STOCK INDEXES EXCEED 50-DAY LINES -- THAT IMPROVES THE MARKET'S SHORT-TERM TREND -- SO DOES THE NYSE ADVANCE-DECLINE LINE HITTING A RECORD HIGH -- NEWMONT MINING LEADS GOLD MINERS HIGHER AS GOLD RALLIES
50 DAY AVERAGES ARE EXCEEDED ... The ability of major U.S. stock indexes to rally back above their 50-day moving averages has improved the market's short-term trend picture. Chart 1 shows the S&P 500 closing above its 50-day average for two consecutive days although the line itself is still flat. [Short-term EMA combinations also appear to be turning positive]. The SPX has also moved well above the 62% retracement line measured from its January high to its February low. That's a sign of strength. Chart 2 shows the NYSE Composite Index clearing its 50-day line today. It's the last index to do that. The NYA has also broken through a "neckline" drawn along the 7100 level. That turns its short-term trend back up again and and erases much of the January/February chart damage.
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Chart 2
NYAD LINE HITS NEW HIGH ... The market has something else going in its favor this week. The NYSE Advance-Decline line has hit a record high. Chart 3 compares the NYAD (green line) to the NYSE Composite Index (black line) since last October. The two lines usually trend in the same direction. The ability of the NYAD to exceed its January high reduces some of the risk of a market downturn. That's because the NYAD usually turns down first at market peaks. Its ability to hit a new record high is a positive sign. A lot of that strength is coming from small cap stocks. Chart 4 shows the Russell 2000 Small Cap Index already challenging its January high. Upside leadership by small caps is a positive sign for the market since it shows traders willing to assume more risk. It's also a positive for the NYAD because there are more small caps in the market than large caps.
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NEWMONT LEADS GOLD STOCKS HIGHER... A big jump in the price of Newmont Mining is helping lead a strong uptick in gold stocks. Chart 5 shows Newmont having cleared its January high at 51 which turns its short-term trend upward. Chart 6 shows the Market Vectors Gold Miners ETF (GDX) trading above its 50-day average for the first time in two months. A big jump in the price of bullion is certainly helping. Arthur Hill recently wrote about the bullish implications of GLD having broken the upper line in a "falling wedge" formation as shown in Chart 7. That upside move carries some other intermarket iimplications. It suggests that the rally in the U.S. dollar is overdone and due for some profit-taking. That would give a boost to other commodities and global stocks. Commodity-based currencies are rallying as well.
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COMMODITY CURRENCIES RALLY ... A close correlation has existed between foreign currencies, commodities, and global stocks (mainly due to their inverse correlation to the U.S. Dollar). The 2010 downturn in the Brazil Real and the Aussie and Canadian dollars coincided with pullback in global stocks and commodities. After bouncing off their 200-day lines, however, all three commodity-based currencies are back over their 50-day lines. That's a good sign for them, commodities, and stocks. It also suggests that the 2010 rally in the U.S. dollar is on thin ice. The only things keeping the greenback up are weakness in the British Pound and the Euro. Most other foreign currencies are rallying against the dollar. That makes the dollar look stronger than it really is.
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