NASDAQ HITS NEW RECORD WHILE DOW INDUSTRIALS AND S&P 500 TURN UP -- SMALL CAPS HIT NEW RECORD AND SHOW NEW LEADERSHIP -- SO DO MATERIALS -- ALCOA LEADS ALUMINUM SHARES HIGHER -- FLIGHT FROM SAFE HAVENS PUSHES GOLD MINERS LOWER
MARKET INDEXES TURN HIGHER ... The stock market is continuing to benefit from the "risk on" rally that started yesterday after the weekend vote in France. And all signs are currently positive. Chart 1 shows the PowerShares QQQ hitting a new record for the second day in row. The Nasdaq 100 ETF is being powered by rising technology stocks which are the year's strongest sector. It's also getting help today from a rebound in biotech shares. Chart 1 also show daily MACD lines turning positive for the first time in two months. The same thing is happening with other stock indexes. Chart 2 shows the Dow Jones Industrial SPDR (DIA) rallying to a two-month high. Its daily MACD lines have also turned positive. Its 14-day RSI line (top of chart) is also rising again. The same is true of the S&P 500. Chart 3 shows the S&P 500 SPDR (SPY) rising above its early April high and in striking distance of its early March high. Its momentum indicators have also turned positive. New highs appear likely. Small caps have already reached new highs.
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Chart 1
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Chart 2
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Chart 3
SMALL CAP ETF HITS NEW RECORD... It's normally good for the market when small caps are leading it higher. And they've started doing that again. Chart 4 shows the Russell 2000 Small Cap iShares (IWM) trading at a new record high today. Small caps are rising faster than large caps for the first time since November. The gray matter plots a "ratio" of the IWM divided by the S&P 500 SPDR (SPY). After surging after the election, the small cap/large cap ratio spent the first quarter in decline, which caused the market rally to stall. The ratio, however, has turned back up again. That's good news for small caps and the rest of the market.
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Chart 4
MATERIALS HIT NEW HIGHS ... Another sign of optimism comes from the fact that basic material stocks are also hitting new highs. They're also the day's strongest sector. Chart 5 shows the Materials Select SPDR (XLB) reaching a new record today. The XLB/S&P 500 ratio (top of chart) is also rising again. Also impressive is where material leadership is coming from. The day's two strongest groups are aluminum and copper. [Steel stocks have also rebounded this week]. That's a sign of renewed optimism in the global economy. At the same time, gold miners have fallen to the weakest slot. That reflects fading interest in safe haven stocks.
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Chart 5
ALCOA LEADS ALUMINUM GROUP HIGHER... Aluminum stocks are leading materials higher today. Chart 6 shows the Dow Jones US Aluminum Index surging 8%. It's cleared its 50-day line after recently finding support near its 200-day line. Industrial metals as a group have been correcting this spring owing mainly to weaker metal prices. Aluminum prices, however, have held up better than copper and other base metals. China has announced cut backs on aluminum plants that use coal in an attempt to control air pollution, which has helped stabilize that commodity. Alcoa is leading the aluminum rally. Chart 7 shows Alcoa (AA) clearing its 50-day line. Copper miner Freeport McMoran (FCX) is up 6% today and finding support at its 200-day line. Steel stocks are also finding support near their 200-day lines. By contrast, gold miners are having a bad day.
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Chart 6
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Chart 7
GOLD MINERS TUMBLE... Over the past month, base metals have been correcting while gold miners have been rallying. That was partially due to a flight to safe havens in the face of the French election. Those trends have now been reversed. While aluminum and copper stocks are rebounding, gold miners have become the weakest part of the materials group (and the market). Chart 8 shows the VanEckVectors Gold Miners ETF (GDX) falling below its 50-day average today to the lowest level in a month. The GDX recently failed a test of its 200-day moving average (see red arrow). The solid matter plots a relative strength ratio of the GDX divided by the S&P 500. That too is tumbling. Relative strength in gold miners over the last month coincided with moves into gold and other safe havens like Treasury bonds, German bonds, and the Japanese yen. With global stocks back in rally mode, those safe havens have fallen out of favor. The drop in miners also carries bad news for gold. That's because miners usually lead the commodity.
