STEEL STOCKS LEAD MATERIALS TO NEW RECORD -- STEEL ETF NEARS FIVE-YEAR HIGH -- STEEL LEADERS INCLUDE NUCOR AND STEEL DYNAMICS -- S&P METALS AND MINING SPDR ACHIEVES BULLISH BREAKOUT -- STOCKS HAVE ANOTHER STRONG DAY

MATERIALS SPDR HITS NEW RECORD ... In a strong market day, materials led stocks higher. Chart 1 shows the Materials Select SPDR (XLB) breaking out to a new record. The XLB has been finding support along its 50-day average. The XLB/SPX ratio (top of chart) has been lagging behing the market over the last two months. Not today. The three stock groups the led it higher are aluminum, copper, and steel. Freeport McMoran (the large copper producer featured in my Saturday message) broke out to a two-year high. The biggest gains, however, came in steel stocks.

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Chart 1

STEEL ETF NEARS UPSIDE BREAKOUT... The daily bars in Chart 2 show the VanEck Vectors Steel ETF (SLX) nearing a test of its 2017 highs. Its relative strength ratio (top of chart) is rising as well. The SLX appears to be on the verge of an upside breakout. The weekly bars in Chart 3 show that an upside breakout would put the SLX at the highest level in more than five years. A couple of individual steel stocks are experiencing upside breakouts of their own.

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Chart 2

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Chart 3

NUCOR NEARS NEW RECORD -- STEEL DYNAMICS IS ALREADY THERE ... The monthly bars in Chart 4 show Nucor (NUE) headed up toward its late 2016 high. The stock has just cleared major long term supply at its 2008 peak at 61. Its relative strength ratio (solid line) is just starting to rise after lagging behind the market all year. The monthly bars in Chart 5 shows Steel Dynamics (STLD) already trading in record territory. Its relative strength ratio looks a lot stronger. That gave a big boost to mining stocks in general. The daily bars in Chart 6 show the S&P Metals and Mining SPDR (XME) achieving a bullish breakout (see circle). The XME has a 48% weight in steel stocks.

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Chart 4

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Chart 5

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Chart 6

STOCKS HAVE ANOTHER STRONG DAY ... U.S. stock indexes reached new records again today. The Russell 2000 Small Cap Index was the day's biggest percentage gainer and is nearing a new record high. Most stock sectors gained on the day with new records reached by cyclicals, industrials, materials, technology, and transports. Financials just missed a new record. Utilities were the only losers. That was most likely due to weaker bond prices. Defensive consumer staples ended the day flat. Stock investors remain in a buying mood based on optimism over a tax cut and the traditional Santa Claus rally. Foreign stocks also had a very strong day.