PULLBACK IN BOND YIELDS CAUSES PROFIT-TAKING IN BANKS -- BUT KBE CHART PATTERN REMAINS POSITIVE -- WEAKER DOLLAR BOOSTS COMMODITIES -- BASE METALS ETF HITS NEW HIGH -- STEEL ETF LEADS MATERIALS RALLY -- PICK ETF NEARS ANOTHER THREE-YEAR HIGH
BOND YIELDS WEAKEN... Chart 1 shows the 10-Year Treasury Yield ($TNX) pulling back today to the lowest level for the month. The TNX is backing off from a test of its July peak near 2.4% which isn't too surprising. Its 14-day RSI line (top of chart) had also reached overbought territory at 70. During September, the TNX rose above a falling trendline drawn over its March/July highs which ended the 2017 downside correction. This week's setback may attempt to fill a small gap formed at the end of September (see box). I'm inclined to view today's setback as a natural part of a basing process. With yields dropping, bond prices are bouncing today. The pullback in yields, however, is causing some profit-taking in financial shares, and banks in particular.
(click to view a live version of this chart)
Chart 1
BANK SPDR IS ALSO PULLING BACK... Chart 2 shows the S&P Bank SPDR (KBE) also experiencing some profit-taking today (as bond yields drop). Its chart, however, still has a positive look to it. Earlier this month, the KBE rose above its early July peak to reach the highest level in nearly eight months. This looks like a normal setback in an emerging uptrend. The boxed area just below the price action also shows a small upside gap formed at the end of September. That should provide some support. The 14-day RSI line (top of chart) is also pulling back from overbought territory over 70. That's also consistent with the need for a short-term setback.
(click to view a live version of this chart)
Chart 2
POWERSHARES BASE METALS ETF RESUMES UPTREND... The dollar is softening today along with bond yields which is boosting commodity prices. Chart 3 shows the PowerShares Base Metals ETF (DBB) rising to the highest level in more than four years. The DBB includes prices of aluminum, copper, and zinc. Stocks tied to aluminum and copper are boosting the materials sector today. Stocks tied to steel, however, are having an even stronger day. Chart 4 shows the VanEck Vectors Steel ETF (SLX) climbing 3% to the highest level for the month. Global mining stocks are also having a strong day. Chart 5 shows the MSCI Global Metals & Mining Producers iShares (PICK) nearing another three-year high. My October 5 message explained that PICK offers exposure to foreign miners like BHP Billiton and Rio Tinto that are having a stronger year than U.S. miners.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
CHEVRON HITS RECORD HIGH... Rising energy prices continue to lift energy shares. And within the energy patch, integrated oil and & gas stocks have been the sector's leaders. And within that group, Chevron has been a standout performer. The weekly bars in Chart 6 show Chevron (CVX) rising above its summer 2014 high to reach a new record.
(click to view a live version of this chart)
Chart 6
JAPANESE STOCKS HIT 21-YEAR HIGH... The global stock market rally continues to broaden out. That's especially true in Asia. Chart 7 shows the Japanese Nikkei 225 Average ($NIKK) rising to the highest level in 21 years. After two decades of relative weakness, Japan has done a lot better since 2012 (after the introduction of Abenomics and a falling Japanese yen). Japan has been a relative laggard again this year, which makes it one of the world's cheaper markets. [But be sure to hedge against a falling yen if you invest there]. That's not all. Chart 8 shows the Hong Kong Hang Seng Index ($HSI) rising to the highest level in ten years. It too is starting to catch up to the rest of the world after several years of relative weakness. The bigger message, however, is that the global bull market in stocks is still very much intact. The FTSE All World Index ($FAW) continues to hit new records. That provides a supportive global environment for U.S. stocks as well.
(click to view a live version of this chart)
Chart 7
