GLOBAL STOCKS RESUME UPTREND -- ALL WORLD STOCK INDEX EXTENDS BULLISH BREAKOUT -- ASIAN EX JAPAN ISHARES TURN UP -- WILSHIRE 5000 INDEX NEARS RECORD -- TRANSPORTS NEAR TEST OF APRIL HIGH -- RAILS COMPLETE BASING PATTERN
MSCI ALL COUNTRY WORLD INDEX ISHARES BUILDS ON BULLISH BREAKOUT... Global stocks resumed their uptrend today in a replay of Tuesday's shift toward riskier assets. Chart 1 shows the MSCI All Country World Stock Index iShares (ACWI) building on its bullish breakout that took place on Tuesday when bond yields and sterling started to bounce. That global index of emerging and developed stock markets (which include the U.S.) has broken through a "neckline" drawn over its November/June highs and has completed a bullish basing pattern. At the same time, safe havens sold off as they did on Tuesday. Soverign bond yields are climbing again today in the US, Europe, and Japan. That's causing more profit-taking in bond prices along with other safe havens like gold and the Japanese yen. Rising yields are also causing profit-taking in rate-sensitive stocks like utilities and REITS. Rising bond yields, however, are giving another boost to financial stocks like banks, brokers, and life insurers. The decision by the Bank of England to leave rates unchanged pushed the British Pound sharply higher along with British bond yields. That also added to the move into riskier assets like stocks and commodities around the world.
(click to view a live version of this chart)
Chart 1
ASIA EX JAPAN ISHARES ALSO TURN HIGHER... My Tuesday message showed Emerging Markets iShares (EEM) trading at the highest level since last August (which they're doing again today). While a lot of that strength has come from commodity producers like Brazil and Russia, a lot of the buying is also coming from Asia. Chart 2 shows the MSCI All Country Asia ex Japan iShares (AAXJ) having also completed a basing pattern and trading at a new eight-month high. The three biggest countries in that Asian ETF that have achieved upside breakouts include China, South Korea, and Taiwan. Singapore is close to doing the same. Emerging market currencies are also rising. The rebound in Chinese stocks is obviously a positive development for global stocks and commodities. China is the world's biggest buyer of commodities.
(click to view a live version of this chart)
Chart 2
WILSHIRE 5000 COMPOSITE INDEX NEARS OLD HIGH... The Dow Industrials and S&P 500 continue to hit record highs. I've been showing upside breakouts in other parts of the market that include small caps and the NYSE Composite Index. Here's another one. Chart 3 shows the Wilshire 5000 Composite Index ($WLSH) having risen above its November/June highs to initiate a new uptrend. The WLSH is the broadest measure of the U.S. market (and includes more smaller and midsize stocks). It's now heading for a test of its old highs.
(click to view a live version of this chart)
Chart 3
TRANSPORTS ARE PLAYING CATCHUP ... With the Dow Industrials having exceeded their 2015 high to reach a new record, chartists are taking some encouragement from the recent upturn in the Dow Transports. According the Dow Theory, an upturn in one of them needs to be confirmed by upturn in the other. The Transports aren't anywhere near their old highs. They are, however, approaching a test of their spring highs. An upside breakout there would make Dow Theorists feel a lot better about the market rally. Chart 4 shows the Dow Transports surging to a two-month high this week on rising volume. It's nearing a test of its April high. A close over that peak would put both Dow Averages in uptrends. The recent rise has been driven by airlines and rails.
(click to view a live version of this chart)
Chart 4
DOW JONES US RAILROAD INDEX TURNS UP ... If it seems to you like we're seeing a lot of "head and shoulders" bottoms being completed, you're right. Here's another one. Chart 5 shows the Dow Jones US Railroad Index ($DJUSRR) rising above a "neckline" drawn over its October/April highs (and on rising volume). In addition, its blue 50-day average has risen above its red 200-day which is another bullish sign (see blue circle). A strong rail group is a good sign for the economy. While industrial companies make the goods, rails move those goods around the country. That's why it's good to have both moving higher at the same time. CSX and Union Pacific (UNP) have achieved bullish breakouts to lead the rails and transports higher.
(click to view a live version of this chart)
Chart 5
BASE METALS CONTINUE TO RALLY ... Most recent attention in commodities has been centered on rising gold and silver along with the oil market. Economically-sensitive base metals, however, have also been doing very well. Chart 6 shows the PowerShares DB Base Metals Fund (DBB) reaching the highest level since last August. The DBB includes aluminum, copper, and zinc and is often viewed as a barometer of global economic strength. The base metals index on the London Metal Exchange (LME) has risen to the highest level since last October. That's another sign of a risk-on attitude among global investors. That also helps explain why the Materials Sector SPDR (XLB) has just reached a new 52-week high. Stocks leading the XLB higher over the last week include copper, aluminum, and steel stocks. The price of steel is jumping in Shanghai.
(click to view a live version of this chart)
Chart 6
COPPER AND STEEL ETFS CONTINUE TO OUTPERFORM ... Chart 7 shows the Global X Copper Miners ETF (COPX) nearing an upside breakout at its May high. The COPX/SPX ratio (top of chart) shows the copper group leading the market higher since January. Steel stocks are doing even better. Chart 8 shows the VanEck Vectors Steel ETF (SLX) touching a new 52-week high today. Both stock groups are being supported by rising prices in their respective commodities.
(click to view a live version of this chart)
Chart 7
(click to view a live version of this chart)
Chart 8
SILVER OUTPACES GOLD... The fact that investors are buying industrial metals may also explain why the price of silver has been rising faster than gold this year. The same is true of their respective stock groups. The solid line in Chart 9 plots a relative strength ratio of silver divided by gold. The ratio bottomed in February and has risen to the highest level in nearly two years. Since the start of 2016, silver has outpaced gold by a 47% to 26% margin. Silver miners have gained 170% versus a 120% gain in gold miners. A lot of reasons have been given for silver's outperformance. I suspect it's part of the preference for more economically-sensitive commodities and stocks tied to them. I take that as another vote of confidence in the global economy. Gold is a pure precious metal. Silver is both a precious and an industrial metal. I suspect it's the industrial part of silver that has accounted for its stronger performance. Gold has lost some ground on safe haven profit-taking. That trend also favors the more economically-sensitive silver market.
(click to view a live version of this chart)
Chart 9
FINANCIALS TEST OVERHEAD RESISTANCE... Financial stocks have been the year's weakest sector. Today, they're the strongest. Chart 10 shows the Financial Sector SPDR (XLF) nearing a test of its early June high and a falling trendline drawn over its July/December highs. Needless to say, an upside breakout would be a positive sign for them and the rest of the market. This week's rebound in bond yields is certainly helping. A positive earning report by JP Morgan (JPM) today gave the bank group a big boost. Life insurers and asset managers are also having a strong day.
