SEMIS AND SMALL CAP BREAKOUTS GIVE NEW LIFE TO MARKET -- NIKKEI CLEARS 15,000 -- YES, THE HUI IS THE UNHEDGED GOLD INDEX
SMALL CAP BREAKOUT ... Earlier in the week I suggested that the fourth quarter market advance was being stalled partially by the inability of small cap stocks to break through their summer highs. That inability is being corrected today. Charts 1 and 2 show the S&P 600 Small Cap and the Russell 2000 Small Cap Indexes breaking through those highs and helping to spark a general market advance. The relative strength ratios below each chart show that small caps have been market laggards throughout the recent rally. Today's relative strength by the small caps may be suggesting more leadership from that group. The market is also getting a strong boost from a bullish breakout in the semiconductor group.
Chart 1
Chart 2
SEMICONDUCTOR BREAKOUT ... The Semiconductor (SOX) Index has broken decisively through its summer highs to achieve a bullish breakout of its own. That's good for the technology sector and the market as a whole. That puts the SOX at a new 52-week high and is giving the market a strong lift. Not surprisingly, the Semiconductor Holders are the day's strongest ETF. Chart 4 shows the SMH also clearing its summer high. Chart 5 shows the SMH trading at the highest level since the spring of 2004. The next significant resistance barrier is at 41.89 (see arrow).
Chart 3
Chart 4
Chart 5
THE HUI IS THE UNHEDGED ONE ... As many of you are already aware, I mixed up the two gold indexes earlier in the week. Yes, the Gold Bugs (HUI) Index is the one that includes only unhedged gold stocks -- not the $XAU as I incorrectly stated. Both gold indexes are trading higher again today as gold is trading over $500. The HUI:XAU ratio beneath Chart 6 shows that the HUI has been gaining on the XAU since the start of November. The weekly bars in Chart 7 show that the HUI still needs a close over 258.60 to register a bullish breakout. The XAU has already done so.
Chart 6
Chart 7
JAPAN CLEARS 15000... The Nikkei 225 gained 258 points (+1.7%) to close over 15,000 for the first time in five years. It was the biggest gainer among the foreign markets. The relative strength ratio along the bottom of Chart 8 shows that the Japanese market has been outperforming the U.S. market since the middle of 2005. That's right around the time that gold started its latest bull run. As I've suggested before, I believe the new leadership coming from Japan is one of the factors behind the global buying of bullion as the era of Japanese deflation comes to an end.
Chart 8
