SOUTH KOREA LEADS EMERGING MARKET HIGHER -- BRAZIL ISHARES NEAR UPSIDE BREAKOUT -- RECORD HIGH FOR AUSTRALIAN DOLLAR GIVES BIG BOOST TO AUSSIE ISHARES -- S&P 500 BOUNCES OFF 50-DAY AVERAGE -- NASDAQ COMPOSITE AND 10-YEAR NOTE YIELD CLOSE ABOVE 50-DAY LINE
SOUTH KOREA LEADS EMERGING MARKETS HIGHER... Last week's upside breakout in emerging markets is still holding. Chart 1 shows Emerging Market iShares (black line) having risen to a new three-month high. The strongest component in that group is Korea iShares (red line) which is nearing its February high. Brazil iShares (blue line) looks ready to break through its early March high which would turn its trend back up again. New buying in emerging markets is lending support to other global stock markets including the US.
Chart 1
AUSTRALIA ISHARES NEARS UPSIDE BREAKOUT... Another market leading the global stock rally is Australia. The daily bars in Chart 2 show Australia iShares (EWA) nearing a new three-year high. The solid line lagging behind is the Australia All Ordinaries Index. Although both are rising, the iShares are rising much faster. The reason for that is this week's upside breakout to a new record by the Australian Dollar (green line above chart). I explained last week in reference to Canada that a foreign stock ETF will rise faster than its cash market when its currency is stronger than the dollar. [That's because the ETF is quoted in a weaker US currency]. That's certainly the case in Australia. So you can buy either the currency or the iShares to take advantage of that rising trend.
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Chart 2
NASDAQ CLEARS 50-DAY LINE... Today's upside reversal kept the S&P 500 above its 50-day line as shown in Chart 3. Having cleared that resistance line last week, it's important for the SPX to stay above it. Also encouraging is today's close by the Nasdaq Composite Index (and the Nasdaq 100) above their 50-day lines. Chart 4 shows the COMPQ closing above the blue line for the first time in three weeks. Although volume remains light, today's upside price action is encouraging for stocks. So is the action in bond yields.
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Chart 3
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Chart 4
10-YEAR YIELD EXCEEDS 50-DAY LINE... We've pointed out numerous times the positive correlation between stock prices and bond yields. In other words, bond yields trend in the same direction as stocks while bond prices fall when stocks rise. That's because rising bond yields are indicative of a strengthening economy and rising inflation expectations that go along with that. Chart 5 shows the 10-Year Treasury Note Yield (TNX) closing above its 50-day average today. The line on top of the Chart 5 is the S&P 500. Notice how similar they look. What's good for stocks is usually bad for most bonds (except high yield which trend in the same direction as stocks).
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Chart 5
DOW INDEXES RALLY... UTILITIES REBOUND... Charts 6 and 7 show the Dow Industrials and Transports rallying nicely together. That's a healthy sign for the market and the economy. [I pointed out last week that an upside breakout by rail stocks (owing to the movment of commodities like coal) was a positive sign for the economy]. Utility stocks have had a tough time owing to their association with nuclear energy after the Japanese disaster. After bouncing off its 200-day average, however, Chart 8 shows the Dow Utilities starting to recover as well.
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Chart 6
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Chart 7
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Chart 8
TELECOM TAKES OFF ... The weekly bars in Chart 9 show AT&T surging to a two-year high in heavy trading (not shown). Its relative strength line (below chart) has turned up for the first time in six months. Verizon has an even better chart. The monthly bars in Chart 10 show Verizon Communications (VZ) breaking out to a new record high.
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Chart 9
