STOCK RALLY CONTINUES -- DOW IS THE FIRST INDEX TO REACH ITS 200-DAY AVERAGE -- CYCLICALS AND BIOTECHS ARE TRADING ABOVE THEIR 200-DAY LINES -- BIG DROP IN BOND YIELDS BOOSTS STAPLES, UTILITIES, AND REITS -- LOWER YIELDS ARE HURTING BANK STOCKS
THE DOW IS THE FIRST TO REACH ITS 200-DAY AVERAGE... The stock rally that began right after Christmas is continuing today. Major stock indexes have been heading up to challenge potential overhead resistance at their 200-day moving averages. Chart 1 shows the Dow Industrials being the first major stock index to reach that red line. Charts 2 and 3 show the S&P 500 and Nasdaq Composite Indexes heading toward their 200-day lines as well. That will be an important test for them and the rest of the market. A couple of stock groups are already trading above their 200-day lines.
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Chart 1
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Chart 2
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Chart 3
CONSUMER DISCRETIONARY SPDR AND BIOTECHS EXCEED RED LINES... Chart 4 shows the Consumer Discretionary SPDR (XLY) trading above its 200-day line in today's trading. That a positive sign for the economically-sensitive sector and the market. It's usually a good sign for both when cyclical stocks are leading it higher. Chart 5 shows the Biotechnology Index ($BTK) also trading above its 200-day line. That's giving a boost to the healthcare sector and the Nasdaq market. Interestingly, defensive stock groups like consumer staples are also having a strong day. That's likely the result of falling bond yields.
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Chart 4
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Chart 5
TEN-YEAR TREASURY YIELD DROPS SHARPLY ... Chart 6 shows the 10-Year Treasury Yield dropping sharply today. That's following yesterday's dovish statements from the Fed. That's pushing bond prices higher today along with stocks which is unusual. It's also unusual to see defensive stock groups gaining as much ground today as riskier sectors. And explains why banks and financial stocks are down today. Chart 7 shows the Consumer Staples SPDR (XLP) exceeding both moving average lines; while Chart 8 shows the Utilities Sector SPDR (XLU) doing the same. Both defensive sectors are actually rising more than the cyclical XLY shown in Chart 4. The Real Estate Sector SPDR (XLRE) is trading at a new record high (Chart 9). Those three sectors are viewed as bond proxies and are rising with bond prices. Falling bond yields, however, are hurting bank stocks which are losing ground along with the rest of the financial sector. Chart 10 shows the KBW Bank Index ($BKX) trading in the red today.
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Chart 6
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Chart 7
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Chart 8
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Chart 9
