STOCK INDEXES STAY ABOVE 50-DAY AVERAGES AFTER MISSILE ATTACK -- SMALL CAPS AND FINANCIALS NEED TO DO BETTER -- BOND YIELDS BOUNCE OFF BOTTOM OF 2017 TRADING RANGE -- DOLLAR RALLIES AS SAFE HAVEN YEN WEAKENS -- GOLD STRUGGLES AT 200-DAY AVERAGE
MAJOR STOCK INDEXES HOLD 50-DAY LINES ... Entering today's trading, stocks were relatively flat on the week. Bond prices, however, were nearing the top of their 2017 trading range. Other safe haven assets like gold and the yen have been bouncing as well. Yesterday's missile attack on Syria, however, gave those safe havens an early boost today, while stocks saw a relatively mild morning pullback. In afternoon trading, however, those safe havens started to weaken as stocks rebounded. Let's start there. Chart 1 shows the Dow Jones Industrials SPDR (DIA) recovering earlier losses and, more importantly, staying above its 50-day moving average. Stocks appear to have recovered from the downside reversal day that took place on Wednesday. Chart 2 shows the S&P 500 SPDR (SPY) looking pretty much the same. Daily MACD lines (top of chart) have been negative since the start of March. They're starting to converge (see rising histogram bars) which is encouraging. But the two lines need to turn positive.
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Chart 1
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Chart 2
RUSSELL 2000 ISHARES NEEDS TO DO BETTER... Small cap weakness has been one of the drags on the market this year. Chart 3 shows the Russell 2000 Small Cap iShares (IWM) trading sideways after holding chart support along their January lows. The falling IWM/SPY ratio, however, shows them lagging behind large caps since December. That's part of the Trump trade which faded during the first quarter. The IWM/SPY ratio, however, appears to be stabilizing, which is somewhat encouraging. What would be even more encouraging would be a move by the IWM above the red "neckline" drawn over the highs of the last three weeks.
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Chart 3
FINANCIALS ARE HOLDING SUPPORT... Financials also need to start doing better. Chart 4 shows the Financial SPDR (XLF) trading below its 50-day average. Financials have also lagged behind the market this year. The XLF, however, has held above its January low. The 14-day RSI line (top of chart) is starting to recover from oversold territory near 30. A move above the 50-day average by the XLF would be a positive sign for it and the market. But it will probably need higher bond yields to accomplish that.
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Chart 4
BOND YIELDS HOLD CHART SUPPORT... Chart 5 shows the 10-Year Treasury yield trading sideways since mid-December. It entered today's trading near the bottom of its three-month trading range. After hitting a new low this morning (on safe haven bond buying), it appears to be having an upside reversal day. That's happening while bond prices are weakening near the top of their 2017 trading range. Needless to say, an upturn in bond yields from that level (and a pullback in bond prices) would be a positive turn for stocks, and financial stocks in particular. And the dollar.
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Chart 5
DOLLAR IS RALLYING... A weaker dollar during the first quarter also reflected some loss of confidence in the U.S. economy. The green bars in Chart 6, however, show the Power Shares Dollar Fund (UUP) rallying to the highest level in a month. It's also close to breaking through a falling resistance line drawn over January/March highs. Most of those gains have come at the expense of the Euro. The Japanese yen, which has safe haven status, has been moving higher since January. After opening higher this morning, it too is weakening. A weaker yen would be good for the dollar. But not for gold.
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Chart 6
GOLD STRUGGLES AT 200-DAY AVERAGE... Gold is another safe haven that's rallied since the start of the year (as bond yields, stocks, and dollar weakened). Chart 7, however, shows the Gold SPDR (GLD) struggling to hold its morning gains near its 200-day average. Gold opened at a five month high this morning after news of the Syrian missile attack. Like other safe havens, it's early gains are disappearing (and in heavier trading). A lower close today would complete a possible bearish reversal day. Gold miners are also giving up earlier gains. Chartwise, gold has reached an important inflection point, as have bond yields, stocks, and the dollar.
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Chart 7
VULCAN MATERIALS SURGES ABOVE MOVING AVERAGE LINES... Last weekend's message showed a couple of building materials stocks finding support near their 200-day averages. One of them was Vulcan Materials (VMC). Chart 8 shows the stock jumping to the highest level in a month (on rising volume). Martin Marietta (MLM) has also cleared its 50-day line. That's a sign that some economically-sensitive stocks that weakened during the first quarter are looking stronger.
