MONEY ROTATES TOWARD DEFENSIVE GROUPS -- GOLD STOCKS ARE WEEK'S TOP GROUP -- LONG-TERM CHARTS SHOW STOCKS STILL IN A MAJOR BEAR MARKET
MONEY MOVES TOWARD DEFENSIVE GROUPS ... It's no secret that the market's weakest groups have been financials and consumer discretionary stocks that include autos, homebuilders, and retailers. Those groups have been leading the market lower. It's interesting to see where some money has been going within the falling market. Chart 1 plots the top performing sector SPDRs since the start of the year. The only two in the black are energy and basic materials (although the latter has slipped over the last month). The other two groups are consumer staples and utilities which are in the red for the year. However, those two defensive groups have shown some relative strength of late. Chart 2 plots those same four sector SPDRS relative to the S&P 500 which is the zero line. Chart 2 shows energy, basic materials, utilities, and consumer staples to be doing much better than the S&P over the first six months of the year. Staples and utilities have held up especially well since the middle of May when the market peaked. That's what we would expect to happen in a falling market. Historically, when rising energy prices start to hurt the stock market, money flows into consumer staples and utilities.
Chart 1
Chart 2
GOLD IS THE WEEK'S TOP STOCK GROUP ... The perfect storm of a falling stock market, a falling dollar, and rising commodities lit a fuse under gold this week. Chart 3 shows the Gold ETF (GLD) moving up to challenge its March high at 92. That helped make gold stocks the strongest group of the week. Chart 4 shows the Gold Miners ETF (GDX) trading back over its moving average lines. The simplest way to participate in the gold rally is to buy one of those ETFs. Some of the individual gold stocks, however, are doing even better.
Chart 3
Chart 4
GOLDCORP HITS NEW HIGH ... The three top gold performers since the start of the year are shown next. The top stock is Goldcorp. Chart 5 shows that gold leader exceeding its March high to reach a new record. Chart 6 shows Agnico Eagle Mines testing its May high. Chart 7 shows Kinross Gold having already cleared that initial barrier. All three rising relative strength lines (below charts) are plotted relative to the GDX.
Chart 5
Chart 6
Chart 7
KEEP YOUR EYE ON THE MAJOR TREND ... At times like these, it's a good idea to block out of the media noise and focus on the market's major trend which is still down. The Dow Industrial Average has already fallen to a two-year low and the other stock indexes aren't far behind. The weekly bars in Chart 8 show the S&P 500 bearing down on its March low after its 50% spring bounce failed at its falling 40-week moving average. That's classic bear market activity (as we've pointed out several times). The 14-week RSI line (top of chart) failed a test of resistance at its 50 line. More important, the weekly MACD lines for the S&P 500 turned negative this week. The monthly MACD lines in Chart 9 have remained bearish since the end of last year. They're the most important because monthly lines determine the market's major trend. Chart 9 also puts the major trend of the S&P 500 in better perspective. After bottoming in late 2002, the S&P doubled in price only to fail a test of its 2000 high. Chart 9 also shows that the March bounce started at the 38% retracement line. When that support line is broken, the next downside target would be a 50% retracement of the 2002-2007 bull move. That's in keeping with a similar downside target given by Arthur Hill for the Dow Industrials on June 18. Until proven otherwise, the market remains in a major bear trend. All the talk in the world can't change that. Nor can the Fed.
Chart 8
Chart 9
