FINANCIALS LEAD THE MARKET HIGHER -- FINANCIAL SPDR BOUNCES OFF CHART SUPPORT -- BANK ETFS DO THE SAME WITH REGIONALS IN THE LEAD -- DOW INDUSTRIALS CLEAR THEIR 50-DAY LINE TO LEAD MAJOR STOCK INDEXES HIGHER -- TRANSPORTS ARE ALSO HAVING A STRONG DAY
FINANCIALS ARE THE DAY'S STRONGEST SECTOR ... My June 30 message suggested that the market needed more help from financial stocks and industrials if it was going to gain ground during the second half of the year. It's getting help from both today. Let's start with the financials. Chart 1 shows the Financial SPDR (XLF) bouncing off the lower support line drawn under its first half lows. The June 30 message described that pattern as a potential bullish "falling wedge". That declining price pattern is contained by two falling trendlines, with the lower trendline falling slower than the upper line. And it usually leads to higher prices. The ability of the XLF to bounce off the lower support line is a good sign (blue arrows). But it also needs to clear the upper trendline to turn its trend higher. Its 9-day RSI line (top box) has recovered from oversold territory below 30 and has moved above 50. That suggests rising momentum. In addition, its daily MACD lines (lower box) are turning positive. The fact that their July low is higher than their April low is another positive sign. It's also encouraging to see bank stocks leading the sector higher.
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Chart 1
S&P BANK SPDR BOUNCES OFF CHART SUPPORT AND REGAINS 200-DAY LINE... Chart 2 shows the S&P Bank SPDR (KBE) gaining nearly 2% today and bouncing off important chart support. The chart shows the KBE bouncing off a support line drawn under its February/April lows. In addition, it has climbed decisively back over its 200-day moving average. A move back over its 50-day average (blue line) would be another positive sign. The six month chart pattern has the look of a consolidation pattern, or trading range, within an overall uptrend. This would be a logical chart spot for the bank ETF to start climbing again. Regional banks (which are more closely tied to the domestic economy) have been even stronger this year. Chart 3 show the S&P Regional Banking SPDR (KRE) staying well above its April low and its 200-day average, and nearing its 50-day line. Financials are the second biggest sector in the S&P 500, and today's rally is giving a big lift to the rest of the market. So is a strong rebound in industrial stocks.
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Chart 2
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Chart 3
DOW INDUSTRIALS CLEAR THEIR 50-DAY AVERAGE... For a change, the Dow is leading the rest of the market higher today. Chart 4 shows the Dow Industrials climbing 300 points (+1.2%) to regain its 50-day average. That puts it back above both moving average lines. Its five biggest percentage gainers are Caterpillar (+3.9%), JP Morgan Chase (+2.5%), Walmart (+2.2%), Goldman Sachs (+2.1%) and Boeing (+1.9%). That shows money starting to flow back into large financial and industrial stocks that have been holding the rest of the market back. Chart 5 shows the Dow Transports climbing nearly 2% and nearing a test of their 50-day line as well. My weekend message showed the Dow Industrials and Transports regaining their 200-day averages together last week. It's good to see them rallying together again today. By contrast, the Dow Utilities are losing ground today. That may be due to an uptick in Treasury bond yields, which is probably helping lift financial stocks.
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Chart 4
