HEAVY CONSTRUCTION AND MINING STOCKS TEST 200-DAY AVERAGES -- SO ARE ENERGY SHARES AS CRUDE OIL STRENGTHENS -- % OF NYSE STOCKS ABOVE 200-DAY AVERAGE REMAINS STRONG -- CONSUMER DISCRETIONARY SPDR HITS NEW RECORD -- SMALL CAPS OUTPACE LARGE CAPS
HEAVY CONSTRUCTION INDEX BOUNCES OFF 200-DAY AVERAGE... This week's rebound by major stock indexes off their 50-day averages has been encouraging. So is the fact that several economically-sensitive stock groups are finding support at their 200-day lines. Chart 1 shows the Dow Jones US Heavy Construction Index bouncing off its 200-day average and chart support along its summer high. The index includes Fluor (FLR) and Jacobs Engineering (JEC) which are finding support at their 200-day lines. These stocks were hit especially hard during the first quarter as the Trump trade showed signs of tiring. An upturn in those stocks, however, suggests a turn for the better for them and the market as a whole. The same is true of mining stocks.
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Chart 1
METALS AND MINING ETF ALSO FINDING SUPPORT... Chart 2 shows the S&P Metals and Mining SPDR (XME) also finding support at its 200-day average. A drop in iron ore and steel prices has pushed several individual steel stocks down to their 200-day lines where they're starting to stabilize. The XME also includes aluminum and copper stocks. Speaking of copper, Chart 3 shows Freeport-McMoran (FCX) jumping 5% today which puts it back above that long-term support line. Chart 4 shows Reliance Steel & Aluminum (RS) also finding support at its 200-day line. The ability of those groups to stay above their 200-day lines would be a positive sign for the market.
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Chart 2
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Chart 3
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Chart 4
ENERGY ETFS ARE ALSO TESTING 200-DAY LINES... Energy has been weakest part of the market during the first quarter. A 10% slide in the price of oil has been the main reason why. But the commodity is starting to find support. And so are energy stocks. Chart 5 shows the Energy Sector SPDR (XLE) trying to stabilize at its 200-day average. More buying will have to emerge to call this a bottom. But this would be a logical spot for one to start forming. The same is true of the VanEck Oil Service ETF (OIH). Chart 6 shows the OIH also trying to stabilize at its 200-day average. As is usually the case, the direction of oil will be the decisive factor. Chart 7 shows WTIC Light Crude Oil climbing back above its 200-day average after bouncing off a rising trendline drawn under its August/November lows. And from an oversold RSI reading at 30 (top of chart). Needless to say, weak energy stocks are a drag on the S&P 500. Any sign of new buying in that sector would be good for them and the market as a whole. The same is true of heavy construction and metal and mining stocks.
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Chart 5
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Chart 6
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Chart 7
PERCENT OF NYSE STOCKS ABOVE 200-DAY AVERAGE HOLDS AT 70%... Since we're on the subject of 200-day averages, the next chart also offers some encouragement. The red line plots the percent of NYSE stocks above their 200-day moving averages (plotted through Wednesday). The index peaked last August at 80% before dropping to 55% just before the November election. It then rose to 75% in February. So far, the March pullback has been very mild with its current reading at 70%. From spring 2015 to the start of 2016, the index dropped from 65% to below 20% before bottoming. That's what happens during a serious market correction. At the moment, there are so signs of that happening. The % line appears to be consolidating within an overall uptrend. It also looks like it's turning back up again. Much like the market.
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Chart 8
CYCLICALS HIT NEW HIGH -- SMALL CAPS CLEAR 50-DAY LINE... Stocks extended the week's gains led higher by financials, industrials, energy, materials, technology, and cyclicals. Chart 9 shows the Consumer Discretionary SPDR (XLY) reaching record territory. That's a positive sign for it and the market. Small caps also had a strong day. Chart 10 shows Russell 2000 iShares (IWM) clearing its 50-day average. It more than doubled the percentage gain in the large cap S&P 500. That's usually a sign of renewed market confidence. So is the fact that defensive staples and interest-sensitive utilities ended in the red. The latter was primarily due to another drop in bond prices (and a bounce in yields). The dollar rose again against the Euro and the yen which pushed gold and gold miners lower. It's usually a good sign for stocks when safe havens are weakening.
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Chart 9
