JUMP IN US MANUFACTURING PUSHES STOCK INDEXES TO NEW RECOVERY HIGHS -- SMALL CAPS HOLD 50-DAY LINE -- UPS PULLS TRANSPORTS HIGHER -- MATERIALS AND ENERGY RIDE COMMODITY WAVE -- ALCOA NEARS 52-WEEK HIGH -- DOLLAR AND BONDS DROP
SMALL CAPS AND TRANSPORTS SURGE... Today's report that US manufacturing rose at the fastest pace since 2004 has had an uplifting effect on global stocks. As a result, stocks are rallying sharply with the S&P 500 trading at a new two-year high. Two other stock indexes appear to have survived more important tests. Small caps and transports had been among the weakest stock groups over the last couple of weeks. Chart 1, however, shows the Russell 2000 Small Cap Index (RUT) bouncing impressively off its 50-day moving average. Transportation stocks are also leading the market higher today. Chart 2 shows the Dow Transports trading back over their 50-day line. A big reason for the day's TRAN surge is the 4.5% jump in UPS to the highest level in six years (Chart 3).
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Chart 1
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Chart 2
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Chart 3
ALCOA NEARS TEST OF EARLY 2010 HIGH ... Basic material and energy stocks have been among the week's strongest groups based on the their strong ties to most commodities which are surging. As a result, energy and materials ETFs have hit new recovery highs. One of the strongest metal stocks has been Alcoa, which has been showing absolute and relative strength since last September. Chart 4 shows the aluminum producer nearing a test of its high reached last January at 17.43 intra-day. Needless to say, a close over that chart barrier would be another bullish development.
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Chart 4
DOLLAR DROP BOOSTS COMMODITIES ... Part of the recent surge in commodities is the drop in the U.S. Dollar. Chart 5 shows the Bullish Dollar ETF (UUP) falling to the lowest level in nearly three months. At the same time, the Euro has climbed to a three-month high (which has improved the tone in European stocks). Chart 6 shows the Canadian Dollar hitting a new recovery high. Canada is benefiting from its production of natural resources (and its distance from the mideast).
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Chart 5
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Chart 6
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Chart 7
BONDS WEAKEN... One asset class that's being negatively impacted by rising commodity prices and economic growth is bonds. And, not surprisingly, bonds are down again today. Chart 8 shows the drop in the Barclays Aggregate Bond iShares (AGG) over the last three months. From all appearances, it looks like the bond ETF is starting to roll over again to the downside.
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Chart 8
GOLD MINERS ETF TESTS 200-DAY AVERAGE... Gold stocks are the only commodity group that have yet to benefit from the falling dollar (along with gold). Chart 9, however, shows the Market Vectors Gold Miners ETF (GDX) testing long-term support at its 200-day moving average. The GDX is also in an oversold condition as shown by its 14-day RSI line (below chart). Chart 11 shows Barrick Gold (the biggest GDX holding) also finding support near its 200 line, as are Yamana Gold and Agnico Eagle Mines (not shown). No actual buy signal signal has been given for the gold group. But it may be time to start watching them more closely for signs of a upturn. One gold stock that has given a buy signal is IAMGOLD (Chart 11).
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Chart 9
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Chart 10
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Chart 11
IAMGOLD BREAKS OUT... One of our subscribers brought to my attention the bullish chart pattern in IAMGOLD which is shown in Chart 12. The daily bars show IAG rising above the upper resistance line in a bullish "symmetrical triangle" that's been forming for more than year. [A symmetrical triangle is identified by two converging trendlines and is completed when one of the two lines is broken]. It remains to be seen if that upside breakout carries bullish news for the entire gold group. But it's certainly a bullish sign for that gold stock.
