NORTH KOREAN MISSILES AND RISING BOND YIELDS RATTLE GLOBAL STOCKS -- GOLD AND OIL RISE -- CRB INDEX TOPS 50-DAY AVERAGE
CRB INDEX CLEARS 50-DAY LINE ... Commodity markets continue the new rally that began with the recent bounce off their 200-day moving average. Today's gain has pushed the Reuters/Jefferies CRB Index back above its 50-day moving average. Fourteen of the nineteen commodities are in the black with some of the biggest gains coming from precious metal and energy markets. Part of the commodity strength is due to new selling in the U.S. Dollar that started after last week's Fed announcement that was viewed as less hawkish on interest rate rises. Part of today's buying is probably also due to yesterday's North Korean missile launch. While that's pushing money into gold and oil, it's causing nervous profit-taking in global stock markets. The biggest foreign ETF losses are in Asian markets like South Korea (-3.6%), Japan (-3%) and Taiwan (-2.7%). A report of strong June job growth is pushing bond yields higher today, which is also causing some stock market selling. The rising relative strength line in Chart 1 shows that commodities continue to outperform U.S. stocks. Despite their recent losses, commodities remain the strongest overall asset class.
Chart 1
GOLD REGAINS ITS LUSTER ... Last week's Fed announcement was viewed by the market as an indication that the Fed's battle against inflation was nearly over. That view is called into question by the action of gold prices which started to jump on the dovish Fed statement. Gold is up another $13 today and is nearing a test of its 50-day moving average. Gold stock are pulling back. However, the AMEX Gold Bugs Index (HUI) has already cleared that resistance barrier. Silver is rising as well. A combination of economic and geopolitical factors appears to be drawing money back into precious metals and their related stocks. The energy patch looks even stronger.
Chart 2
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OIL TOUCHES $75 AS OIL STOCKS RALLY... Crude oil rose more than a dollar today and touched $75 for the first time in nearly two months. That puts crude dangerously close to a new record high. That's causing serious buying of energy shares which have regained their role as the market's strongest sector. Chart 5 shows the Energy Sector SPDR (XLE) trading above its early June high after exceeding its 50-day line in the middle of last week. Its rising relative strength line reflects new leadership in the energy patch. Chart 6 shows the Oil Service Holders (OIH) close to exceeding their 50-day average.
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GLOBAL STOCKS FALTER ... Chart 7 shows today's drop in the Dow Jones World Stock Index occurring right at its 50-day moving average. Chart 7 slows slightly more dramatic action with the lower gap in the EAFE Index iShares (EAFE stands for Europe Australia and the Far East). Most of that lower gap is the result of heavier selling in Asian markets. The good news is that today's pullback came on relatively light trading. We'll need a few more days of trading to determine if today's selling is just a one-day event or something more serious. The same is true for the U.S. market where several market indexes (including the S&P 500) are testing their 50-day averages (Chart 9).
Chart 7
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Chart 9
