HONEYWELL AND DOVER LEAD INDUSTRIALS -- INTEL WEIGHS ON MARKET -- BOUNCING DOLLAR CAUSES SELLING IN GOLD STOCKS
INDUSTRIALS BOUNCE OFF 20-DAY AVERAGE... The modest Dow pullback has found support at its 20-day moving average, which is usually the first line of defense. In Wednesday's trading, the Dow is the biggest percentage gainer and is leading the rest of the market higher. The techs lagged a bit. That was mainly due to weakness in Intel in anticipation of its earnings report after the close today. Pockets of strength today were wireless services, transportation, and brokers. Selling was seen in gold and oil service stocks. A bounce in the dollar caused a $2.00 loss in gold, which translated in selling of gold shares. Gold stocks lost 4% today.
Chart 1
INTEL STALLED AT RECENT PEAKS... Intel has met with some selling near its November/December highs. No serious chart damage has been done, but the stock is being watched very closely. That's because of its heavy influence in the major stock averages as well as the SOX Index which recently hit a new 52-week high. . Some nervous selling in advance of that report has made Intel the day's weakest Dow stock. The weekly bars in Chart 3 show the chip bellwether trading within a few points of potential resistance at its early 2002 peak. The weekly RSI has started to weaken from the 70 level, and the weekly MACD lines have turned negative. That's usually a sign of loss of upside momentum. Its relative strength line is also testing overhead resistance. Intel reports earnings after the close today.
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Chart 3
HONEYWELL LEADS DOW HIGHER... Honeywell is the Dow's top percentage gainer today. The stock reached a new 52-week high. The relative strength line along the bottom of the daily chart shows HON outperforming the Dow since mid-December. The monthly chart shows that the next major upside target for Honeywell is its early 2002 peak at 40.
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DOVER BREAKS OUT... Although it's not in the Dow, Dover Corp was one of the big leaders in a strong industrial sector today. Its monthly chart shows the industrial leader breaking through is 2002 peak to reach the highest level in three years. Its rising relative strength line (vs. the S&P 500) shows that the stock is also a market leader.
Chart 6
GOLDS SELL OFF... Last week, we showed the XAU Index backing off from a test of its December high. Since then, traders have been taking profits in gold shares. The XAU has fallen beneath its 50-day moving average and is threatening its December low. The daily RSI and MACD lines are negative. Two of the weakest stocks are Freeport McMoran Copper & Gold and Newmont Mining. Both have turned down on rising volume. This looks to me like a correction in a long-term bull trend. Some short-term profit-taking may be in order. The longer-term picture, however, remains bullish for gold and gold stocks. The U.S. dollar has a history of rebounding during January. Although the dollar remains in a major downtrend, today's dollar bounce is having a negative impact on precious metal stocks.
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Chart 9
MARKET STILL OVERBOUGHT, BUT NO CLEAR SIGN OF A TOP... The stock market remains in an overbought condition as measured by our daily and weekly indicators. And several of the major stock averages are at or near potential resistance barriers at their 2002 peaks. That makes me nervous about the likelihood for some corrective action. However, the charts don't show any convincing signs of a top yet. One of the first signs of trouble we're looking for would be a close beneath 20-day moving averages by any of the major averages. The Dow bounced off that line this week. I wouldn't be putting new money into the market at this point. But I wouldn't be selling yet either.
