MARKET AVERAGES CLOSE HIGHER ON WEEK, BUT REMAIN BELOW MOVING AVERAGES -- TELECOM, UTILITIES, AND MATERIALS ATTRACT BUYING

S&P BOUNCES OFF MAY LOW... The S&P 500 bounced off its May low this week which helped stabilize its short-term trend. Unfortunately, it didn't do much to turn the intermediate downtrend around. For one thing, volume this week was lighter than the week before which isn't that encouraging. In addition, the S&P remains below its 50- and 200-day moving averages. Closes back over those two lines are a minimum requirement for any new uptrend to start. The daily RSI line also shows the S&P to be bouncing from a short-term oversold condition near 30. The RSI line needs to climb over 50 to prolong the short-term bounce.

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VALUE STILL BEATS GROWTH ... I showed these two charts earlier in the week to demonstrate that most of the recent selling has been in the growth area. Value has held up better. That's true of large caps as well as mid and small cap stocks. The S&P Large Cap Growth Index ended the week in a modest bounce after breaking its May low earlier in the week. The Value Index, however, managed to end the week back over its 200-day average. That means that both averages ended the week back over important support lines. It also shows that a generally defensive market prefers less-risky value stocks over riskier growth stocks.

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BOND YIELDS DROP IN GDP REPORT... Slower second quarter growth pushed bond yields lower on Friday -- and bond prices higher. Chart 4 shows the 10-year T-note yield falling back from its 50-day moving average. It remains, however, above its 200-day line. Falling yields pushed the dollar lower and gold prices more than $3 higher. Gold ended the week just above $390. Commodity prices also bounced a bit. Recent strength in the dollar has kept the CRB Index in a downside correction.

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CRB TESTING 200-DAY AVERAGE... The CRB Index of commodity prices has been in a downside correction since March. Its daily chart shows that the CRB is testing long-term support at its 200-day average. It managed a minor bounce on Friday -- thanks largely to a falling dollar and rising oil prices. This is critical support zone for the commodity index. If it's long-term uptrend is to stay intact, it can't go much lower from here. Industrial metals like copper also had a strong week which caused buying in basic material stocks. The dollar has rallied into a resistance area and looks overbought. If it starts to weaken from here, commodities may benefit.

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TELECOMS, UTILITIES, AND MATERIALS ATTRACT BUYING... From a technical perspective, there isn't much to get too excited about even after this week's bounce. So far, this looks more like a low-volume oversold bounce than the start of a new upleg. We'll need to see a lot more improvement in the price and volume action to make the charts look better. Sectorwise, there isn't much to close from either. Outside of energy, most sector charts are either bearish or neutral. One group that saw some strong buying was telecom. Chart 6 shows the AMEX Telecom iShares touching a five-month high before pulling back on Friday. The combination of chart resistance along the April highs -- and an RSI line in overbought territory near 70 -- suggests the likelihood for some backing and filling. Its relative line, however, shows dramatic improvement. This is a sector worth keeping an eye on. Utilities are also showing good relative strength. The Utilities Select Sector SPDR (Chart 7) bounced off its 50-day average and closed the week on a firm note. Its relative strength line is still rising. Basic material stocks also had a strong week owing to firmer commodity prices -- especially in copper and steel. The Materials Select Sector SPDR (Chart 8) also closed back over its moving average lines. Stronger industrial commodities would give a big boost to that group. There isn't enough technical evidence to warrant a major new market commitment at this point. Any new money should probably be concentrated in those groups showing relative strength -- which includes the three groups just mentioned along with energy. Outside of those groups, pickings are slim.

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