STOCKS RALLY... The S&P 500 reached a new 2003 high today. Volume picked up, but wasn't great. Breadth figures were more encouraging. Strong rallies in global markets set the tone for a strong day in the states. The German DAX gained over 2% to lead a strong Europe. The DAX hit a new 52-week high. Asia was strong as well. The Nikkei 225 jumped 3%. Rallies in Europe and Asia are keeping their respective currencies strong -- and the U.S. dollar weak.
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