MATERIALS AND DISCRETIONARY SPDRS CLEAR 200-DAY AVERAGES -- CHEMICAL LEADERS ARE DOW, DUPONT, AND EASTMAN -- WHIRLPOOL EXCEEDS 200-DAY LINE -- BROADCOM AND ASML LEAD SEMICOMDUCTORS HIGHER -- CORPORATE BONDS JUMP AS TREASURIES SLIDE

A LOT OF 200-DAY LINES ARE BEING TESTED OR EXCEEDED... Major stocks indexes in the U.S. are moving up to challenge their 200-day averages. Those are important tests because the 200-day line is the measure most used by chartists to distinguish uptrends from downtrends. A number of group indexes are already clearing that resistance line. Chart 1 shows the Materials Sector SPDR (XLB) trading over its 200-day average for the first time since last summer. The XLB has been driven higher by precious and industrial metal miners. Today's gain, however, is being led by chemicals. Chart 2 shows Dow Chemical (DOW) climbing 3% and nearing a two-month high. It's already trading over its 200-day line. [DuPont (DD) has a similar chart]. Chart 3 shows Eastman Chemical (EMN) climbing above its 200-day line in today's trading. Material stocks are a big beneficiary of the upturn in commodity prices.

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Chart 1

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Chart 2

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Chart 3

CONSUMER DISCRETIONARY SPDR CLEARS 200-DAY LINE... My Wednesday message suggested that a close over its 200-day line by the Consumer Discretionary SPDR (XLY) would be a good sign for it and the rest of the market. Chart 4 shows that upside breakout taking place today. Durable household products are one of the leading groups in the XLY (along with travel & tourism, footwear, and auto parts). Today's individual stock leader is Whirlpool (WHR). Chart 5 shows the stock clearing its 200-day line in pretty decisive action. Upside breakouts by the XLB and XLY may be signs that money is moving back into more economically-sensitive stock sectors.

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Chart 4

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Chart 5

SEMICONDUCTOR ETF CLEARS 200-DAY LINE... Chart 6 shows the PHLX Semiconductor iShares (SOXX) having cleared that barrier (as has the Market Vectors Semiconductor SMH). One of today's chip leaders is Broadcom (AVGO). Chart 7 shows that leader on the verge of breaking out to a new record. Chart 8 shows ASML Holding having just cleared its 200-day average and risen to a seven-month high. Buying in semiconductors is a good sign for the technology sector and the Nasdaq market.

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Chart 6

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Chart 7

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Chart 8

CORPORATE BONDS JUMP ... My Wednesday message showed money flowing back into corporate bonds. Yesterday's ECB announcement that it would start buying eurozone corporate investment grade bonds may have accelerated that trend. That gave a lift to that asset class in Europe and here. The green bars in Chart 9 show the iBoxx Investment Grade Corporate Bond iShares (LQD) trading over their October high to complete a bottom. At the same time, the price of safe haven Treasury bonds (red line) is dropping. That's a sign of growing confidence and the willingness to take on more risk. The same is true of junk bonds. Chart 10 shows the iBoxx High Yield Corporate Bond iShares (HYG) jumping to a four-month high today and on the verge of clearing its 200-day line. It has also exceeded a falling resistance line extending back to last June. That's another vote of confidence, which is also a good sign for stocks which are rallying all over the world today.

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Chart 9

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Chart 10

EMERGING MARKET CURRENCIES TURN UP ... A big part of the global rally in stocks is the growing belief that commodities have bottomed, and along with them assets tied to commodities. That includes energy and mining stocks, as well as foreign currencies and stocks that produce commodities in developed and emerging markets. I've recently shown upturns in the currencies and stocks in Australia and Canada which are continuing today. I've also mentioned several commodity-producing emerging markets which are helping lead the global rally, like Latin America and Russia. Emerging market currencies are highly correlated to their stocks. That's why our next chart is encouraging. Chart 11 shows the Wisdom Tree Dreyfus Emerging Currency Fund (CEW) clearing its 200-day line for the first time in eighteen months. The CEW includes currencies from Latin America, South Africa, Turkey, China, South Korea and others in Asia. Many of those are highly correlated to the direction of commodity prices.

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Chart 11

COMPARISON OF EM AND COMMODITIES ... Our last chart is intended to show two things. First, that emerging market currencies (green line) and EM stocks (red bars) trend in the same direction. The chart shows, for example, that both turned down in 2014 and have recently bottomed. The second point is that emerging market currencies and stocks are closely tied to commodity prices (solid area). Chart 12 also shows that the EM slide beginning in 2014 coincided with a slide in commodities. Here's where it gets interesting. If commodities have truly bottomed, then emerging market currencies and stocks probably have done the same. The fact that EM currencies have already cleared their 200-day average is another sign that the bottoming process in all three has begun.

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Chart 12

SUMMARY... Global stocks and commodities (except for gold) are ending the week on a strong note. U.S. stock indexes are nearing tests of their 200-day averages. Most market sectors have already cleared that line, including some economically-sensitive ones shown here today. Commodity assets continue to rally around the world. I take that as more evidence that commodity prices have bottomed, which reduces the deflationary threat that has weighed on global stocks and bonds. Stronger commodity prices (and stocks) should start exerting upward pressure on government bond yields. That process may have already begun with fixed income funds rotating out of safe haven Treasuries and into riskier corporate bonds. The U.S. Dollar has started to weaken again, especially against commodity currencies in Australia and Canada (and emerging markets). A weaker dollar should give commodities an added boost. A rebound in bond yields could start helping banks which are having a strong day. Higher yields could also lessen the appeal of defensive consumer staples and utilities that pay dividends (which were today's weakest groups). Most importantly, the week's positive action strengthens the view that the stock correction that started last year has most likely ended.