FINANCIALS LEAD STRONG MARKET RALLY -- NYSE COMPOSITE BREAKS 50-DAY AVERAGE -- BOND/STOCK RATIO TURNS DOWN - GOLD DROPS AGAIN
NYSE TRADES OVER 50-DAY LINE ... The market is starting the second quarter with a big bang. Led by financial shares, all of the market indexes are trading sharply higher. Perhaps the most significant event is the fact that the NYSE Composite Index is trading over its 50-day average for the first time in a month. Although other market indexes are over their 50-day lines, today is the first time the NYA has been able to do that. Assuming that carries through to the close, that could be the first convincing sign that the market is heading for a test of its February high. A lot will ride on today's closing price and the level of trading activity. A big increase in trading volume would be a big plus. Other market groups that led the fledgling rally since mid-March are leading again today. That includes banks, brokers, homebuilders, retailers, and transports. Bond prices are falling as stocks rise. The dollar is bouncing along with stocks and is pushing gold prices sharply lower.
Chart 1
BOND/STOCK RATIO TURNS DOWN ... Over the weekend, I showed that the bond/stock ratio was continuing to rise. I suggested the continuance of that trend would depend on the ability of the ratio to stay over its 50-day moving average. Chart 2 plots the 7-10 Year T-Note ETF (IEF) divided by the S&P 500 SPDRs (SPY). At midday, the IEF/SPY ratio is trading below its 50-day line. That suggests that the short-term trend is swinging away from bonds and back to stocks.
Chart 2
GOLD CONTINUES SHARP DROP ... The combination of bouncing stocks and a bouncing dollar are combining to keep gold under pressure. The streetTracks Gold ETF (GLD) is down approximately $30 today. The volume pattern is negative. Chart 3 shows, however, that GLD is nearing a zone of potential chart support ranging from 86 to 83 (flat lines). Gold will probably remain under pressure as long as stocks continue to rally. That's because money coming out of gold is flowing back into stocks. MORE LATER.
Chart 3
