SMALL CAPS LEAD LARGE CAPS HIGHER -- FINANCIALS HAVE A STRONG DAY -- BANK AND BROKER ETFS NEAR UPSIDE BREAKOUTS -- PNC FINANCIAL HITS ALL-TIME HIGH -- WELLS FARGO MAY BE NEXT -- CHARLES SCHWAB NEARS UPSIDE BREAKOUT
SMALL CAPS LEAD U.S. RALLY ... Yesterday's message suggested that small caps do better than large caps in a strong dollar environment. That may explain why small caps are trying hard to pull the U.S. stock market out of its recent pullback. Chart 1 shows the S&P 600 Small Cap Index bouncing impressively off its 50-day moving average. It also held above initial chart support along its January high near 690. The small cap/large cap ratio on top of Chart 1 has risen to the highest level in eight months. Midcaps are doing better as well. That's normally a good sign for the rest of the market, including large caps. Chart 2 shows the S&P 500 Large Cap Index trying to climb back over its 50-day line. The SPX remains well above its 200-day average and major chart support near its first quarter low. The three strongest sectors today are utilities, cyclicals, and financials. Utilities are bouncing from an oversold condition along with bonds. Autos and retailers are helping lift the cyclical group. The fact that consumer discretionary and financial stocks are leading on the upside is also a positive sign. Banks and brokers are leading the rally in financials.
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Chart 1
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Chart 2
BANK SPDR NEARS UPSIDE BREAKOUT... Chart 3 shows the KBW Bank SPDR (KBE) climbing more than 2% today and getting ready to challenge highs formed over the last year. An upside breakout would put the KBE at the highest level in seven years. The KBE/SPX ratio (top of chart) has also turned up for the first time in a year. The prospect for higher interest rates in the U.S. (and a stronger economy) may be driving funds into into financial stocks most of which benefit from higher rates. Two of the day's top performers are PNC Financial Services and Wells Fargo.
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Chart 3
PNC HITS RECORD HIGHS -- WELLS FARGO MAY BE NEXT ... Chart 4 shows PNC Financial Services (PNC) surging more than 3% today to a new all-time high. It just recently cleared its Decmber peak near 93. Its relative strength ratio (top of chart) has also surged since mid-January. That's a good combination of absolute and relative strength. Chart 5 shows Wells Fargo (WFC) nearing a test of its previous intra-day peaks at 55.58. An upside breakout would put that big mortgage lender at an all-time high. Its relative strength ratio (top of chart) has also broken out to the upside.
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Chart 4
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Chart 5
CHARLES SCHWARB AND BROKER SPDR NEAR UPSIDE BREAKOUTS... Brokerage stocks (investment services) are also having a strong day with big percentage gains in Goldman Sachs and Morgan Stanley. The chart that caught my eye, however, belongs to Charles Shwab (SCHW). Chart 6 shows the stock testing its 2014 highs. Its relative strength ratio (top of chart) has turned up as well. The easiest way to participate in a rising stock group is through an ETF. Chart 7 shows the Dow Jones Broker-Dealers iShares (IAI) trying an upside breakout of its own. That would put it at the highest level in seven years. Its relative strength ratio (top of chart) has already broken out.
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Chart 6
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Chart 7
DOW JONES GLOBAL INDEX BOUNCES OFF SUPPORT LINE... Yesterday's message showed the FTSE All World Stock Index bouncing off trendline support. Chart 8 shows the Dow Jones Global Index ($DJW) today looking exactly the same. The chart shows the DJW backing off during March from its two 2014 peaks at 334. The good news is that it bounced today off a rising trendline that started last October. It is also finding support at the 38% Fibonacci retracement line measured from its October low to its February high. Foreign stocks have risen over the past two days. Europe experienced minor profit-taking after a strong day yesterday. Asian markets saw big gains today in Japan and China. That suggests that the pullback in global stocks may have run its course.
