DOW INDUSTRIALS NEAR UPSIDE BREAKOUT -- TRANSPORTS ARE ALSO NEARING APRIL HIGH -- BANKS AND FINANCIALS SHOW MARKET LEADERSHIP -- % OF NYSE STOCKS ABOVE 200-DAY MOVING AVERAGE TURNS UP -- COMMON STOCK ONLY AD LINE HITS NEW RECORD
LOOKING FOR A DOW THEORY BUY SIGNAL ... It's always a good sign to see the Dow Industrials and Transports rising together, as they're doing today. The price bars in the upper chart show the Dow Industrials testing their mid-April peak at 24,900. An upside breakout appears likely. The lower box shows the Dow Transports climbing back over their 50-day average this week after bouncing off their 200-day line last week. They appear headed a test of the April high as well. They're one of today's strongest groups. An upside breakout by both Dow Averages would constitute a Dow Theory buy signal. It's also interesting to note that the economically-sensitive transports are starting to outperform rate-sensitive utilities. That can be seen in the transport/utilities ratio in Chart 2. Rising rates hurt utilities, while economic growth helps the transports.
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Chart 1
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Chart 2
BANKS AND FINANCIALS ARE TURNING UP ... It's also encouraging to see financial stocks climbing again, and especially banks. Chart 3 shows the Financial Sector SPDR (XLF) rising above its April peak to reach the highest level in two months. Its relative strength line (top of chart) shows the financials are starting to show some market leadership. A lot of that buying is coming from banks. Chart 4 shows S&P Bank SPDR (KBE) rising to a two-month high as well. Its relative strength ratio is also rising. The green line shows the 10-year Treasury yield rising since the start of April. Rising bond yields are helping pull bank shares higher.
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Chart 3
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Chart 4
% OF STOCKS ABOVE 200-DAY AVERAGE TURNS UP... Considering all of the attention being given recently to 200-day moving averages, this next chart seems appropriate. And very encouraging. The red line in Chart 5 plots the percent of NYSE stocks above their 200-day moving average (plotted through Thursday). After dropping to 43% at the end of March, the red line has formed a pattern of rising bottoms and rising tops since then. Thursday's reading of 59% exceeded the April reading at 58%, and put the line at the highest level in two months. That means that most NYSE stocks are now back above that long-term moving average line. For the record, the percent of stocks trading over their 50-day average has risen over 60% which is another good sign.
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Chart 5
NYSE COMMON STOCK ONLY AD LINE HITS NEW RECORD... Here's more good news for chart readers. The green line in Chart 6 shows the NYSE Common Stock Only Advance-Decline line hitting a new record high this week for the second time in a month. It hit its first record in the middle of April. A March 30 message carried the headline: "A Strong NYSE Advance-Decline Line Supports Bullish Trend for Stocks". The red vertical line from that earlier date shows the market retesting its February low, while the rising green trendline showed the AD line looking much stronger. That's normally a good sign for stocks. That earlier chart used the Vanguard Total Stock Market ETF (VTI) as a proxy for stocks. Right on cue, the VTI is rising above its mid-April peak to register an upside breakout. [The more traditional version of the NYSE AD line that includes everything traded on the big board has also reached a new record high]. All of that bodes well for stock prices.
