TELECOM LEADS MARKET IN OVERSOLD BOUNCE
TELECOM ETFs SHOW IMPRESSIVE GAINS... One of the main sparks that helped ignite today's oversold market bounce was the strong gain in the telecom sector. Two of the top performing Exchange Traded Funds today were the AMEX Telecom Holders (TTH) and Telecom iShares (IYZ). Chart 1 shows the latter surging today to the highest level in nearly three months after finding major support near its moving average lines. Even more impressive is the recent upturn in its relative strength line. After falling throughout the first half of the year (versus the S&P 500), its relative performance line has been rising sharply throughout July. That's what usually happens when a previously ignored group is making a bid for market leadership. Verizon was the main reason behind the telecom surge.
Chart 1
VERIZON SURGES ... Verizon has the heaviest weighting in both telecom ETFs (averaging 25% of both) and and jumped more than 4% today on massive volume. Its daily chart shows the stock gapping up toward its spring high on the heaviest volume in months. In fact, volume has been jumping for the past week. It was an impressive show of price and volume power. VZ was the top percentage gainer in the Dow today. SBC Communications also gave a big boost to the Dow and the telecom group.
Chart 2
SBC CLIMBS TO ITS SPRING HIGH... SBC Communications also carried a lot of weight in today's telecom rally since it's the second largest holding in the two telecom ETFs (averaging 20%). Its daily chart also shows a stock rising on expanding volume. SBC is in the process of challenging its spring highs. Its relative strength line has already reached a six-month high. Bellsouth has a 10% weighting in the telecom ETFs and contributed to today's rally (Chart 4) with its own combination of rising price and volume.
Chart 3
Chart 4
S&P 500 SPDRS ENJOY OVERSOLD BOUNCE ... In addition to today's strong telecom group, the market also got some relief from some short-term technical factors. The S&P 500 Index is in the process of testing important chart support at its May low -- as shown in Chart 5. That's a logical spot for some bottom-fishing to appear. The S&P 500 SPDRs were also helped by having its RSI and stochastic lines in oversold territory (at 30 and under 20 respectively). Charts 6 and 7 show the Dow Diamonds and the Nasdaq 100 Shares also bouncing off prior chart support. In all three cases, however, volume was somewhat disappointing. It's encouraging to see market benchmarks bouncing off important support levels. Let's keep in mind, however, that all three major indexes are still below major moving average lines. They'll have to do a lot more on the upside to show that today's rally was anything more than an oversold bounce.
Chart 5
Chart 6
Chart 7
BOND YIELDS CLIMB ON STRONG CONSUMER SENTIMENT... Consumer sentiment jumped to a two-year high. While that helped stocks, it took a toll on bonds. Bond prices fell as yields rose. Chart 8 shows the 10-year Treasury note yield climbing to a new three-week high after bouncing off its 200-day moving average. Rising bond yields gave a boost to the dollar and pushed gold prices under $390 for the first time in six weeks. Crude oil, however, rose again and is challenging its recent high near $42 which kept energy shares firm. Rising crude oil and rising interest rates aren't a long-term bullish recipe for the stock market.
Chart 8
