FED'S BOLD MOVE PUSHES MARKET INDEXES THROUGH RESISTANCE BARRIERS -- DAY'S LEADERS ARE BASIC MATERIALS (INCLUDING GOLD), FINANCIALS, RETAILERS, SMALL CAPS-- LATIN AMERICA LEADS GLOBAL RALLY -- DOLLAR DROPS TO NEW LOW
FINANCIALS SPDR CLEARS 50-DAY LINE ... Yesterday I wrote that one of the things the market needed to regain its footing was for the Financials SPDR (XLF) to clear its 50-day moving average. It did that today in pretty decisive fashion as shown in Chart 1. Equally impressive was the jump in trading volume on the price rise. The XLF still has to contend with overhead resistance at its August high and its 200-day moving average. Today's big gains in banks and brokers, however, has given the market a big boost. In addition to today's bold Fed move in lowering the Fed Funds and Discount Rates 50 basis point, brokerage stocks got an early lift from Lehman Brothers which reported better than expected earnings. The stock's 7% gain paced the entire group. Chart 2 shows Lehman clearing its 50-day line on huge volume. Since most of the recent market weakness has come from financial stocks, today's strong move has lifted a big weight off the market. Other market groups that have been weighing on the market had very strong gains as well, including consumer discretionary stocks (mainly retailers) and small caps.
Chart 1
Chart 2
RETAIL HOLDERS RISE WITH BEST BUY ... It should come as no surprise to read that retailers are sensitive to interest rates. Today's positive reaction in that group is portrayed in Chart 3 which shows the Retail Holders (RTH) closing back over its 200-day line. One of the big reasons for that was Best Buy which gapped 6% higher on huge volume (Chart 4). The jump in retailers helped make consumer discretionary a big winner right behind the financials. Small caps got a little bigger as well.
Chart 3
Chart 4
SMALL CAPS CLEAR RESISTANCE... Small caps have done much worse than large caps so far this year, and have been an added weight on the market. Not today. In fact, small caps did better than large stocks. The Russell 2000 gain of 3.98% put it well ahead of big board indexes like the S&P 500 ( 2.9%). Chart 5 shows the Russell 2000 iShares (IWM) closing above its its 50-day and 200-day moving averages on rising volume. The IWM also closed just above its August intra-day high. New buying in small caps removes another weight from the overall market.
Chart 5
WEAK DOLLAR BOOSTS GOLD SHARES... One of the expected side effects of the aggressive Fed easing was a weaker dollar. That pushed the Euro and Canadian Dollar to new highs. It also boosted gold and gold shares. The 4.0% gain in the Gold & Silver (XAU) Index made it one of the day's strongest groups. Chart 6 shows the XAU topping its summer high to reach the highest level since spring 2006. Gold touched a record high as well, but its reaction may have been muted by the fact that it closes earlier than stocks in New York trading. Other commodity-related stocks benefited from today's dollar drop. Basic materials' gain of 4.2% made it the day's top sector (just ahead of financials). One of the material leaders was Freeport McMoran Copper & Gold which hit a new record (Chart 7). Energy stocks gained 3% on a rising oil price.
Chart 6
Chart 7
BIG DAY ON BIG VOLUME ... The market had a big day on all technical counts. Pricewise, the NYSE Composite Index gained more than 3% and broke through resistance at its early August peak (Chart 8). Volume was the heaviest in weeks. Big board advancers led decliners by a 9 to 1 ratio. [The 13-and 34 day EMAs also turned positive on the S&P 500]. What was also impressive was the broad-based nature of the rally. Virtually every industry group and market sector participated. And where the leadership came from. The biggest gainers were in groups that had been weakest -- like financials, retailers, and small caps. Transports also gained 4%. Foreign ETFs jumped sharply as well. Chart 9 shows the Brazil iShares (EWZ) climbing 7.6% to pace foreign markets. Since Latin America is a big exporter of raw materials, it got a big boost from rising commodity markets (and a weaker dollar). Chart 10 shows the US Dollar Index falling to the lowest level in more than a decade.
Chart 8
Chart 9
Chart 10
