BASIC MATERIAL AND ENERGY STOCKS HAVE STRONG DAY AS COMMODITIES RISE -- GOLD ALSO TURNS UP -- COMMODITY EXPORTING COUNTRIES REACH NEW RECORDS -- CONSUMER DISCRETIONARY SPDR IS DAY'S WEAKEST SECTOR AND BACKS OFF FROM 200-DAY LINE
COMMODITY COUNTRIES HIT NEW HIGHS... On Monday, I wrote about three foreign stock markets that were at or close to new record highs. Those three markets are Brazil, Canada, and Russia. What all three have in common was that they are producers and exporters of commodities. By the end of the week, all three markets had hit new records. Chart 1 and 2 show Brazil iShares (EWZ) and the Market Vectors Russia ETF (RSX) hitting new highs. Both cash indexes have done the same. Chart 3 shows the Toronto Composite Index (TSE) hitting a new record high as well. Canada iShares (bottom of Chart 3) have not reached new highs yet. As I explained on Monday, a flat Canadian Dollar is causing the iShares to lag behind Canadian stocks. Not surprisingly, the top sector in the Canadian market is basic materials. That's also true in the U.S. as commodity markets have a strong day.
Chart 1
Chart 2
Chart 3
ENERGY AND MATERIAL SPDRS HIT NEW HIGHS... Anything tied to commodities had a good day. In a generally flat Friday market, the Energy and Material SPDRS jumped to record highs (Charts 4 and 5). Their relative strength ratios (top of charts) have been rising steadily since last August. A new record high for crude oil is keeping energy stocks in a leadership role. A strong Friday rally in commodities is keeping basic materials in an uptrend as well. That includes Alcoa and Freeport McMoran Copper & Gold which had a breakout week.
Chart 4
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ALCOA AND FREEPORT MCMORAN REMAIN LEADERS... The previous week I showed Alcoa and Freeport McMoran Copper & Gold approaching bullish breakouts. Chart 6 shows Alcoa closing over 40 for the first time in ten months (and on rising volume). Its relative strength (RS) line (bottom of chart) is breaking out as well. Chart 7 shows Freeport McMoran hitting a new record high along with its RS line. That stock gets most of its power from copper which is bouncing at week's end. Gold and gold stocks are ending the week on a strong note as well.
Chart 6
Chart 7
DOLLAR DROP BOOSTS GOLD ASSETS ... A drop in the U.S. Dollar today gave a big boost to gold assets. Chart 8 shows the streetTracks Gold Trust (GLD) jumping the equivalent of $20 today. More importantly, GLD is breaking a down trendline drawn over its March/April highs. RSI and MACD lines have turned positive as well. Gold stocks gained more than 2%. Chart 9 shows the Market Vectors Gold Miners ETF (GDX) regaining its 200-day average and breaking a resistance line of its own. Daily MACD lines have turned positive.
Chart 8
Chart 9
CONSUMER DISCRETIONARY STOCKS WEAKEN... A big drop in consumer confidence partially accounts for today's weak showing in consumer discretionary stocks (which include retailers and homebuilders). Any new selling in that group would be coming at a bad time for it and the rest of the market. On Wednesday, Arthur Hill showed the Financial SPDR (XLF) forming a "rising wedge". Chart 11 shows the Consumer Discretionary SPDR (XLY) forming the same negative pattern. [A rising wedge has an upward slope with prices trading between two converging trendlines. It's normally a bearish pattern]. The Commodity Channel (CCI) Index shows some negative divergence from an overbought market. More importantly, the XLY is in the process of testing its 200-day moving average. Chart 12 shows the XLY also testing a resistance line drawn over its July-October highs. The XLY has also regained 50% of its July/January losses. That puts the 2008 rebound in this key market sector at a crucial juncture. With so many other stock market indexes testing their 200-day lines, this is a dangerous spot for the entire market. It doesn't seem healthy when the market's strongest groups are inflation stocks and its weakest groups are financials and retailers. Maybe that's why some money is starting to flow back into gold.
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Chart 11
