MAJOR STOCK INDEXES NEAR TEST OF 2018 HIGHS -- TRANSPORTS CLEAR THEIR 200-DAY AVERAGE -- DELTA AIR LINES TURNS UP -- THE TRANSPORTS ARE STARTING TO GAIN GROUND ON THE DOW INDUSTRIALS AND UTILITIES -- S&P 400 MID CAP INDEX CLEARS ITS 200-DAY LINE

U.S. STOCK INDEXES HEADING TOWARD TEST OF LAST YEAR'S HIGH... Major stock indexes in the U.S. appear on track to test their all-time highs reached during the second half of 2018. Chart 1 shows the Nasdaq Composite Index trading today at the highest level since early October. The next upside target is the high reached in early September at 8133. The Nasdaq is being led higher by a strong technology sector today which, in turn, is being led higher by a stronger semiconductor group. Chart 2 shows the S&P 500 hitting a new high for this year and headed for a test of last year's high at 2940. Most S&P sectors are in the black today being led higher by materials, technology, cyclicals, financials, and communications.. Three sectors in the red are defensive staples, utilities, and REITs. That shows investors still in a more optimistic mood. Chart 3 shows the Dow Industrials up against their first quarter highs. An upside breakout there appears likely. One factor working in the Dow's favor is an upturn in the Dow Transports.

(click to view a live version of this chart)
Chart 1

(click to view a live version of this chart)
Chart 2

(click to view a live version of this chart)
Chart 3

DOW TRANSPORTS CLEAR 200-DAY LINE... Last Friday's message suggested that the Dow Transports looked ready for another run at their 200-day moving average. Chart 4 shows the Dow Transports trading above their red line by the widest margin this year. The TRAN is now testing its February intra-day high at 10679. An upside breakout would be another positive sign. Airlines have led the group higher over the past week (led by Delta), Chart 5 shows Delta Air Lines (DAL) climbing to the highest level since December. Rails, truckers, and delivery service stocks are also contributing to the transportation rally.

(click to view a live version of this chart)
Chart 4

(click to view a live version of this chart)
Chart 5

THE TRANSPORTS ARE GAINING ON INDUSTRIALS AND UTILITIES... The transportation group has been a relative laggard in the Dow universe. But they're starting to catch up. Chart 6 plots a relative strength ratio of the Dow Transports divided by the Dow Industrials. After underperforming the industrials for the last six months, Chart 6 shows the ratio hitting a potential "double bottom" between January and March (two circles). The ratio still has a way to go to turn its trend in favor of the transports. But it looks like their period of underperformance may be ending. The same is true in Chart 7 which plots a ratio of the Dow Transports divided by the Dow Utilities. The falling ratio during the second half of last year favored more defensive utilities over the more economically-sensitive trasnports. The ratio, however, hit bottom during December and now shows a more positive pattern of "rising bottoms" (rising trendline). That suggests that the pendulum may be swinging in favor of the tranports.

Chart 6

Chart 7

MIDCAP INDEX CLEARS ITS 200-DAY LINE ... Small and midcap stocks have been lagging behind large cap stocks during the current rally. But that too may be starting to change for the better. Chart 8 shows the S&P 400 Mid Cap Index rising above its 200-day average this week (red circle). That's a sign that smaller stocks may be starting to catch up to larger stocks. The solid line in Chart 8 is a ratio of the midcap index divided by the large cap S&P 500. After falling sharply during March, the MID/SPX ratio appears to be bouncing off its late December low (black circles). That potential bottom suggests that weaker performance by midsize stocks may be coming to an end. That leaves only the small caps to clear their red line and join the market rally.

Chart 8