GLOBAL STOCKS BOUNCE SHARPLY ON POSSIBLE GREEK COMPROMISE -- DOW AND S&P 500 BOUNCE OFF INITIAL CHART SUPPORT -- NASDAQ HOLDS 50-DAY LINE -- SMALL CAPS LEAD ON THE UPSIDE -- RISING BOND YIELDS KEEP BANKS AND INSURANCE STOCKS RISING
STOCKS BOUNCE SHARPLY OFF CHART SUPPORT... Reports of a compromise between the Germans and Greeks to prevent a default later this month appears to be contributing to a strong global stock rally. European stocks are up 2% on average. U.S. stocks are having a strong day of their own. The daily bars in Chart 1 show the Dow Industrials bouncing very sharply off initial chart support at its early May low. That's not too far from its 200-day moving average (red line). The Dow is trying to regain its 50-day moving average (blue line). The S&P 500 has already done that. Chart 2 shows the SPX also bouncing off its early May low in impressive fashion. A one-day gain isn't enough to turn its short-term indicators positive, but they are improving. The 14-day RSI line (top of chart) is close to moving above its 50 line. Daily MACD lines (below chart) are still negative, but the spread between the two lines is narrowing. The "hourly" bars in Chart 3 show the S&P 500 bouncing off its May low more clearly. Hourly RSI lines have bounced from oversold territory, while hourly MACD lines have turned positive, which helps explain today's strong action. The falling trendline, however, shows where the SPX may meet resistance.
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Chart 1
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Chart 2
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Chart 3
NASDAQ AND SMALL CAPS REMAIN LEADERS ... Chart 4 shows the Nasdaq Composite Index rising sharply today after surviving a test of its 50-day average yesterday. The ability of the Nasdaq to hold that support line is also positive for the market's short-term trend. So is the strong action in small cap stocks. Chart 5 shows the Russell 2000 Small Cap Index rising to a new six-week high. It too is trading above its 50-day average. The ability of those two leading indexes to hold firm has helped limit downside damage in large cap indexes.
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Chart 4
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Chart 5
RISING BOND YIELDS BOOST LIFE INSURERS... Chart 6 shows the 10-Year 10-Note yield continuing to climb to a new eight-month high. As we've explained in several previous messages, rising bond yields are good for banks and insurance stocks. While all nine market sectors are up today, financials are the day's strongest gainers. Bank and insurance stocks are the two principal reasons why. Chart 7 shows the Dow Jones US Life Insurance Index gaining more than 2% and breaking through its December high. Its relative strength ratio (above chart) has been rising along with bond yields. Individual insurance leaders today are Prudential, Metlife, Lincoln National, and Unum. Chart 8 shows those four life insurance leaders at or near upside breakouts.
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Chart 6
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Chart 7
Chart 8
BANKS CONTINUE TO HIT NEW HIGHS... Bank stocks continue to lead the financial sector higher on the rising trend of bond yields. That allows banks to charge more for their loans. Banks have the largest number of stocks hitting new 52-week highs. One of them is Goldman Sachs (GS) which is nearing its 2007 high (Chart 9). JP Morgan, PNC, and Wells Fargo are already trading at record highs. Chart 10 shows the KBW Bank SPDR (KBE) contining its 2015 climb to a new seven-year high. Its rising relative strength line (top of chart) shows the bank ETF to be a market leader since January -- when bond yields started rising.
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Chart 9
