RAILS LEAD TRANSPORTS HIGHER -- INDUSTRIALS RESUME UPTREND -- NYSE REACHES NEW RECORD -- NASDAQ COMPOSITE HITS NEW FOUR-YEAR HIGH
RAILS LEAD TRANSPORTS HIGHER ... A week ago the Dow Transports broke resistance at their June highs to turn their trend higher. I pointed out at the time that that was a positive turn for the market. The transports had another strong day today. What I found even more encouraging was the fact that the rails led the transportation gains. Charts 1 and 2 show Burlington Northern and Norfolk Southern reaching four-month highs on rising volume. Their relative strength lines turned up earlier this month right around the time that the transports started to rise. Since the rails are not as fuel-sensitive as airlines, and since rails are a cyclical group, their strength is another sign that investors are in a much more optimistic mood. It also explains why the transports are rising along with oil.
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TRANPORTS ARE LEADING INDUSTRIALS HIGHER -- DOW COMPOSITE REACHES NEW RECORD ... Last week I wrote about the importance of the Dow Industrials confirming the upside breakout in the Transports. Chart 3 shows the decisive breakout in the Dow Transports last Wednesday. The upside breakout in the Dow Industrials hasn't been as decisive, but it is there. After hitting a four-month in the middle of last week, the Industrials showed little upside follow-through. Today, however, the Dow closed at a new four-month high to keep its gradual uptrend intact. That also reaffirms the Dow Theory buy signal that I referred to last week. That wasn't the only bullish development in the Dow family today. Chart 5 shows the Dow Composite Index breaking through its March high (which is also an all-time high). The Dow Composite includes the 15 utility stocks along with the 30 industrials and 20 transports (for a total of 65). The utilities have been hitting new highs for months while the industrials and transports have lagged behind. New buying in the latter two groups was finally enough to push the Composite Index to a new record high. That wasn't the only major index to do that.
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NYSE COMPOSITE INDEX HITS NEW RECORD -- NASDAQ HITS FOUR-YEAR HIGH... The NYSE Composite Index hit not only a new high for 2005, but it hit a record high as well. The weekly bars below show the NYA having cleared its previous high formed in mid-2000 near 72. That's pretty impressive. The monthly bars in Chart 7 show the S&P 500 trading at new four-year high. More good news for the market came from the Nasdaq Composite Index which also reached a new four-year high today. That's because the Nasdaq has been the market's weakest link for the last five years. It closed up 12 points today at 2198. Although it's not as obvious on the monthly chart, today's Nasdaq Composite close is the highest since the middle of 2001. If the market is only as strong as its weakest link, today's upside Nasdaq breakout may be the most bullish development of all.
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