INDUSTRIALS LEAD STRONG STOCK RALLY -- INDUSTRIAL SPDR CLEARS 200-DAY AVERAGE -- BIG MOVES SEEN IN BOEING, MMM, SOUTHWEST AIRLINES, AND RAYTHEON -- SEMICONDUCTORS LEAD TECHNOLOGY HIGHER -- PLUNGING EURO BOOSTS EUROZONE STOCKS
INDUSTRIAL SPDR TURNS UP ... Throughout the summer, I expressed concern about the weak performance in the economically-sensitive industrial sector. That situation has taken a dramatic turn for the better. Chart 1 shows the Industrials SPDR (XLI) leaping 3% today and trading above its 200-day average. The XLI has also broken a falling resistance line extending back to May. The XLI/SPX ratio (top of chart) has also turned up. That's a good sign for the rest of the market. A number of individual stocks are also having standout performances.
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Chart 1
BOEING, MMM, SOUTHWEST AIRLINES, AND RAYTHEON HAVE HUGE DAYS ... The next four charts show explosive rallies in four stocks in the industrial SPDR. Chart 2 shows Boeing (BA) surging through its 200-day average and falling trendline extending back to February. Chart 3 shows MMM doing pretty much the same. Chart 4 shows Southwest Airlines (LUV) surging to a six-month high. Chart 5 shows Raytheon (RTN) exploding to a new record. Those are big moves and leave little doubt that this group is headed higher. That's a good sign for the stock market.
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Chart 2
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Chart 3
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Chart 4
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Chart 5
SEMICONDUCTORS LEAD TECHNOLOGY SPDR HIGHER... My Tuesday message showed the Technology SPDR (XLK) trading above its 200-day average and showing relative strength. That's even more true today. Chart 6 shows the Technology SPDR (XLK) climbing more than 2% today at a new three-month high. Some of the day's individual leaders are Ebay (12%), Texas Instruments (10%), and Microsoft (3%). The strongest industry group has been semiconductors which have been rallying on consolidation news. Chart 7 shows the Market Vectors Semiconductor ETF (SMH) trading at a four-month high and well above its 200-day average. Its relative strength line (top of chart) has been rising since mid-August. [My Tuesday message showed Intel contributing to that rally]. Chip buying is good for the technology sector and the rest of the market.
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Chart 6
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Chart 7
EURO PLUNGES ON MORE ECB STIMULUS... The main catalyst behind today's strong global stock rally is the ECB promise of more stimulus by the end of the year. The most direct result was a sharp drop in the value of the Euro. Chart 8 shows the Euro plunging nearly 2% today. QE normally results in a weaker currency. A weaker Euro is good for Eurozone stocks which are very export sensitive. European stocks are gaining 2% today along with eurozone ETFs. That's especially true of ETFs that protect against currency weakness. Chart 9 shows the WisdomTree Europe Hedged Equity ETF (HEDJ) jumping nearly 4% to a new two-month high. [By comparison, EMU iShares are up 1.5%]. When foreign investors buy eurozone stocks, they also buy the local currency. That's why it's necessary to choose an ETF that hedges out the negative effect of a falling Euro. Emerging market ETFs are also having a strong day, led by gains in Brazil and China.
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Chart 8
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Chart 9
S&P 500 NEARS TEST OF 200-DAY AVERAGE... Chart 10 shows the S&P 500 nearing a test of its 200-day moving average (red line). That will be a very important test for it and the rest of the market. Despite today's dollar bounce, energy and material stocks are rallying. The fact that economically-sensitive industrials and technology are leading it higher is also a positive sign (as well as the rally in foreign stocks) The only market sector not participating is healthcare. Several of my previous messages have expressed the view that stocks probably bottomed in late September with the successful test of the August bottom, and a subsequent breakout above its September peak. Upward momentum is also being helped by favorable seasonal trends starting in October and lasting through yearend. Recent upturns in various breadth measures have also been noted. All of these factors combined increase the odds that the 200-day average in Chart 10 will most likely be exceeded.
