RISING DOLLAR KEEPS COMMODITIES ON THE DEFENSIVE -- FALLING OIL HELPS STOCKS TAKE A TURN FOR THE BETTER -- FINANCIALS, RETAILERS, HOUSING, AND SMALL CAPS LEAD DAY'S GAINS
OIL FALLS AND DOLLAR RISES ... A surprisingly strong second quarter GDP report helped the U.S. Dollar turn in another strong day. Chart 1 shows the Power Shares US Dollar Bullish ETF (UUP) closing near a new recovery high today. That continues the dollar uptrend that started a month ago. The rising dollar kept commodity prices under pressure. The CRB fell more than seven points with most commodities in the red. Energy was hit especially hard. Chart 2 shows the United States Oil ETF (USO) falling more than 2% today. Falling oil prices gave a boost to the stock market, especially to fuel-sensitive groups like transports and airlines in particular ( 8%). Chart 3 shows the Dow Transports hitting a weekly high after bouncing off its 200-day average. Other leading groups were financials, housing, REITS, retailers, and small caps.
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GROUP LEADERS ... Chart 4 shows the Financials SPDR closing at a two-week high; Charts 5 and 6 show the housing and REIT indexes nearing a test of their 200-day average; Chart 7 shows the S&P Retailing SPDR closing just above that resistance line; Chart 8 shows the Russell 2000 Small Cap Index approaching another test of its June high. All of those are positive trends, especially if those overhead resistance barriers are broken.
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NYSE TRIANGLE BROKEN ON THE UPSIDE ... Arthur Hill drew a symmetrical triangle around the NYSE Composite Index yesterday and suggested that a breakout from that pattern would help determine the market's short-term trend. Today's NYSE rally of 116 points was enough to push it through the upper resistance line. Volume was the heaviest in four days. That's a step in a positive direction. Chart 10 shows the rising wedge pattern that I've described recently drawn on the S&P 500. Although the lower line hasn't been broken, I'm now inclined to give less credence to that potentially bearish pattern. A test of the August high now appears more likely. With Friday being the last day of trading for the month, we'll consult weekly and monthly charts to see if there has been any improvement in the market's longer term trend.
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