DOW INDUSTRIALS NEAR RECORD HIGH -- AT&T LEADS DOW HIGHER, WHILE PFIZER AND PROCTER & GAMBLE HIT NEW HIGHS -- CONSUMER STAPLE SPDR IS WEEK'S STRONGEST GROUP AFTER LAST WEEK'S BULLISH BREAKOUT
DOW NEARS RECORD HIGH ... The Dow Jones Industrial Average is the only major U.S. stock index that hasn't hit a new record. But that may be about to change. Chart 1 shows the Dow trading within 40 points of its September high. A close above that level would put the Dow in new record territory and back in sync with the rest of the stock market. A new high would also confirm the recent upside breakout in the Dow Transports and would continue a Dow Theory uptrend.
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Chart 1
AT&T SURGES TO SIX MONTH HIGH... The Dow's biggest percentage winner is in the telecom group. Chart 2 shows AT&T surging more than 2% today to reach the highest level since April. Last week's message saw a similar jump in another Dow telecom stock -- Verizon. Chart 3 shows Verizon (VZ) having broken a six-month resistance line and challenging its July high. The recent drop in bond yields is helping drive money into those two dividend-paying stocks.
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Chart 2
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Chart 3
PFIZER BREAKS OUT... Chart 4 shows Pfizer (PFE) trading above its April high near 30 to reach to reach the highest level in thirteen years. The monthly bars in Chart 5 show PFE headed toward its 2000 high near 33. Drug stocks as a group have been on a roll of late. The Market Vectors Pharmaceutical ETF (PPH) hit a new record earlier this month. Chart 6 shows another drug stock -- Johnson & Johnson (JNJ) -- nearing a new record as well.
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Chart 4
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Chart 5
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Chart 6
PROCTER & GAMBLE BREAKS OUT TO NEW RECORD... Chart 7 shows another of today's Dow leaders -- Procter & Gamble (PG) -- breaking out to a new record high. The PG/Dow ratio plotted below the chart is starting to turn up after falling from mid-April. That suggests that money is starting to flow back into Dow laggards that were hurt by the tapering scare that started during the spring. That may also explain this week's upside breakout in the consumer staples group.
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Chart 7
CONSUMER STAPLES SPDR BECOMES NEW MARKET LEADER ... Last Thursday's message showed the Consumer Staples Sector SPDR (XLP) hitting a new record. So far this week, staples have been market's strongest sector. Chart 8 shows the XLP climbing sharply during the first two days of the week. Its relative strength line (solid line) has turned up for the first time since mid-April when it started dropping. That was largely due to the spike in bond yields. With the economy showing signs of slowing, and Fed tapering expected to be on hold until next year, investors are moving back into these more defensive groups. There may be a subtle warning in that however. It's normally a sign of increased caution when defensive groups become market leaders.
