MATERIALS SPDR HITS NEW HIGH -- LEADERS ARE CENTURY ALUMINUM, FREEPORT MCMORAN, INTERNATIONAL PAPER, AND DOW CHEMICAL -- DR HORTON LEADS HOMEBUILDERS HIGHER -- CONSUMER DISCRETIONARY SPDR REACHES NEW HIGH -- S&P 500 IS CLOSE
MATERIALS SPDR HITS NEW RECORD ... Chart 1 shows the Materials Sector SPDR (XLB) surging to a record high. Equally impressive is that the fact that the XLB/SPX ratio (top of chart) has turned up as well. The XLB/SPX ratio has risen to the highest level in eighteen months which is its strongest performance since 2011. This is one of the most economically-sensitive parts of the market and is closely tied to the direction of commodity prices. Today's record is a vote of confidence in the global economy. It's also a bet on higher economically-sensitive commodity prices and shows that the reflation trade is alive and well. The industry groups leading the materials' advance are aluminum, copper, steel, paper, and commodity chemicals.
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Chart 1
CENX, FCX, IP, AND DOW CHEMICAL ARE XLB LEADERS... Last Wednesday's message showed aluminum stocks leading the materials higher. That's still the case with the price of aluminum nearing two-year highs in London trading. It showed Century Aluminum (CENX) leading that group higher. Chart 2 shows CENX rising today to the highest level since spring 2015. Last week's message showed Southern Copper (SCCO) trading at a four-year high. Chart 3 shows Freeport McMoran (FCX) reaching the highest level since mid-2015. In a strong paper group, Chart 4 shows International Paper (IP) clearing its early 2015 peak to hit a new record. Commodity chemicals are also strong. Chart 5 shows Dow Chemical (DOW) nearing a record high (as is DuPont (DD) which is the strongest stock in the Dow). International mining stocks are also looking very strong.
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Chart 2
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Chart 3
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Chart 4
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Chart 5
METALS AND MINING ETF HITS TWO-YEAR HIGH... Chart 6 shows the S&P Metals and Mining SPDR (XME) trading at a two-year high today. The chart also show the XME having risen above a falling trending drawn over its 2011/2014 highs (using a log scale). The ended a four-year bear market and marked the start of a new uptrend. The XME/SPX relative strength ratio (gray bars) turned up during 2016 for the first time in five years. Big international miners are leading the XME higher. Chart 7 shows Brazilian Miner VALE leading this trio higher with a one year gain of 231%. Rio Tinto (RIO) and BHP Billiton (BHP) also have respectable one year gains of 64%. Those two Anglo-Australian stocks also deal in coal and iron ore which is used in steel making. A lot of that is going to China. Those stocks are also helping drive gains in their respective stock markets. I take that as positive sign for global stocks, and especially those tied to rising commodity prices.
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Chart 6
Chart 7
HOMEBUILDERS LEAD CYCLICALS HIGHER... The Consumer Discretionary SPDR (XLY) is hitting a record high. I've written about upside leadership by autos and auto parts which still continues. Today's XLY leaders, however, are homebuilders. Chart 8 shows U.S. Home Construction iShares (ITB) jumping 3% today to the highest level in a month. It's also back above both moving average lines. As the ITB/SPX ratio shows (top of chart), homebuilders have been market laggards over the last eighteen months. Money is starting to flow back in however. A strong report from DR Horton (DHI) helped get today's buying going. Chart 9 shows DHI climbing back over its 200-day average to a three-month high. Three of the day's biggest percentage gainers in the S&P 500 are homebuilders. Besides DHI, that includes Lennar (LEN) and PulteGroup (PHM).
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Chart 8
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Chart 9
CONSUMER DISCRETIONARY SPDR HITS NEW RECORD... Chart 10 shows the Consumer Discretionary SDPDR (XLY) trading in record territory. Its rising relative strength line (top of chart) shows it leading the market higher during January. Auto-related stocks have been January leaders (until today). It's normally a good sign when this economically-sensitive sector is leading the market higher. Chart 11 shows the S&P 500 nearing a new high as well. Its 14-day RSI line (above chart) has bounced twice off support at its 50 line, which is a positive sign. Chart 12 shows the Russell 2000 iShares (IWM) finding support at its 50-day average. The market uptrend remains intact and may be getting ready to make another run at the upside and a 20K Dow.
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Chart 10
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Chart 11
