TREASURY YIELD FALLS TO FOUR-YEAR LOW -- LOWER MORTGAGE RATES ARE BOOSTING HOMEBUILDERS -- HOME CONSTRUCTION ETF NEARS UPSIDE BREAKOUT -- KBH HAS ALREADY BROKEN OUT -- OIL SERVICE ETF CONTINUES TO SHOW LEADERSHIP -- TRANSOCEAN CLEARS 200-DAY LINE
10-YEAR TREASURY YIELD TESTING 2012 LOW... The plunge in global bond yields continues. Yesterday's statement from the Bank of England of its intention to lower rates sometime this summer pushed the British 2-year yield into negative territory for the first time, and its 10-Year to another record low further below 1%. Treasury yields continue to follow foreign yields lower. Chart 1 shows the 10-Year Treasury Yield falling again this morning and coming dangerously close to its 2012 closing low near 1.40%. The drop in yields is boosting dividend-paying stocks like consumer staples, telecom, utilities, and REITs. Falling yields are also boosting gold which is a non-yielding asset that attracts money when yields are low and falling. Falling yields may also be responsible for recent buying of higher-yielding emerging markets. Homebuilders are also getting a lift.
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Chart 1
HOME CONSTRUCTION ISHARES TURNING UP... Mortgage rates, which are tied to the direction of bond yields, are also falling. That's good news for homebuyers and homebuilders. Charts reflect that optimism. Chart 1 shows the U.S. Home Construction iShares (ITB) moving up close to a new high for the year after bouncing off chart support along its May low and 200-day average. It's also back above both moving average lines. The ITB/SPX ratio (top of chart) is also close to a new 2016 high. Chart 3 shows KB Home (KBH) already trading at a 10-month high. Other homebuilders nearing upside breakouts are PulteGroup (PHM) and DR Horton (DHI).
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Chart 2
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Chart 3
TRANSOCEAN LEADS OIL SERVICE STOCKS HIGHER... Energy stocks continue to show market leadership. A lower dollar today is also contributing to the buying of commodity-related stocks. Chart 4 shows the VanEck Vectors Oil Service ETF (OIH) up more than 2%. Its relative strength ratio (top of chart) has been rising as well. One of today's top percentage gainers is Transocean (RIG). Chart 5 shows that stock trading more than 5% higher and clearing its 200-day average for the first time since last November. Other OIH leaders include Rowan (RDC), Diamond Offshore Drilling (DO), and Nabors Industries (NBR).
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Chart 4
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Chart 5
DOW AND S&P 500 NEAR OLD HIGHS -- NASDAQ CLEARS 200-DAY LINE... Stocks are ending the week on a strong note. Charts 6 and 7 show the Dow Industrials and the S&P 500 nearing a test of their June highs. They've just about made back losses resulting from the Brexit vote. The Nasdaq, which has been the weakest of the major indexes, is also showing improvement. Chart 8 shows the Nasdaq Composite Index trading back over its 50- and 200-day moving average lines. It's interesting to note that the Brits voted for their independence last week, while the U.S. is about the celebrate ours this weekend. Hopefully, this week's stock gains will make the coming weekend more enjoyable. Have a safe and happy Fourth of July.
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Chart 6
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Chart 7
