NASDAQ 100 NEARS NEW RECORD -- IT'S BEING HELPED BY REBOUNDS IN APPLE, GOOGLE, AND INTEL -- ALL COUNTRY WORLD INDEX HITS 18-MONTH HIGH -- VANGUARD FOREIGN STOCK INDEX IS ALSO REBOUNDING -- TEN-YEAR YIELD NEARS CHALLENGE OF MID-2015 HIGH
POWERSHARES QQQ NEARS NEW RECORD... A lot has been made recently about domestic-oriented American businesses leading the market rally (like small caps, retailers, and transports to name a few). And how large tech stocks have gone from market leaders to market laggards. Technology companies derive nearly two-thirds of their earnings from abroad. That may help explain why larger tech stocks have become market laggards. Plus the recent rotation into more value-oriented sectors of the market that stand to benefit from a stronger economy with rising inflation and rising interest rates. It's important to note, however, that large tech stocks are still in major uptrends. They've pulled back, but not enough to inflict any real technical damage. And they appear to be turning higher. Chart 1 shows that the PowerShares QQQ ETF on the verge of a new record. The Nasdaq Composite Index hit a new record on Wednesday, while the Technology SPDR (XLK) did that yesterday. The QQQ/SPX ratio on top of Chart 1, however, shows it still lagging behind the rest of the market. The QQQ is getting some help from biotechs today which have held it back. In addition, several of its largest tech stocks are showing improvement.
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Chart 1
APPLE, ALPHABET, AND INTEL CLEAR 50-DAY LINES... The next three charts show improvement in three of the biggest QQQ tech stocks. Chart 2 shows Apple (its biggest stock) rising back above its 50-day average after finding support at its 200-day line. Chart 3 shows Alphabet (GOOGL) doing the same. And Chart 4 shows Intel (INTC) climbing back above its 50-day line. [Microsoft, the second biggest QQQ holding, is already at a new record]. An index of semiconductors hit a new record yesterday. That suggests that some money is starting to move back into the large tech arena. That's a positive sign that the market rally is broadening out even further.
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Chart 2
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Chart 3
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Chart 4
GLOBAL STOCK INDEXES ARE ALSO STRENGTHENING... Although the U.S. is leading the global stock market rally, it can't carry the whole uptrend by itself. It needs some lifting from foreign markets as well. And there are positive signs of that happening. Chart 5 shows the MSCI All Country World Index (ACWI) rising to the highest level since spring 2015. The ACWI includes stocks from developed and emerging markets (including the U.S.). Chart 6 shows how the world looks outside the U.S by plotting the Vanguard All-World ex-US ETF (VEU). The VEU measures foreign developed and emerging markets. Although it is lagging behind the U.S., its trend is starting to improve. The VEU recently bounced off its (red) 200-average and has climbed back above its (blue) 50-day line. The VEU also bounced off a rising trendline drawn under its February/ June lows. The VEU is being pulled higher by Canada, France, Germany, the UK, and Japan.
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Chart 5
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Chart 6
TEN-YEAR YIELD REACHES TEST OF 2015 HIGH... Chart 7 shows the impressive rally in the 10-Year Treasury Yield since the summer. There's little doubt that bond yields have bottomed and have entered a new era of rising rates. That's supported by upturns in inflation sensitive market sectors like base metals and energy, as well as economically-sensitive stocks. Chart 7 does show, however, that the TNX has reached its mid-2015 near 2.5%. At the same time, its daily RSI line (top of chart) is very overbought. That not likely to stop the climb to higher levels. But it represents another test of the strength of the uptrend, and may serve to slow down the advance temporarily.
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Chart 7
S&P 500 REACHES OVERBOUGHT TERRITORY ... It shouldn't be surprising to read that the recent run in stocks has pushed them into overbought territory. But Chart 8 shows the 14-day RSI line for the S&P 500 having moved above 70 for the first time in two years. That's not necessarily a bad thing. But it does suggest that stocks are little "stretched" at the moment and may need a breather. Its first line of defense during any pullback would be its 20-day average (green arrow). Chart support on any pullback is likely around the 2200 zone, which encompasses the August/September highs and the early December low. The overbought reading in the daily RSI line, however, is somewhat mitigated by the fact that the 14 week RSI at 65 still hasn't reached overbought territory.
