MARKET SURGES ON BIG VOLUME -- FCX HITS RECORD HIGH -- SEMIS GAIN MORE THAN 3% -- FALLING DOLLAR PUSHED CRB INDEX TO RECORD HIGH AND BOOSTS FOREIGN ETFS
MAJOR INDEXES HAVE IMPRESSIVE DAY ... I'm not sure exactly what caused today's impressive stock market rally. It might have been a relatively low core inflation figure. Or it may have been comments from a Fed official hinting that the Fed was concerned about raising rates too far. Or it may have been the release of Fed minutes suggesting that most members believed that an end to rate hikes was near. Most likely it was some combination of all three. I admit I didn't see it coming. And I expect I'm not the only one. But it was a big day for stocks. The first three charts show why. The three major stock indexes scored big gains on heavy volume. And all three are now safely over their 50-day moving averages. Virtually all market groups were in the black today. Once again, the biggest sector gains came in basic materials and energy. But other groups with gains of better than 2% included the transports, utilities, small caps, midcaps, banks, and some technology groups.
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FREEPORT MCMORAN COPPER & GOLD HITS NEW HIGH ... The strong action in FCX was reflective of continued strong buying in commodity stocks. The metal stock had been stalled at its February high near 64. A strong earnings report, however, pushed the stock to a new record high and on very strong volume. There's no sign of a letup in the commodities markets and stocks tied to those commodities. For today at least, the rest of the market didn't seem to mind.
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THE SOX CLIMBS MORE THAN 3% ... The strongest group of the day had been one of the market's weakest. So it may deserve a bit more attention in studying today's action. The Semiconductor (SOX) Index climbed 3.4% and was the day's strongest group. The daily bars show that the SOX has been trading between its 50- and 200-day moving averages for the last month. After another successful test of the lower end of its range, it looks like the SOX is trying to make another run to the upside. It closed today right at its 50-day line. It wouldn't take much to push it over that initial resistance barrier. A more impressive showing would be a close over its April high near 527. It's relative strength line fell during March but is starting to act better. That was certainly apparent today. The Semiconductor Holders (SMH) in Chart 6 had a strong day as well. It closed back over its moving average lines and on rising volume. That's a healthy combination. In the past, I've drawn a connection between the Taiwan stock market and semiconductors. That's because Taiwan has the biggest chip weighting in Asia. Chart 7 shows the recent upturn in Taiwan iShares. I recently suggested that a rising EWT might hold good news for the SOX Index. Most foreign ETFS, however, have been getting an added boost from a weaker dollar.
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FALLING DOLLAR BOOSTS FOREIGN ETFS ... After peaking during the fourth quarter, the U.S. Dollar continues to sink. Yesterday it gapped down through its 200-day moving average and fell again today. There are at least two side-effects of the falling dollar. One is rising commodity prices. The Reuters/Jefferies CRB Index broke out to a new record high today. The other effect is strong foreign stock ETFs. Since they're quoted in U.S. dollars, a weaker dollar boosts their value. That's on top of their actual stock gains. Chart 9 shows the EAFE Index iShares climbing almost uninterrupted since last December. [EAFE stands for Europe Australia and Far East]. The green line is the relative strength ratio of the EAFE to the S&P 500. You'll notice that the last two upturns in the relative strength line (green arrows) coincided with downturns in the Dollar Index in December and March. This week's dollar drop has contributed to even better foreign ETF gains. Today, for example, the S&P 500 gained 1.74%. Most foreign ETFs scored gains of better than 2%. Brazil iShares (EWZ) gained 4% while Japan (EWJ) rose 3%. Other ETFs with gains of more than 2% were Australia (EWA), Hong Kong (EWH), Mexico (EWW), Singapore (EWS), South Korea (EWY), and the UK (EWU). Part of those gains are coming from the weaker dollar.
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