STOCK INDEXES STAY ABOVE 200-DAY LINES -- RAILS LEAD TRANSPORTS HIGHER -- BOND FUNDS HAVE STRONG DAY -- NEWMONT MINING HITS FOUR-YEAR HIGH IN STRONG GOLD GROUP
FIXED INCOME ETFS GAIN GROUND... While some money is starting to creep back into stocks, investors are still showing enthusiasm for bonds. And I'm not talking just about Treasuries. More impressive gains were seen in other bond categories like corporate bonds and TIPS. Chart 1 shows the High Yield Corporate Bond ETF (HYG) closing above its 50-day line for the first time in two months. Chart 2 shows the Investment Grade Corporate Bond ETF (LQD) breaking out of a short-term "symmetrical triangle". It did so on noticeably heavy volume as well. Chart 3 shows the TIPS Bond Fund also turning higher. To me, that suggests that investors are willing to embrace more risk, but aren't yet ready to abandon bonds for stocks.
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Chart 1
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Chart 2
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Chart 3
RAILS TURN UP ... I wrote on Thursday that the ability of transportation stocks to turn higher was an encouraging sign, and described the group testing some overhead resistance. Chart 4 shows the Transportation Index iShares (ITY) testing their early June high and 50-day average. A close above the blue line would put the transports in a leadership role. We've also pointed out that, up to now, airlines were the main drivers behind the transportation rally. Let's now add rails to that list. Chart 5 shows the Dow Jones US Railroad Index having already turned up. It's rising relative strength line (below chart) is another sign of strength. One of today's rail leaders is Union Pacific. Chart 6 shows that rail stock having broken through its 50-day average and nearing a test of its spring high. Other rail leaders with similar strong patterns include CSX, Kansas City Southern, and Norfolk Southern. Their strength increases the odds for a similar upside breakout in the IYT.
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Chart 4
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Chart 5
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Chart 6
MARKET INDEXES STAY ABOVE 200-DAY AVERAGES... Stocks managed a modestly higher close today. The good news, however, is that major stock indexes are holding above 200-day averages that were exceeded on Tuesday. Chart 7 shows the Dow Industrials finding support at its red line (currently at 1032). Chart 8 shows a similar pattern for the S&P 500. That benchmark is finding support at its 200-day line near 1109. The hourly bars in Chart 9 show that the SPX is also finding support along its early June peak at 1105. That support should hold if the recent upturn is to continue. Assuming it does, the next test for both indexes will be a test of their (blue) 50-day lines. Once again, volume was light which shows that investors aren't showing much enthusiasm jumping back into stocks. Even so, the market's short-term trend appears to be improving.
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Chart 7
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Chart 8
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Chart 9
NEWMONT MINING NEARS RECORD HIGH ... Gold rallied another $12 today and is on the verge of a record high. Gold stocks gained 2.5% and were the day's strongest group. Chart 10 shows the Market Vectors Gold Miners ETF gapping up to a new four-week high on rising volume. The standout gold performer was Newmont Mining which exceeded its May peak (Chart 11). More importantly, the weekly bars in Chart 12 show Newmont reaching a four-year high and challenging its early 2006 peak just above 60. Its relative strength line (below chart) is rising as well. Newmont's large size makes it an influential gold stock. Its strength is a bullish sign for gold stocks and gold.
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Chart 10
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Chart 11
