STOCKS END THE WEEK ON A HIGH NOTE -- BUT SMALL CAPS STILL LAG -- BIOTECH AND INTERNET STOCKS LEAD FRIDAY'S BOUNCE -- GOOGLE AND FACEBOOK LEAD INTERNET GROUP HIGHER -- GOLD MINERS ARE DOING BETTER THAN BULLION -- SILVER STOCKS ARE EVEN STRONGER
U.S. STOCK INDEXES END WEEK HIGHER... A strong rebound on Friday helped U.S. large cap stock indexes end the week higher. That kept their uptrends intact. The week's strongest gainers were the Dow Industrials (+0.92%). Chart 1 shows the Dow Industrials ending the week above 17,000 and well above initial chart support near 16800 and their 50-day moving average. The Dow also remains above its January high near 16,600 (see trendline). Friday's up volume was slightly less that Thursday's down volume. But the week's volume flow was generally positive. The same is true for the Nasdaq and S&P 500. Chart 2 shows the Nasdaq Composite Index bouncing off initial chart support at 4351 (and its January high). The Nasdaq gained +0.38% on the week. Chart 3 shows the S&P 500 (which gained .54%) staying above initial chart support at 1952.
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Chart 1
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Chart 2
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Chart 3
SMALL CAPS CONTINUE TO LAG BEHIND ... One of the nagging concerns about the current market rally is the lack of participation by small cap stocks. This week's action was another example of that troubling trend. The Russell 2000 Small Cap Index lost -0.72% this week (versus a +0.54 gain by the S&P 500 Large Cap Index). In a strong uptrend, small caps should be rising with large caps. Chart 4 shows the early July top in the Russell 2000 failing to overcome its early March peak and losing 4.5% since then. The RUT/SPX relative strength ratio (below the chart) shows how badly small caps have lagged behind. Since March 4, small caps have lost -4.7% while the S&P 500 has gained +5.5%. That 10% underperformance by the RUT is the worst since 2011 when the market was in the midst a major downside correction. The good news is that the RUT hasn't yet suffered any serious chart damage. Friday's 1.5% gain kept it above its 200-day moving average. The RUT may also be finding support at its 62% Fibonnaci retracment level measured from its May low to its July peak (green lines). Although I remain concerned about the relative weakness of small caps, the RUT would probably have to fall below its May low to signal a serious problem with the rest of the stock market. For the record, small caps usually peak first at market tops. Janet Yellen's comment at midweek that small caps were "stretched" contributed to some of this week's selling.
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Chart 4
BIOTECHS BOUNCE OFF 50-DAY LINE... Two other groups Ms. Yellen mentioned as being "stretched" include biotechs and social media stocks. Both of those groups have also been underachievers since the spring. Chart 5 shows Biotech iShares (IBB) trading well below their February high. Their relative strength line (below chart) has also been falling over the last five months. A 3% bounce on Friday made biotechs one of the day's strongest groups. Chart 5 also shows the IBB bouncing off its 50-day moving average. One of the biggest contributors to Friday's gain came from Gilead Sciences (GILD). Chart 6 shows GILD gaining 4.8% on Friday which kept it above chart support along its February high (see trendline). Its rising relative strength line (below chart) shows that GILD has been a market leader since April. Amgen hasn't been a biotech leader, but is often viewed as a bellwether for the group. Chart 7 shows Amgen (AMGN) climbing 2.5% on Friday which was more than enough to keep it above its moving average lines.
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Chart 5
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Chart 6
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Chart 7
GOOGLE AND FACEBOOK LEAD INTERNET GROUP HIGHER... Internet and social media stocks have also been market laggards since the spring. But they were market leaders on Friday. Chart 8 shows Google (GOOGL) climing 4% to close at the highest level in four months. It did so in very heavy trading. That's a strong combination. Its relative strength line (below chart) rose to the highest level in three months. Chart 9 shows Facebook (FB) gaining 3% on Friday to close just shy of a new recovery high. Its relative strength line is rising as well. Since these are two of the biggest stocks in the Internet/social media group, their strong action suggests better days ahead for the group. While biotech stocks were the strongest part of the healthcare sector on Friday, Internet stocks led the technology sector higher. Chart 10 shows the Dow Jones Internet index breaking out to a new four month high. Google and Facebook are two of the biggest reasons why.
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Chart 8
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Chart 9
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Chart 10
GOLD STOCKS STARTING TO OUTPERFORM GOLD... Gold mining stocks are doing better than the commodity itself. Since the start of 2014, the Market Vectors Gold Miners ETF (GDX) has gained 27% versus a 9% gain in bullion. That stronger miner's action is reflected in the rising GDX/gold ratio shown in Chart 11. The ratio has exceeded its spring high to reach the highest level in ten months. That tells us two things. First, that miners are a stronger bet than the commodity. Second, it's a good sign for bullion itself. That's because gold usually does better when miners are leading it higher. Within the precious metals group, silver stocks are doing even better than gold miners. That can be seen in Chart 12 which plots a ratio of the Global X Silver Miners ETF (SIL) divided by the Market Vectors Gold MIners ETF (GDX). They're about even since January. Since the start of June, however, the SIL has gained 26% versus a 20% GDX gain. The reason for the stronger performance of the silver miners is the fact that silver has outgained gold by an 11% to 5% margin. That suggests that silver miners may be a stronger bet than gold miners.
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Chart 11
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Chart 12
SILVER LEADERS... Two top silver performers are shown below. Both are also included in the Gold Miners ETF. Chart 13 shows Pan American Silver Corp (PAAS) having recently reached a new 52-week high. It has done much better than the precious metals group as a whole this year. Its relative strength line (top of chart) is also rising. Chart 14 shows Silver Wheaton (SLW) moving above a "neckline" drawn over its 2013/2014 highs, and very close to exceeding its March 2014 high. Its relative strength line (top of chart) is also starting to rise. SLW is the largest holding in the Silver Mining Index (SIL) and the fourth biggest holding in the Gold Miners ETF (GDX). Silver may be getting its strength from the fact that it's both an "industrial" as well as a "precious" metal. As a result, it may be getting a boost from recent stronger industrial metals like aluminum, copper, and zinc. At a time of growing global tensions, it's a good idea to have some precious metals exposure. At the moment, mining stocks (and silver stocks in particular) may be the best way to do that.
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Chart 13
