RISING UTILITIES BOOST DIVIDEND ISHARES ---- CHINA LEADS EMERGING MARKETS HIGHER -- STOCK INDEXES BOUNCE AGAIN OFF 50-DAY LINES -- GLOBAL X SILVER MINERS ETF BREAKS OUT -- SILVER STANDARD RESOURCES MAY BE NEXT SILVER STOCK TO DO SO
NEW INTEREST IN DIVIDEND PAYING STOCKS... I wrote a Janury 13 message entitled: "DIVIDEND APPRECIATION ETFS OFFER CONSERVATIVE ENTRY FOR NERVOUS BOND HOLDERS". Two such ETFS that I showed were Vanguard Dividend Appreciation (VIG) and the DJ Dividend Index iShares (DVY). As I explained in that earlier piece, dividend paying stocks are more defensive in nature. Generally speaking, they lag behind the rest of the market during an uptrend, but hold up better in a downtrend. That point is demonstrated by the relative strength line of the DVY versus the S&P 500 over the last year in Chart 1. During the downside correction of the S&P 500 (top of chart) last spring, the Dividend iShares did much better than the SPX. Since last September, however, the DVY has underperformed the rising SPX. Notice, however, that ratio line has been rising since February. That shows that more conservative investors are starting to favor large-cap defensive stocks that include consumer staples, healthcare, and utilities. That enables them to participate in the market uptrend but in a more cautious way. In the earlier article, I focused in the Vanguard ETF (VIG) because of its stronger performance at the time. I'm focusing on the DVY today because of its stronger recent performance. Chart 2 shows the DVY hitting a new 52-week high today. A lot of its recent strength comes from a surging utility sector.
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Chart 1
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Chart 2
UTILITIES HIT NEW 52-WEEK HIGH LED BY DTE AND DOMINION ... Chart 3 shows the Utilities Sector SPDR (XLU) breaking out to a new two-year high. Its relative strength line (below chart) has just started to rise for the first time in six months. Utilities are the top weighted sector in the DJ Dividend iShares (32%) which helps explain this week's strong action in the DVY. DTE Energy (DTE) is one of the biggest holdings in the DVY. Chart 4 shows that stock breaking out to a new all-time high. Chart 5 shows another big utility holding -- Dominion Resources (D)-- also hitting a new 52-week high. I'm not sure why utilities have done so well this week. I can only suspect that investors (or money managers) are turning a bit more defensive on the overall market (especially with recent spikes in oil prices and commodities in general).
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Chart 3
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Chart 4
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Chart 5
CHINA LEADS EEM HIGHER... Last Thursday's message showed Emerging Market iShares (EEM) climbing back over its 50-day moving average after finding chart support along its late-November low. I took that as a sign that the correction/consolidation in emerging markets might be coming to an end. Chart 6 shows the EEM holding that upside breakout. I also showed China iShares (FXI) climbing above its 50-day average and a down trendline (red line) drawn along its November/January highs. Today's action in Chart 7 shows the FXI surging 2.7% and on rising volume. The main catalyst for today's buying is news that China eased reserve requirements for some Chinese banks. That news also boosted shares in Hong Kong which are up nearly 3% today. A stronger Chinese market is usually good news for everyone else.
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Chart 6
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Chart 7
STOCK INDEXES BOUNCE OFF 50-DAY LINES... The 50-day average is used by many chartists (including me) as an important line of defense in any market pullback. A decisive close below that line is usually sufficient to trigger a short-term sell signal. [By contrast, a close above a 50-day line is usually a requirement for a new buy signal as in the case of the EEM and the FXI in Charts 6 and 7]. The good news is that the stock market continues to find support at its 50-day line. Two market indexes that were in the most danger of breaking that line are shown below. Chart 8 shows the Power Shares QQQ Trust (QQQQ) bouncing off that support line today, while Chart 9 shows the Russell 2000 Small Cap Index ($RUT) also bouncing sharply from the blue line. Foreign stocks are also maintaining their uptrend. Chart 10 shows EAFE iShares (EFA) consolidating above its 50-day line. [EAFE stands for Europe Australasia and Far East].
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Chart 8
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Chart 9
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Chart 10
GLOBAL X SILVER MINERS ETF HITS NEW HIGH ... While I've turned increasingly bullish on precious metals over the past month, I've explained that silver stocks were the strongest stocks in that group owing to the stronger performance by that commodity. I've also shown the recent upside breakout by Silver Wheaton (SLW) which is the silver leader both in performance and size. In my audio updates, I've talked about the Global X Silver Miners ETF (SIL) which offers a way to buy a basket of silver stocks. [More information on the SIL can be found at www.GlobalXFunds.com]. Generally speaking, silver (and silver stocks) outperform gold stocks when the stock market is in an uptrend and the economy is strengthening (as is the case right now). Two other silver stocks in the SIL that recently hit new highs are Coeur D'Alene Mines (CDE) and Silvercorp Metals (SVM). The next silver stock to watch for a possible upside breakout is Silver Standard Resources (SSRI). Chart 12 shows the stock challenging its December high. Gold and silver pulled back today along with oil. I doubt that we've seen the top in those key commodities or their related shares.
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Chart 11
