COCA COLA LEADS CONSUMER STAPLE ETF TO 52-WEEK HIGH

CONSUMER NON-CYCLICAL ISHARES HIT NEW HIGH... Of the nine Sector Select SPDRS traded on the American Stock Exhange, the only one to reach a new 52-week high today was the Dow Jones Consumer Non-cyclical iShares shown in Chart 1. The relative strength line along the bottom of the chart turned up during January and has been rising since then. Consumer non-cylicals are second only to energy for the first four months of the new year. Chart 2 shows an even stronger picture. In that longer-term view, the IYK is trading at the highest level in three years. The trend of its relative line is also important. Chart 2 shows the IYK/S&P 500 ratio peaking in October 2002 when the market bottomed and then dropping throughout 2003. It only started rising in January of this year as the market started to turn more defensive. During the first quarter, I pointed out that market leadership by Energy and Consumer Staples was a sign of an aging bull market. I haven't seen anything to change that view of a market that's turned more cautious. In my view, the two main reasons for that increased cautiousness are rising energy prices and rising interest rates.

Chart 1

Chart 2

COCA COLA BREAKS OUT ON RISING VOLUME... One of the biggest holdings in the Consumer Cyclical ETF is Coca Cola which is primarily responsible for today's upside move in the group. Its daily chart shows KO breaking through its February high on rising volume. The monthly bars in Chart 4 show Coke having broken a five-year down trendline and moving up toward its 2002 high. The relative strength line in Chart 4 also tells a story. It turned up at the start of 2000 (see first green arrow) when the stock market peaked and topped out in October 2002 when the market bottomed (see red arrow). The second green arrow shows its ratio line (vs. the S&P 500) starting to rise again. That suggests to me that money is moving into defensive stocks like Coke and consumer staples in general. Some of the other big holdings in this ETF are Procter & Gamble (PG), Altria (M0), Pepsico (PEP), and Anheuser Busch (BUD). The last three on that list are also trading higher today.

Chart 3

Chart 4