MARKET RALLY PUSHES MAJOR INDEXES OVER 50-DAY AVERAGES TO STRENGTHEN SHORT-TERM TREND -- INDUSTRIAL AND TECHNOLOGY SPDRS CLEAR 200-DAY LINES -- BOUNCE IN BOND YIELD BOOSTS BANKS AND FINANCIALS -- EMERGING MARKETS LEAD GLOBAL RALLY
MAJOR STOCK INDEXES ARE ABOVE 50-DAY AVERAGES ... The market's short-term trend continues to strengthen. Today's strong gains have pushed all major U.S. stock indexes above their 50-day moving averages. Chart 1 shows the Dow Industrials trading at a two-month high, with a good shot at the 17000 level. Chart 2 show the S&P 500 in a similar situation. The SPX is headed for a test of overhead resistance near 2000. Chart 3 shows the Nasdaq Composite clearing its 50-day line today and its early February high. The Nasdaq is the last major index to do that, but is the day's strongest index. That improvement by the broader indexes is being matched by stronger individual shares. The percent of NYSE stocks trading above their 50-day averages has climbed from 25% at the start of February to 55%. The next big test could be a test of 200-day averages. A couple of sectors have already cleared that major resistance line.
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Chart 1
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Chart 2
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Chart 3
INDUSTRIAL AND TECHNOLOGY SPDRS CLEAR 200-DAY LINES... Chart 4 shows the Industrials SPDR (XLI) trading above its 200-day average in today's trading. Heavy construction is today's industrial leader. However, strength in transportation stocks is also helping. Delta Airlines (DAL) and United Continental Holdings (UAL) have cleared their 200-day lines. Chart 5 shows the Technology SPDR (XLK) also clearing its 200-day line. Semiconductors are helping lead that rally (more on that shortly). Although not shown here, the Consumer Discretionary SPDR (XLY) may be next. All three are economically-sensitive.
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Chart 4
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Chart 5
RISING BOND YIELDS BOOST BANKERS... Chart 6 shows a strong rebound in the 10-Year Treasury Note yield. In fact, it's the biggest daily jump this year. That explains profit-taking in Treasury bonds and utilities, but is helping make financial stocks the day's strongest sector. Chart 7 shows the Financials Sector SPDR (XLF) climbing nearly 3% today. The three strongest gainers in that sectors are life insurance, banks, and brokers. All three benefit from rising bond yields. Chart 8 shows KBW Bank iShares (KBE) gaining nearly 4% on the day. I recently wrote that banks needed three things to start rallying. One was higher bond yields, the second a higher price of oil, and the third a more stable stock market. Banks are getting all three today.
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Chart 6
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Chart 7
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Chart 8
EMERGING MARKETS LEAD GLOBAL RALLY... Foreign stocks are also rallying strongly today. Europe and Japan are helping lead developed markets higher. Emerging markets, however, are the day's leaders. Chart 9 shows Emerging Markets iShares (EEM) gaining 3.5% and trading at the highest level in two months. Some of its biggest gainers are commodity exporters like Brazil and Russia. Big Asian markets like China, South Korea, and Taiwan are having very strong days as well.
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Chart 9
TAIWAN SEMICONDUCTOR BREAKS OUT TO UPSIDE... The countries with the biggest weight in the EEM are China (24%), South Korea, (15%), and Taiwan (12%). All are up sharply today. The biggest individual stock holding in the EEM, however, is Taiwan Semiconductor (TSM). And it's having a very strong day. Chart 10 shows TSM climbing near 4% to the highest level since last April. The TSM/SPX relative strength ratio (top of chart) is already at a new high. That obviously bodes well for Emerging Market iShares as well as Taiwan iShares (EWT). It may also carry good news for semiconductors. TSM is one of the biggest holdings in a couple of popular semiconductor ETFs.
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Chart 10
SEMICONDUCTOR ETFS CHALLENGE 200-DAY LINE ... Chart 11 shows the Market Vectors Semiconductor ETF (SMH) on the verge of clearing its 200-day average. Its relative strength ratio is also rising. Taiwan Semiconductor is the second biggest holding in the SMH. It's the sixth biggest holding in the SOX Semiconductor iShares (SOXX). Chart 12 shows the SOXX nearing a test of its 200-day line as well. Its relative strength line is also rising.. Semiconductor strength is also helping boost the technology SPDR shown in Chart 5 and the Nasdaq Composite shown in Chart 3. Technology leadership is also a good sign for the rest of the market.
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Chart 11
