JUNK BONDS JUMP WHILE TREASURIES LOOK TOPPY -- MAJOR STOCK INDEXES CLEAR 50-DAY AVERAGES -- FEDEX JUMPS 3% ON STRONG VOLUME -- FALLING DOLLAR TESTS MARCH PEAK -- COMMODITIES EXPERIENCE MINOR BOUNCE -- FED ANNOUNCEMENT TOMORROW MAY TEST STOCK RALLY

HIGH YIELD BOND ETF SURGES ... Action within the various bond categories show more optimism. Chart 1 shows the IBoxx High Yield Corporate Bond Fund (HYG) surging to the highest level in a month. The HYG cleared its 50-day moving average last Thursday. Since junk bonds are highly correlated to stocks, their upside breakout shows more optimism on the stock market. Chart 2 shows the 20 +Year Treasury Bond Fund (TLT) starting to weaken. Its 14-day RSI line (above chart) has turned down, as has its daily MACD lines (below chart). The TLT is also threatening to fall below its (dashed) 20-day moving average. A decisive close below that initial support line could signal a further drop toward its lower Bollinger band (blue up arrow). Selling in Treasuries is also coming from a stronger stock market. That's consistent with last Thursday's message in which I suggested that a stronger stock market need higher bond yields (and lower Treasury prices).

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Chart 1

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Chart 2

S&P 500 CLEARS 50-DAY LINE... Stocks had having another good day. Chart 3 shows the S&P 500 clearing its 50-day average. It's also testing its April lows around 1360. A close above that level would be even more impressive. Chart 4 shows the Dow Industrials having already cleared their April low at 12700. Chart 5 shows the Nasdaq Composite Index trading over its 50-day line, and nearing a test of its April low near 2950. A number of individual sectors also cleared their 50-day lines, including materials, consumer discretionary, industrials, and technology.

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Chart 3

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Chart 4

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Chart 5

FEDEX SURGES 3%... Arthur Hill a showed strong transportation rally being fueled by upturns in airlines, rails, and trucks. One of the today's biggest gainers is in air freight. Chart 6 shows FedEx surging 3 percent in rising volume. After recently bouncing off its 200-day average, FDX has touched the highest level in three months. The stock's relative strength line (below chart) turned up in early May and is still rising. The weekly bars in Chart 7 also paint a positive picture. They show FDX in a sideways trading range over the last two years between 95 and 70. Its weekly RSI line (above chart) is meeting support at the 50 level. Its relative line ratio (solid line) bottomed last October and has formed a pattern of "higher lows". That a positive combination of absolute and relative strength. The rest of the market usually does better when FedEx is showing relative strength.

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Chart 6

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Chart 7

FALLING DOLLAR TESTS MARCH HIGH ... A falling U.S. Dollar over the past month is helping to support the stock market rally. That's because the dollar usually acts a safe haven when markets are under pressure. The rebound in foreign currencies also show a bit more confidence in foreign markets. Chart 8 shows the Power Shares US Dollar Index Bullish Fund (UUP) in a short-term downtrend. It is now in the process of retesting its March low which should act as a support level. Whether or not the UUP holds at that level will help determine if the dollar selloff gets more serious. While the weaker dollar is boosting stocks, it isn't doing much for commodity markets. Chart 9 shows the DB Commodities Tracking Index Fund (DBC) rebounding from a short-term oversold conditions. The trend of the DBC, however, is still clearly down.

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Chart 8

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Chart 9

TOMORROW'S FED ANNOUNCEMENT... The Fed will announce any changes to its policy tomorrow afternoon. There's been a lot of talk about the possibility of more Fed easing (QE3), or some extension of Operation Twist (where the Fed sells short-term paper and buys bonds). That may be helping fuel this week's stock gains. It will be interesting to see how the markets react.