GLOBAL STOCKS RALLY -- U.S. STOCK INDEXES NEAR OLD HIGH -- NASDAQ REACHES 13-YEAR HIGH -- BIG TECH LEADERS INCLUDE CISCO, KLAC, AND MICROSOFT -- DOLLAR DROP MAY GIVE BOUNCE TO OVERSOLD GOLD MARKET
EAFE ISHARES CLEAR 50-DAY AVERAGE -- EMERGING MARKETS JUMP ... Yesterday's comments by Mr. Bernanke that the Fed was still in an easing mode gave a big lift to global stocks today, which has spilled over to the U.S. Chart 1, for example, shows EAFE iShares (EFA) trading back over its 50-day average for the first time in two months. [EAFE stands for Europe Australasia and the Far East]. The EAFE fell below its 50-day line shortly after Mr. Bernanke's May 22 comment on Fed "tapering" of bond buys (red circle). It's also encouraging to see the EFA having survived an important test of its 200-day average during June. Although much weaker, emerging markets are also showing some bounce. Chart 2 shows Emerging Market iShares (EEM) trading above initial chart resistance at its late June peak. China's stock ETF (FXI) gained more than 5%.
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Chart 1
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Chart 2
U.S. STOCKS INDEXES NEAR OLD HIGH ... Charts 3 and 4 show the Dow Jones Industrial Average and the S&P 500 having cleared their mid-June highs and on a path to challenge their spring highs. Even the NYSE Composite Index (NYA) has joined the rally. Chart 5 shows the NYA having survived a major test of its April low (and 200-day average) during June. It is now trading back over its June peak and 50-day line. The Nasdaq Composite has already cleared its 2013 highs
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Chart 3
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Chart 4
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Chart 5
NASDAQ COMPOSITE INDEX REACHES 13-YEAR HIGH ... The most impressive performance belongs to the Nasdaq Composite Index, which has climbed to the highest level in thirteen years. I take that as a very strong sign for the stock market as a whole. I've written before about my belief that the Nasdaq top during the spring of 2000 ushered in the start of a secular bear market and a "lost decade" in stocks, and that its 2012 upside breakout ended that secular bear trend. After trading sideways between its 2002/2009 lows and its 2007 peak, the Nasdaq broke out to the upside last year (green circle) and has been climbing since then. [To quote from my 2012 book Trading with Intermarket Analysis: "Figure 16.6 shows the Nasdaq Composite moving above its 2007 high during the first quarter of 2012 to reach the highest level in 12 years...that's a very bullish breakout and suggests that the secular bear market in the Nasdaq has ended"]. That's a big reason why I believe the past "decade of bonds" is over and that the current decade will favor stocks.
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Chart 6
BIG NASDAQ LEADERS INCLUDE CISCO, KLAC, AND MICROSOFT... A number of large technology stocks are helping to lead the Nasdaq market higher and are showing very impressive long-term price trends. The monthly bars in Chart 7 show Cisco Systems (CSCO) trading at a three-year high and moving up to challenge its 2010 peak. A close above that level would be even more bullish. Its relative strength ratio (dashed line) has also turned up over the last year after lagging behind the S&P 500 since 2010. On June 4, I wrote a bullish message on the semiconductor group which is a big part of the technology sector. I showed KLA-Tencor (KLAC) close to achieving a major bullish breakout. The monthly bars in Chart 8 show KLAC having since broken out to the highest level in more than ten years. The chip leader is now rising above its 2002 intra-day peak at 59.86. That same June 4 message showed Microsoft achieving a major bullish breakout of its own. The monthly bars in Chart 9 shows Microsoft (MSFT) having cleared its 2007 peak. After consolidating around the breakout point, the stock appears poised to resume its new uptrend. It's hard not to be bullish on the stock market with such promising charts in big stocks like these.
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Chart 7
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Chart 8
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Chart 9
FALLING DOLLAR GIVES A BOOST TO GOLD... The U.S. dollar fell sharply after yesterday's Fed comment. [Any hint of Fed tightening, and rising rates, is bad for gold. More Fed easing, and lower rates, is supportive to gold]. Chart 10 shows the PowerShares Dollar Bullish ETF (UUP) gapping down today from resistance at its May peak. The falling dollar gave a boost to most commodities, and gold in particular. The orange candles show the Gold Trust SPDR (GLD) climbing 1.6% higher today. Gold, however, has a lot work to do on the upside to suggest that it's downtrend has ended. One thing it may have going for it is a deeply oversold condition. The weekly bars in Chart 11 show GLD having retraced 62% of its 2008/2011 rally, which often acts as a support level (lowest horizontal line). In addition, the 14-week RSI (below chart) is on oversold territory (below 30). That combination (along with a weaker dollar) may be enough to produce a gold rebound. Moving average trends, however, show that gold is still in a major downtrend. Speaking of being oversold, the Gold Miners Bullish Percent Index ($BPGDM) (which is at the top of Chart 11) is at zero, which is the lowest level since 2008. It can't get any more oversold than that. That $BPGDM measures of percent of gold miners on point & figure uptrends. The BPI would have to rise from zero to eight to signal a possible short-term bottom for gold stocks.
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Chart 10
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Chart 11
BERNANKE COMMENT GIVES BIG BOOST TO HOMEBUILDERS ... Homebuilders also had a strong day today -- thanks to Mr. Bernanke. First, a little background. Mr. Bernanke's warning on May 22 about the Fed's tapering its bond-buying program pushed Treasury yields sharply higher. As a result, the Dow Jones U.S. Home Construction iShares (ITB) tumbled (see red box). After successfully testing support along its February/April lows and its 200-day average, the ITB gapped 5% higher today. Today's strong rally in homebuilders is the result of Mr. Bernanke "walking back" some of his hawkish comments after yesterday's close, which caused bond yields to drop today. That new enthusiasm for homebuilders is lending more support to the stock market.
