SHORT-TERM S&P INDICATORS IMPROVE -- TRANSPORTS SHOW LEADERSHIP -- ENERGY CORRECTION MAY BE NEARLY OVER
TRANSPORTS HAVE ANOTHER STRONG DAY... On Friday I wrote that one of the places that any fourth quarter bounce would start would be the transports. That's because they're among the main beneficiaries of the recent slide in oil prices. [Earlier in the week I also listed financials, retailers, and technology as potential fourth quarter leaders]. The Dow Transports gained 2.77% today and was the market's top index. Chart 1 shows the TRAN trading back over its 50- and 200-day moving averages. All of the transportation stocks highlighted on Friday gained ground today. The most impressive was CNF which broke out to a new all-time high. Chart 2 shows the DJTA Index iShares (IYT) moving up on rising volume. Its relative strength ratio is also climbing nicely. The two biggest stocks in the IYT are Fedex (12%) and UPS (11%). Both increased the distance over their 200-day averages.
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OVERSOLD UTILTIES AND ENERGY STOCKS BOUNCE ... The Dow Utilities' 2.75% gain put it right behind the transports as a market leader. And it's coming just in the nick of time. Chart 5 shows the UTIL, which has fallen 13% from its late-September peak, finding support near its 200-day moving average. Its 9-day RSI line also shows a small "double bottom" in oversold territory under 30. Those two factors brought some new money back into the beaten-down utilities. There was something else going on today that may also account for the utility buying. And that's the rebound in an oversold energy sector. The Energy SPDR (XLE) gained 3.5% today and was the top gainer of the market's nine sectors. It too is finding support near its 200-day line and is in an oversold condition. There's a remarkable similarity between Charts 5 and 6 which isn't too surprising. I've suggested before that utility prices were being driven more by energy prices than interest rates at this point. Both peaked together at the start of October. It now seems that both are bottoming together as the month draws to a close. In a strange way, that may be good news for the market. Heavy selling in energy shares has been a big drag on the market all month. Any hint of stability in this key group could help stabilize the market as well. It also be no coincidence that the market staged an impressive rally today.
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S&P 500 MAY BE TURNING HIGHER ... On Friday I also suggested that one of the ways to tell if the S&P 500 (and the rest of the market) were starting a fourth quarter bounce would be the ability of the SPX to close back over its 200-day line (and chart resistance near 1200). Except for the Dow Industrials and the SPX, all of the other major market indexes have climbed back above that long-term support line. Chart 7 shows the S&P 500 climbing 19.79 points today to close at 1199.38. That puts it right at its (red) 200-day average and just shy of the September low at 1201. A decisive close over 1200 would improve the market's short-term outlook. It's also getting some encouragement from the two daily indicators shown on the chart. The 9-day RSI line (on top) recently bounced from oversold territory under 30 and rose above the 50 level today. That's usually a sign that a market bounce has further to go. The green MACD histrogram bars (under the chart) also turned positive today by closing back over the zero line. The only thing missing was volume which is on the lighter side. But the market took a turn for the better today and increased the odds for a fourth quarter bounce. Another positive sign came from the Nasdaq 100 (Chart 8) which closed back over its 50-day line today.
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