STOCKS AND COMMODITIES REMAIN ON THE DEFENSIVE -- BANKS AND FINANCIALS LEAD MARKET LOWER -- GOLD BREAKS 200-DAY AVERAGE AS DOLLAR BREAKS RESISTANCE -- BOND YIELD FALLS SOME MORE -- AMGEN IS NEWEST HEALTHCARE LEADER
FOREIGN STOCKS LEADING US LOWER... Last week I pointed out that the rising dollar was taking a bigger toll on foreign stocks than those in the U.S. That continues to be the case. Today's 2% loss pushed Emerging iShares (EEM) further below their 50-day average and closer to their November low. Asia is leading the day's decine with a 4% drop in South Korea following the death of the North Korean president. Chart 2 shows EFA iShares (EFA) not doing much better. The close correlation between global markets is keeping downside pressure on the U.S. Chart 3 shows the S&P 500 falling today after meeting resistance at its 50-day average. Having been broken to the downside last week, the 50-day line is now acting as resistance (blue arrow).
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Chart 1
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Chart 2
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Chart 3
BANKS LEAD FINANCIALS LOWER... Financials are the day's biggest losers. Chart 4 shows the Financials SPDR (XLF) down by 2.5% and trading at the lowest level in a month. Its relative strength line (below chart) is dropping again. The biggest financial losers are banks. Chart 5 shows the Bank Index SPDR (KBE) down by a similar amount, The KBE has met resistance at its 50-day line. Of the nine sector SPDRs, six are trading below their 50 and 200-day moving averages. The only three that aren't are healthcare, staples, and utilities. All three are defensive sectors which have resumed their role as market leaders. That's a bad sign for the market.
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Chart 4
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Chart 5
COMMODITIES REMAIN WEAK... Commodity markets are falling right along with stocks. Chart 6 shows the Commodities Tracking Fund (DBC) trading near a three-month low. Chart 8 shows Gold Trust Shares (GLD) having fallen below their 200-day line (on rising volume) for the first time since 2009. I believe the main reason for that selling was the ability of the Dollar Index (UUP) to exceed its early October high last week (Chart 8).
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Chart 6
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Chart 7
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Chart 8
BOND YIELDS FALL AGAIN ... Chart 9 shows the 10-Year T-Note Yield falling today to the lowest level in three months (red circle). That's bad news for stocks which have been following bond yields lower all year. The S&P 500 (blue bars) has already formed a negative pattern of "lower highs" which is usually the sign of a weakening trend.
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Chart 9
AMGEN IS LATEST HEALTHCARE LEADER ... Healthcare was one of last week's top sectors owing to strong performances by drug stocks, many of which hit 52-week highs. The top percentage gainer in the group for the week, however, was a 5.3% gain by Amgen. The monthly bars in Chart 10 show the biotech bellwether challenging its 2011 peak near 60, as well as a resistance line drawn drawn over 2008, 2009, and 2011 highs. Its relative strength line (below chart) has turned up as well. The chart action suggests that Amgen may be on verge of a bullish breakout. The fact that money is moving into defensive groups like healthcare increase the odds of that happening.
