CHIP ETFS HIT NEW HIGH -- AMAT, LAM RESEARCH, AND SANDISK ACHIEVE BULLISH BREAKOUTS -- METLIFE AND PRUDENTIAL LEAD INSURANCE RALLY -- FORD AND GM LEAD AUTO GROUP -- FALLING YEN BOOSTS JAPANESE STOCKS
CHIPS CONTINUE TO EXCEL... Last Wednesday's message showed the Market Vectors Semiconductor ETF (SMH) moving up to challenge its 2014 highs. It has since broken out to the highest level in fourteen years. Chart 1 shows the PHLX Semiconductor iShares (SOXX) doing the same. I'm switching to the SOXX today because it is more closely aligned with the PHLX Semiconductor (SOX) Index. The SOXX is also doing better than the SMH since the start of 2014 by factor of 14% to 11%. That's mainly due to different weightings given to the best performing stocks. Intel (the biggest holding in both EFTs) has broken out to the highest level in 12 years. Taiwan Semiconductor is testing its 2000 high. Other chip leaders -- Applied Materials, Lam Research, SanDisk, and Broadcom -- hit 52-week highs on rising volume. Their relative strength lines broke out as well. SanDisk and Lam Research hit record highs.
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Chart 1
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Chart 2
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Chart 3
LONG TERM CHIP CHARTS ARE BULLISH... Monthly charts continue to paint a bullish picture for chip stocks. The monthly bars in Chart 4 show Applied Materials (AMAT) having risen above its 2007 high to reach the highest level in 11 years. Its relative strength ratio (solid line) has been rising since 2012 and also looks positive. Chart 5 shows Lam Research (LRCX) rising above its 2007 peak to reach a new record. Its RS line (top of chart) is rising as well. Chart 6 shows SanDisk (SNDK) also trading at a new record. Its RS line (top of chart) is close to doing the same.
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Chart 4
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Chart 5
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Chart 6
BUYING LIFE INSURANCE... Investors are buying heavily into life insurance stocks which are rallying strongly. Chart 7 shows the Dow Jones U.S. Insurance iShares (IAK) breaking out to a multi-year high today. Its relative strength line (top of chart) appears to be turning up after being flat for the last three months. Today's insurance leader in Chart 8 shows Metlfe (MET) in the process of hitting a multi-year as well (Chart 8). Its RS line is rising as well. Upside volume over the last two days has also been impressive. Chart 9 shows Prudential Financial (PRU) gapping up more than 2%. Its RS line is rising as well. Insurance is the strongest part of the financial sector.
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Chart 7
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Chart 8
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Chart 9
FORD LEADS AUTOS HIGHER... Arthur Hill wrote a positive message on the auto group yesterday and featured stronger chart action in Ford and GM. Today's message shows how right he was. Chart 10 shows the Dow Jones US Automobile Index ($DJUSAR) surging to the highest level in three months. U.S. autos are leading the group higher and with good reason. Ford sales in May were the best in a decade, while GM had the best month since 2007. Chart 11 shows Ford (F) breaking out to the highest level this year. Its RS line (solid line) has turned up as well. Chart 12 shows General Motors (GM) climbing 4% to move back above its 200-day moving average. Its RS line is starting to climb as well. Autos are the stongest part of the economically-sensitive cyclical group.
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Chart 10
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Chart 11
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Chart 12
JAPAN STOCKS ARE RISING ON WEAKER YEN... Last Wednesday's message showed the Wisdom Tree Japan Hedged Equity ETF (DXJ) consolidating in a bullish triangular formation over the last year (after leading the world higher during the first half of 2013). Chart 13 shows the DXJ climbing this week to the highest level since January. It was one of the week's strongest performers. Part of the reason is that the DXJ hedges out the negative impact of a weaker yen. That's especially important considering that a weaker yen is one the of main reason Japanese stocks are rising. And it's starting to weaken again. The green bars on Chart 13 show the Japanese yen trending in the opposite direction of the DXJ. A yen bounce in January coincided with a stock peak. The yen has lost -1.4% since May 20 against the dollar. The DXJ gained 7% during those two weeks.
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Chart 13
IMPORTANT ECB DECISION COMES TOMORROW... The Euro has fallen more than 2% over the last month on the view that dangerously low eurozone inflation data would force the European central bank to take a more aggressive approach toward looser monetary policy. The sense of urgency increased on yesterday's report that May euro inflation fell to 0.5%, the lowest level in four years. Mario Draghi announced a month ago that the ECB was ready to act this month if things didn't get better. He'd better do so, and in a convincing fashion. One of the ways to combat euro deflation is to weaken the Euro. The euro has fallen on the May promise, and European stocks and bonds have rallied. Chart 14 shows the Euro testing its 200-day moving average against the dollar. That puts it at an important chart juncture. There's a lot riding on tomorrow's announcement.
