NASDAQ SURGES HIGHER -- NY COMPOSITE HOLDS APRIL BREAKOUT -- MATERIALS SECTOR LEADS THE WAY -- ENERGY SECTOR HITS NEW HIGH -- US STEEL, FREEPORT MCMORAN, DUPONT AND MONSANTO SHOW STRENGTH
BROAD RALLY LIFTS WALL STREET ... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor
Spurred by positive news from Intel (INTC), JP Morgan (JPM) and Wells Fargo (WFC), stocks surged on Wednesday. The NY Composite and the Nasdaq were both up over 2.5%. Chart 1 shows the Nasdaq gapping back above 2300 and closing above its 50-day moving average. This is the third big move above 2300 since mid March. Perhaps the third time will be the charm for the bulls. The index surged above resistance with a break above 2300 in late March. After a pullback to 2250, the Nasdaq gapped up on 1 April to reclaim 2300 with another big surge. There was another sharp pullback in mid April, but the index held support at 2250 and again gapped above 2300. While the move reinforces support at 2250 and the gaps are bullish, I am a little concerned because volume was just average today. A big move on big volume would be more convincing.
Chart 1
NY COMPOSITE CHALLENGES RESISTANCE... Chart 2 shows the NY Composite with its fourth surge above 9200 since 1 February. The index broke resistance around 8900 with a big move on 1 April, and broken resistance turned into support. This support level held over the last few days as the index again surged above 9200 with a big move today. The move reinforces support around 8900. Resistance just below 9400 is the next big challenge. As with the Nasdaq, I find today's surge impressive on price, but lacking in volume. NYSE volume was below average on Wednesday. Moreover, volume has been below average since the 1 April surge. For now, price action rules the roost and volume takes a back seat. The Nasdaq and the NY Composite are both in good shape as long as the support levels from this week's lows hold.
Chart 2
MATERIALS SECTOR LEADS THE WAY... The Materials SPDR (XLB) remains one of the strongest sectors in the market. John Murphy noted strength in copper last Thursday and rising commodity stocks on Tuesday. Today, strength in steel, chemicals and gold powered the materials sector higher. Chart 3 shows XLB with a large inverse head-and-shoulders pattern over the last 7 months. The left shoulder formed in November, the head in January and the right shoulder in March. The technical situation was looking bleak in March when the 50-day moving average crossed below the 200-day moving average. However, the ETF showed some serious resilience the last few weeks as the 50-day moving average moved back above the 200-day moving average. Even more impressive, XLB broke above neckline resistance and recorded a new 52-week high today. The Energy SPDR (XLE) and the Materials SPDR (XLB) are the only two sectors that can claim new 52-week highs. Chart 4 shows XLE with a massive diamond formation and a new 52-week high today.
Chart 3
Chart 4
SECTOR PERFCHARTS... Materials and energy are leading in absolute terms and in relative terms. The two PerfCharts below showing the nine sector SPDRs with the S&P 500. The first shows absolute performance for the year-to-date. In the upper left-hand corner, notice that the S&P 500 is not highlighted and all the tabs are white. The index is down over 9% year-to-date, while seven of the nine sectors are also down year-to-date. The Materials SPDR (XLB) and the Energy SPDR (XLE) are the only two sectors with gains for 2008. Even though these absolute gains are small, they sure beat the double-digit losses shown in the weakest three sectors (technology, healthcare and financial). Note: these PerfCharts do not include price action from 16 April.
Chart 5
The second PerfChart shows relative performance for 2008. In the upper right-hand corner, notice that the S&P 500 is highlighted and the other tabs are white. This means that performance is relative to the S&P 500, not absolute. You can click on the other tabs to see performance relative to another sector. This histogram looks quite different, but conveys the same basic message. Energy and materials show the most relative strength. In addition, the consumer discretionary, industrials, consumer staples and utilities sectors are holding up better than the S&P 500. The bulk of the losses in the S&P 500 stem from losses in the technology, healthcare and financial sectors. These three are down more than the S&P 500. Hence, they show relative weakness.
Chart 6
LEADERS IN THE MATERIALS SECTOR... Representing the steel group, US Steel (X) has been one of the top performers since early February. The stock is up over 50% from its February lows and hit a new 52-week high today.
Chart 7
Representing the agriculture-chemical group, Monsanto (MON) is up over 30% since mid March and hit a new 52-week high today. The stock bounced off its 200-day moving average in mid March and broke channel resistance over the last few weeks.
Chart 8
Representing the diversified chemical group, Dupont (DD) broke resistance with a surge in early April. The stock has yet to forge a new 52-week high, but shows good relative strength with a clear break above the February-March highs. Also notice that DD broke pennant resistance with today's surge.
Chart 9
Representing metals and mining, Freeport McMoran Copper & Gold (FCX) broke above resistance with an April surge. In addition, the 50-day moving average moved back above the 200-day moving average. Like Dupont, the stock formed a small consolidation (flag) and broke flag resistance with today's surge. FCX remains short of a 52-week high, but shows relative strength because it is trading at its highest levels for 2008.
Chart 10
