STRONG JOBS REPORT GIVES STOCKS A BIG LIFT -- GENERAL MOTORS LEADS AUTOS HIGHER AS TESLA JUMPS -- RAILS TOP INDUSTRIAL SECTOR AS NORFOLK SOUTHERN, CSX, AND UNION PACIFIC HIT NEW RECORDS
STOCKS BOUNCE OFF CHART SUPPORT... Friday's announcement that U.S. payrolls rose by 203,000 during November with the unemployment rate falling to 7% (the lowest level in five years) topped a week of encouraging economic news. Stocks rose strongly on that report, which suggests that good news is finally being recognized as good news. Recently, it seemed like every sign of economic strength raised concerns that it increased the odds for earlier Fed "tapering" of its monthly bond purchases which would push bond yields higher. Bond yields did jump initially on Friday before ending unchanged on the day. It should be remembered, however, that bond yield had already gained twelve basis points during the week. The fact that bond yields weakened yesterday afternoon no doubt encouraged stock bulls. There seems little doubt that bond yields will climb higher next year. The good news, however, is that they'll be climbing for the right reasons -- stronger economic growth with little or no inflation. Friday's rally appears to have ended the recent pullback. Chart 1 shows the Dow Industrials climbing 198 points (1.26%), and did so well above chart support drawn along its September peak. The only thing missing was higher volume. Chart 2 shows the S&P 500 climbing 20 points (1.12%). The SPX bounced off initial chart support at its mid-November intra-day low at 1777. Its 14-day RSI line (above chart) bounced off 50 which is good. Its daily MACD lines improved on the day, but remain negative. They will need to turn positive to confirm resumption of the uptrend. As I suggested earlier in the week, the market usually ends the month of December on a strong note (the Santa Claus rally). Odds of that happening this year now look a lot better.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
AUTOS ARE REBOUNDING... Auto stocks were one the week's strongest cyclical groups. Chart 3 shows the Dow Jones Automobile Index ($DJUSAU) consolidating in a "triangular" formation since September, after leading the market higher since the spring. [A triangle is defined by two converging trendines and is usually a continuation pattern]. That means odds favor resumption of its uptrend. The auto/SPX ratio (solid line) is showing signs of turning up after dropping since September. One of the biggest drags on the group has been the drop in Tesla Motors (TSLA). Chart 4, however, shows the stock bouncing from its 200-day moving average (red line), after having retraced 50% of the past year's climb. The RSI line (above chart) is also bouncing from oversold territory at 30. [Tesla was also the week's top stock pick by Morgan Stanley]. The week's strongest auto stock, however, was General Motors (GM). Chart 5 shows the auto leader jumping to a new record high on Friday (on strong volume). Its relative strength line (above chart) also broke out to a new high. A stronger auto group is good for the market and the economy.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
RAILS RIDE TO NEW RECORDS... Back on November 12, I wrote a bullish piece on rails with the headline: "Rail Index Hits New High -- CSX Is Close". The index of rail stocks was just breaking out of a bullish "ascending triangle" that had formed since the spring. The rails were the strongest part of the industrial sector this week and hit a another record high. CSX has also hit a new record. So too have a couple of other rail stocks. The week's strongest railroad stock was Norfolk Southern (NSC). The monthly bars in Chart 6 shows the strong trading at a new record. The NSC/SPX ratio (top of chart) is rising as well. Chart 7 shows a similar record in CSX. It just recently exceeded its 2011 high near 25. Friday's chart standout, however, was Union Pacific (UNP). The daily bars in Chart 8 show the stock breaking through its July peak to reach a new record as well. Its relative strength ratio (above chart) has been rising since the start of November. It's also a good sign for the economy when rail stocks are doing so well. They have to move the goods that companies produce.
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
(click to view a live version of this chart)
Chart 8
INTEL BOUNCE BOOSTS CHIPS... Semiconductor stocks were the strongest part of the technology sector this week. A lot of Friday's strength in the chip space came from Intel (INTC). Chart 9 shows the stock gapping 2.3% higher on Friday. Upside volume was also impressive. In the meantime, the Market Vectors Semiconductor ETF (SMH) rose to a new 12-year high (top of chart). The daily bars in Chart 9 show that Intel still needs to clear its June high to break out of its 2013 trading range. That would put Intel in position to test even more important long-term overhead resistance. The monthly bars in Chart 10 show Intel in a holding pattern since 2012 (see circle). During 2012, it backed off from a challenge of its late 2003 peak around 27. It may be getting ready for another run at that long-term price barrier. Needless to say, an eventual close above its 2012 intra-day peak at 2762 would be a major bullish breakout. That would give an even bigger boost to the SMH which is already trading at the highest level since 2001 (top of chart). Not only is Intel the biggest stock in the SMH, it's been a group laggard. The Intel/SMH relative strength ratio (below Chart 10) shows just how weak the stock has been relative to the SMH. New upside leadership by its biggest stock would be a good thing for both (not to mention the technology sector and the rest of the market).
(click to view a live version of this chart)
Chart 9
