STOCK INDEXES REACH MULTI-YEAR HIGHS AS BOND PRICES SELL OFF -- RISING RATES BOOST DOLLAR -- STOCK/BOND RATIO HAS TURNED UP -- FINANCIALS ARE SHOWING UPSIDE LEADERSHIP -- BANK LEADERS ARE CITIGROUP AND JP MORGAN CHASE
S&P 500 HITS NEW 52-WEEK HIGH ... The daily bars in Chart 1 show the S&P 500 trading over 1380 for the first time since 2008. The S&P 500 would now have to drop back below last week's reaction low at 1340 to disrupt its uptrend. The weekly bars in Chart 2 show show that the next upside target for the S&P is 1440 (lower line) which was the peak formed during the springn of 2008. Beyond that, we now have to consider it likely that the S&P 500 may eventually reach its 2007 peak 1576. The Fed didn't surprise anyone in today's statement. It acknowledged some improvement in the global economy, but didn't hint at any additional action. The stock market appeared to take the Fed announcement in stride. As stocks rose, Treasury bond prices fell.
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Chart 1
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Chart 2
TREASURY BOND ETFS SELL OFF ... Another sign of growing optimism is the fact that investors are also starting to sell some of their Treasuries. Chart 3 shows the Barclays 20+Year Treasury Bond iShares (TLT) falling to a four-month low today. Chart 4 shows the Barclays 7-10 Year Treasury Bond iShares (IEF) falling to six-week low. The Fed's recent policy of buying longer-dated maturities (Operation Twist) has provided support for Treasury bond prices. Investors, however, are finally starting to sell some of their bonds and rotating that money into stocks.
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Chart 3
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Chart 4
RISING DOLLAR PRESSURES GOLD ... The jump in bond yields today may be lending some support to the U.S. Dollar. Chart 5 shows the Power Shares Dollar Index Fund (UUP) closing above its 50-day moving average today. The green line on Chart 5 shows the five-year Treasury yield climbing to the highest level since December, which may be lending support to the dollar. The rising dollar is putting downside pressure on gold. Chart 6 shows the Gold SPDR (GLD) losing ground today as it tests its 200-day moving average. Most other commodities are trading higher today on the hopes for economic growth. Copper is the commodity gainer. Oil is up as well.
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Chart 5
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Chart 6
STOCK/BOND RATIO TURNS UP ... Ratio analysis is one of the best ways to determine whether bonds or stocks are the stronger asset. Bonds were last year's winner. The pendulum has now turned to stocks. Chart 7 plots a ratio of the 20+Year T-Bond ETF (TLT) divided by the S&P 500. After falling throughout most of 2011, the stock/bond ratio bottomed during October and has been rising since then. Today's action, however, is pushing the ratio above its late-October peak and its 200-day moving average. That's a sign that stocks have now become the stronger of the two.
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Chart 7
FINANCIALS LEAD MARKET HIGHER... It's always a good sign when financials are leading the market higher. Chart 8 shows the Financials Sector SPDR (XLF) gaining more than 2% today and trading at the highest level in eight months. The XLF/SPX ratio (below chart) is is also rising. It's been awhile since financials exerted any market leadership. Most of that leadership is coming from banks which is also encouraging. One of the strongest of late has been JP Morgan Chase. Chart 9 shows that large bank stock surging more than 5% today to reach the highest level in ten months. Its RS line (below chart) is rising as well. Chart 10 shows Citigroup breaking out today as well.
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Chart 8
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Chart 9
