DOW CLOSES OVER 11K AS TRANSPORTS HIT RECORD -- FALLING OIL BOOSTS AIRLINES AND RETAILERS -- ANOTHER TELECOM BREAKOUT -- S&P 500 CLEARS 50-DAY LINE
DOW CLOSES BACK OVER 11K... The Dow Industrials continue to show new market leadership. Today's strong close put it back over the 11,000 level for the first time since mid-January. The monthly bars in Chart 2 put that in better perspective. A Dow close over 11047 would put it at the highest level since the middle of 2001. Chart 3 shows the Dow Transports hitting a new record high today. Although most of the recent leadership has come from rails, it got a lot of help from the airlines today which bounced sharply on falling energy prices. A Dow breakout would allay the fears of those who have been concerned about the inability of the industrials to confirm the upside breakout in the transports.
Chart 1
Chart 2
Chart 3
OIL TUMBLES BELOW $60... Energy prices continue to tumble. Crude prices fell below $60 for the first time since last December. Oil products -- gasoline and heating oil -- have already undercut their fourth quarter lows. That's caused more selling in energy stocks, but gave a boost to airline stocks which gained 3.7% today and were the day's top percentage gainers. Chart 5 shows the Airline Index (XAL) closing over its 50-day average for the first time in a month. If you compare charts 4 and 5, you'll see that they've been trending in opposite directions. Airlines started to show better relative strength during September right after crude peaked. The latest oil downturn has caused more airline buying.
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Chart 5
RETAILERS HAVE STRONG DAY... A big jump in January retail sales sparked an impressive rally in retail stocks today. As a result, Retail Holders (RTH) closed well above their 50-day line on rising volume. Home Depot was the main star of the group. [Please see my earlier market message for more on that stock]. Retailers are also benefiting from falling energy prices. The black line on the top of Chart 6 shows gasoline futures falling to the lowest level since last spring. If you line up the vertical lines, you'll see that the last two upturns in the retail group coincided with downturns in gasoline prices. That also tells us that the market is beginning to feel the benefits of falling energy prices.
Chart 6
ANOTHER TELECOM BREAKOUT ... Last week I showed a bullish breakout in Telecom Holders (TTH) which hit another 52-week high today. [The TTH is still the week's biggest ETF gainer in percentage terms]. If you missed that telecom breakout, here's another one. The weekly bars in Chart 6 show the Telecom iShares (IYZ) achieving a bullish breakout of their own. That puts the IYZ at the highest level in four years and is helping keep the telecom group at the top of the sector rankings.
Chart 7
S&P 500 CLOSES BACK OVER 50-DAY LINE ... The S&P 500 had a good chart day as well. It closed back over its 50-day line for the first time in nearly two weeks, and it did so on rising volume. The 9-day RSI has also climbed back over 50 which is usually a sign of more buying ahead. That doesn't necessarily turn the short-term back "up" again. But it does turn it from "down" to "sideways". Now what we need is for it to stay over that support line and build on today's gains. The Nasdaq 100 survived an important test of its own. Chart 9 shows the Nasdaq 100 Shares (QQQQ) bouncing off their early January low near 40. The Nasdaq 100 has been the weakest of the major averages since the start of the year. Its ability to bounce off that support level is encouraging. It's still well below its 50-day line, but it bounced on rising volume today. And the stochastic lines appear to be turning up from oversold territory under 20. Although the QQQQ isn't showing much leadership, its ability to stay over the early January low is removing a potentially bearish influence on the rest of the market.
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Chart 9
