DOW AND S&P 500 HIT NEW RECORDS -- THE DOW IS THE LAST ONE TO CLEAR ITS JANUARY HIGH -- COMMODITY CHEMICALS HELP BOOST MATERIALS SPDR TO SIX MONTH HIGH -- SEMICONDUCTORS CONTINUE TO STABILIZE -- U.S. DOLLAR FALLS TO TWO-MONTH LOW
THE DOW IS THE LAST TO CLEAR ITS JANUARY HIGH... Another day of rising stock prices has pushed the Dow and the S&P 500 to new records. In the case of the SPX (Chart 1), today's new high is enough to push it back above its August high. It actually cleared its January high a month ago which was a much bigger event. The bigger story rests with the Dow. Chart 2 shows the Dow Industrials trading above its January high for the first time. Today's individual Dow leaders are Intel, Walgreens, DowDupont, Caterpillar and Procter & Gamble. Intel is part of a bigger rebound in semiconductors, while the rebound in DowDupont is part of a rebound in commodity chemicals.
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Chart 1
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Chart 2
COMMODITY CHEMICALS LEAD MATERIALS IN UPSIDE BREAKOUT... Chart 3 shows the Materials Sector SPDR (XLB) rising above its June high to highest level in six months. Bounces in industrial metal stocks like aluminum, copper, and steel are helping. Most of the materials strength, however, is coming from commodity chemicals. Chart 4 shows DowDupont (DWDP) bouncing sharply off its moving average lines. Chart 5 shows Praxair (PX) close to a new high for the year.
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Chart 3
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Chart 4
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Chart 5
SEMICONDUCTORS CONTINUE TO REBOUND... Semiconductor stocks are helping lead today's technology rebound, along with software and internet stocks. Chart 6 shows the PHLX Semiconductor iShares (SOXX) moving further above its 50-day average after surviving a more important test of major support near its 200-day average last week.
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Chart 6
FALLING DOLLAR MAY BE CAUSING STOCK ROTATION... Chart 7 shows the U.S. Dollar Index (UUP) dropping to the lowest level in two months and falling further below its 50-day moving average. Most of those losses are coming against European currencies like the British pound, the euro, and the Swiss franc. One side effect of a weaker dollar is a rebound in commodity prices. But the falling dollar may also be contributing to some stock rotations in the states. A strong dollar earlier in the year helped domestically-oriented small caps outperform multinationals that are more closely tied to the global economy. A weaker dollar has the opposite effect. Chart 8 shows the S&P 500/Russell 2000 relative strength ratio rising to the highest level in four months. That means that larger multinationals are now taking the lead. That includes both the Dow and the S&P 500. The weaker dollar may also explain why the Dow is doing even better than the SPX. Some large manufacturing stocks in the Dow (like Boeing and Caterpillar) had been held back by concerns about a trade war and weaker foreign markets. Many of those stocks are now leading it higher. A weaker dollar may be hinting that those concerns are diminishing, which could also explain stronger action in foreign currencies and stocks this week (along with rising bond yields). Chart 9 shows a ratio of the Dow Industrials divided by the S&P 500 also rising to a three month high. That means that the Dow is rising faster than the SPX. The two ratios have been trending in the opposite direction of the dollar for most of the year, which suggests that the weaker dollar may be contributing to their recent upward trend.
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Chart 7
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Chart 8
