MARKET RALLIES ON INFLATION REPORT -- BOND YIELDS DROP -- MICROSOFT LEADS TECHS HIGHER -- CNF HITS MULTI-YEAR HIGH
INFLATION REPORT SOOTHES BOND TRADERS... The much-awaited May CPI report showed an increase of 0.6%. Although that was the biggest number since January 2001, the core figure met consensus expectations of 0.2%. For the time being, that calmed bond traders who were afraid of a much higher inflation number. As a result, bond prices are jumping sharply today -- and yields are falling. Chart 1 shows the 10-year T-note yield falling all the way to 4.70% today. Today's drop in bond yields prevented a breakout to a new two-year high and also encouraged stock traders. Stocks are rallying as a result. The dollar is dropping along with bond yields, which is causing some buying of gold. The groups leading today's bounce are small caps, technology, energy, financials, and transports. The weakest groups are consumer staples and healthcare.
Chart 1
INDEXES STAY OVER 50-DAY LINES... The three major stock indexes have stayed over their 50-day moving averages. Today's strongest index -- the Nasdaq 100 (QQQ) -- came the closest to its 50-day line yesterday before bouncing today. The S&P 500 SPDRS and the Dow Diamonds (DIA) are safely above their 50 day lines. That's one of our requirements for an ongoing uptrend. We'll be watching the volume today so see if it matches the impressive price gains. That hasn't been the case over the past few weeks.
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MICROSOFT EXCEEDS 200-DAY LINE... Microsoft is one of the day's best performers among the large cap tech stocks. Its daily chart shows the stock jumping through its 200-day average today. Its relative strength line is also rising. MSFT is in position to challenge its April high near 27.75.
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CNF TRANSPORTATION HITS MULTI-YEAR HIGH ... In a strong transportation sector, CNF is the day's top percentage gainer. Its monthly chart shows the transport leader breaking out to a new four-year high. Its relative strength line has also been rising. I wrote last week that upside leadership by transportation stocks (rails and truckers) was a good sign for the economy and the stock market.
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