UTILITIES AND NATURAL GAS STOCKS BOUNCE OFF 200-DAY LINES -- BOND YIELD DIP BOOSTS EURO AND GOLD -- CANADA BOUNCES WHILE JAPAN DOESN'T -- NEW DOW LEADERSHIP
KEYSPAN LEADS UTILITY BOUNCE ... Although utilities are usually thought of as being interest-rate sensitive, they're being heavily influenced by the trend of energy stocks -- and natural gas stocks in particular. Today is a good example of that. News that KeySpan, which is the largest natural gas seller in the northeast, may be looking for a buyer has caused buying in both natural gas and utility stocks. There are also some technical reasons for today's bounce in both groups. Yesterday I showed the Dow Utilities starting to bounce off long-term support at their 200-day moving average. The group has also reached oversold territory as measured by the 9-day RSI line. Chart 2 shows the AMEX Natural Gas Index also finding support near its 200-day line and also in a short-term oversold condition. If you compare the two charts, you'll see that they look remarkably similar. They peaked together at the end of September, bottomed together during November, peaked together in late January, and now are bouncing together. The bounce in natural gas stocks is coinciding with oversold bounces in energy markets and most other commodities. That, together with a higher-than-expected January PPI number, has put the stock market a bit on the defensive at week's end.
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BIOTECH AND TELECOMM FIDELITY FUNDS... Last week and this week I've shown bullish breakouts in a couple of telecom ETFs (TTH and IYZ) and a near breakout in the Biotech iShares (IBB). Exchange Traded Funds aren't the only way to participate in those leading market groups. The two top performing Fidelity sector mutual funds are also in the biotech and telecom areas. And both are trading at multi-year highs. Chart 3 shows the Fidelity Select Biotechnology Fund reaching a four-year high. Chart 4 shows the Fidelity Select Telecomm Fund trading at the highest level in nearly five years. That's where the current leadership lies.
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BOND YIELDS DIP AS EURO BOUNCES... The striking thing about the next two charts is they usually trend in opposite directions. That of course makes sense. Rising U.S. bond yields boost the U.S. dollar which hurts the Euro. Therefore, rising bonds yields coincide with a stronger dollar and weaker Euro. In today's trading, however, the 10-year Treasury Note Yield is falling. At the same time, an oversold Euro is bouncing. A bouncing Euro suggests that the recent rally in the dollar should start to weaken. That may explain today's bounces in most oversold commodity markets, especially gold. Chart 7 shows oversold streetTracks Gold Trust Shares (GLD) continuing to bounce off their 50-day average.
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CANADA BOUNCES WHILE JAPAN DOESN'T... Two foreign markets that I've focused on recently are Canada and Japan. As the next two charts show, the former is doing better than the latter. Yesterday I showed the Canadian iShares (EWC) starting to bounce off their 50-day average. They're building on that gain again today. The EWC is getting some help from bouncing commodity markets and a strong Canadian Dollar. Its stochastic lines are also turning up from oversold territory under 20. Japan iShares (EWJ) fell today and are still trading beneath their 50-day line. They've been beneath that support line for five days now. Although the Nikkei fell overnight, part of the EWJ loss is coming from a weaker Japanese yen. That's because foreign ETFs are quoted in U.S. dollars. The EWJ needs to close back over its 50-day line in decisive fashion to turn its short-term trend back up again.
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DOW HITS MULTI-YEAR HIGH ... The Dow was the only one of the major averages to reach a new high this week. That continues its new upside leadership that I wrote about last week. With the Dow now above the 11K level, the next potential upside target is its 2001 high at 11350. One of the big reasons for the Dow's strength was Honeywell. Last week I showed the Dow leader closing above 40 for the first time since mid 2001. It continued that bullish trend this week and appears capable of reaching 50. Another big Dow winner was Hewlett Packard. The final chart shows that Dow leader trading at nearly a five-year high. It's usually a good idea to take what the market gives us. With money starting to flow toward the Dow Industrials, stocks like Honeywell and Hewlett are where a lot of the new market leadership is coming from. Along with biotechs and telecom stocks.
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