GLOBAL STOCKS SURGE -- EUROPE RALLIES ON GREEK AID -- CHINA LEADS EMERGING MARKETS HIGHER -- S&P 500 CLEARS MOVING AVERAGE LINES -- SMALL CAPS AND NASDAQ CLEAR INITIAL RESISTANCE -- A LOT OF TODAY'S BUYING WAS DUE TO THE FALLING DOLLAR
STRONG EURO BOOSTS EUROPEAN STOCKS ... News of more aid for Greece pushed the Euro higher today and European stocks along with it. Chart 1 shows the Euro climbing to a three-week high today and finishing back above its 50-day average. European stocks surged along with it. Chart 2 shows Europe 350 iShares (IEV) surging more than 2% to turn its short-term back up again. Its relative strength ratio (below Chart 2) had been weakening during May on the weaker Euro. Today's upside turnaround suggests that lower European trend has ended. The weaker dollar resulting from the bouncing Euro also gave a boost to global stocks and commodities.
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Chart 1
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Chart 2
CHINA LEADS EMERGING MARKETS HIGHER... Last Thursday's message showed Emerging Market iShares (EEM) rebounding off its 200-day average and suggested that a weaker dollar (and stronger commodities) would give a big boost to this asset class which suffered a large downside correction during May. Today's drop in the dollar helped the EEM climb back above its 50-day line as shown in Chart 3. Its RS line (below chart) is just starting to turn higher for the first time this month. Chart 4 shows Brazil iShares (EWZ) trading back over its 200-day line. The line below Chart 4 is the Brazil Real (BZF) which jumped sharply against the greenback today. Brazil stocks are closely tied to the trend of commodity markets (since it's a big commodity exporter), as are Chinese stocks (which is a big commodity importer). Chinese stocks also had a very strong day which carries more good news for global stocks and commodities. Chart 5 shows China iShares (FXI) surging 2.6% today to a new four-week high. Its RS line (below chart) is starting to climb as well. I suggested last Thursday that a weaker dollar would be a big help to global stocks, especially those tied to commodities like some of the larger emerging markets.
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Chart 3
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Chart 4
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Chart 5
MARKET INDEXES CLEAR RESISTANCE LINES... U.S. stocks had a strong day today and, in so doing, cleared some overhead technical hurdles. Chart 6 shows the S&P 500 closing back above its 20- and 50-day moving average lines and closing right at its late May peak at 1345. Small caps did even better. Chart 7 shows the Russell 2000 Small Cap Index climbing 1.4% and clearing initial chart resistance at 839. It's usually a good sign when small caps are showing relative strength. The same with technology. Chart 8 shows the Nasdaq Composite Index climbing nearly 1.4% and also clearing its moving average lines and its late May peak at 2828. And it did so on rising volume. In my view, one of the main catalysts for today's rally in stocks (and most commodities) was the drop in the U.S. currency to a new three-week low which pushed it back below its 50-day average.
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Chart 6
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Chart 7
