STOCK INDEXES STALL AT RESISTANCE BARRIERS -- SECTOR ROTATION REFLECTS PESSIMISM -- NEWMONT JUMPS TO RECORD ON RISING GOLD WHILE FCX PLUNGES ALONG WITH COPPER -- CELGENE AND BRISTOL MYERS SQUIBB LEAD HEALTHCARE RALLY -- VIX BOUNCES OFF CHART SUPPORT
S&P 500 STALLS AT 50-DAY LINE ... Today's modest rally stalled at some important resistance barriers. Chart 1 shows the S&P 500 backing off from its 50-day moving average and its late August high. Chart 2 shows the Nasdaq Composite closing just below chart resistance at 2600 and its 50-day line. Today's action suggests that the short-term bounce is stalling. Tomorrow's market action, however, may depend on its reaction to any announcement coming from the Fed. There's a lot of room for disappointment. In my view, there's not much the Fed can do.
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Chart 1
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Chart 2
LOWER LONG-TERM YIELDS? ... I keep hearing that the bulk of any Fed announcement will involve lowering long-term bond yields. Problem is those yields have been tumbling all year. The 10-year yield has reached the lowest level in sixty years. Chart 3 shows the 30-Year T-bond yield having falling from 4.75% earlier this year to 3.21% which is the lowest level since the end of 2008. If falling bond yields haven't helped, how is lowering them even further expected to?
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Chart 3
SECTOR TRENDS REMAIN DEFENSIVE ... Another sign that investors are taking a negative view of the stock market is the current alignment of sector relative strength. Chart 4 shows the market's three strongest sectors to be utilities, staples, and healthcare (top three lines). All three are defensive in nature. Meanwhile, the three weakest sectors are energy, materials, and industrials (bottom three lines). All three are economically sensitive. That negative alignment doesn't show much confidence in the stock market or the economy.
Chart 4
NEWMONT MINING SURGES TO NEW RECORD -- COPPER PULLS FCX LOWER... Another sign of investor pessimism is seen by contrasting the performance of stocks tied to copper and gold. Chart 5 shows Newmont Mining surging 5% to a new record on strong volume. Newmont is riding on the coattails of a strong gold market. By contrast, Freeport McMoran Copper & Gold plunged to a new 52-week low as shown in Chart 6. FCX is tied more to copper than gold. The line along the bottom of Chart 6 shows copper plunging to a new yearly low. Copper is considered to be a barometer of global economic trends, while gold is where people hide when they see those trends weakening. In a weakening global economy (which is usually signalled in advance by falling stock prices), people buy gold and sell copper. Which is exactly what they're doing.
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Chart 5
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Chart 6
HEALTHCARE LEADERS ... Two healthcare charts that caught my eye today are shown below. The weekly bars in Chart 7 show Celgene surging 7% today to a new 52-week high today and challenging its early 2010 intra-day peak at 65.79. Its relative strength line (below chart) has been rising all year. The monthly bars in Chart 8 show Bristol Myers Squibb trading at a new nine-year high. The chart shows the big pharma stock having just cleared its 2007 peak near 26.
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Chart 7
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Chart 8
VIX BOUNCES OFF SUPPORT... Last Thursday, I showed the CBOE Volatility (VIX) Index testing chart support at 30. Chart 9 shows the VIX bouncing off that support line for the third time in the last month. It's also finding support at its 50-day average. The ability of the VIX to bounce off that support level could cap the S&P 500 which is meeting resistance at its 50-day line.
