RUSSELL 2000 IS TRYING TO CLEAR ITS 200-DAY AVERAGE -- SO ARE AIRLINES AND ENERGY STOCKS -- BANKS ARE HOLDING FINANCIALS BACK -- WHILE MORTGAGE FINANCE STOCKS ARE LEADING THEM HIGHER -- MEXICO AND SOUTH KOREA ETFS CLEAR THEIR 200-DAY LINE
RUSSELL 2000 SMALL CAP INDEX IS TRYING TO CLEAR ITS 200-DAY AVERAGE... Last Wednesday's message showed the S&P 400 Mid Cap Index clearing its 200-day average; and suggested that left only the small caps to join the market rally. That may be about to happen. Chart 1 shows the Russell 2000 Small Cap Index sitting right on its red 200-day line. A decisive close above that red line would a positive sign for smaller stocks, and would broaden out the market rally. A few other market groups are either trying to clear their red line, or stay above it. That includes airlines, energy, and financials.
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Chart 1
AIRLINES AND ENERGY STOCKS ARE TRYING TO CLEAR THEIR 200-DAY LINE... The Dow Transports recently cleared their 200-day average to turn their trend higher. Airlines stocks have been part of that rally, and are now undergoing a similar test of their own. Chart 2 shows the NYSE Airline Index trading slightly above its 200-day average today. A decisive close above that line would be a positive sign. It's a little unusual to see airline stocks rallying in the face of rising energy prices. But they're doing just that. Crude oil has gained 40% this year and recently cleared its 200-day average. Chart 3 shows the Energy Sector SPDR (XLE) trying to do the same. My Saturday message pointed out that the XLE was the only S&P sector to remain below its 200-day line. That's because the Financial SPDR (XLF) cleared that red line last week.
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Chart 2
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Chart 3
BANKS ARE HOLDING THE XLF BACK ... Chart 4 shows the Financial Sector SPDR (XLF) trying to hold last week's breakout above its 200-day moving average. Falling bond yields (and a flat yield curve) have been cited as the main factor holding financials back. That's especially true of banks. Falling bond yields make it harder for banks to charge higher rates for their loans. Which explains why banks have been one of the weakest parts of the financial sector. Chart 5 shows the KBW Bank Index ($BKX) still trading well its 200-day line. But there's a more positive side to that story. Falling bond yields have pulled mortgage rates lower, which has boosted mortgage and refinancing applications. Chart 6 shows the Dow Jones US Mortgage Finance Index already testing their September highs. Consumer finance stocks are also financial leaders. That may offset some of the drag from bank stocks.
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Chart 4
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Chart 5
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Chart 6
SOUTH KOREA AND MEXICO ETFS CLEAR 200 DAY LINES -- GERMANY MAY BE NEXT ... My two latest messages pointed out that rising Chinese stocks were helping to boost Asian stocks in Taiwan and South Korea. Chart 7 shows the MSCI South Korea iShares (EWY) trading above its 200-day line (Taiwan has already done so). Latin American stocks are joining the global rally. Chart 8 shows Mexico iShares (EWW) breaking above its 200-day line this week to reach a six-month high. My Saturday message showed the German DAX trading above its 200-day average for the first time since last summer. Chart 9 shows Germany iShares (EWG) moving up to test its 200-day line. The reason the EWG is lagging behind the DAX is because the ETF is quoted in U.S. dollars. That causes the EWG to lag behind its cash index when the dollar is stronger than the euro. Since most of the other eurozone ETFs have already cleared their 200-day lines, odds favor the EWG following them higher.
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Chart 7
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Chart 8
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Chart 9
RISING YUAN IS HELPING BOOST AUSSIE DOLLAR -- BLOOMBERG COMMODITY INDEX TESTS 200-DAY LINE... Saturday's message also suggested that a stronger Chinese stock market was encouraging the buying of Australian commodities like copper and iron ore, and was helping boost stocks in that country. The same is true for their currencies. Chart 10 shows the WisdomTree Chinese Yuan ETF (CYB) off to a strong 2019 start and trading above its moving average lines. A stronger yuan makes it easier for China to import commodities from Australia, and boost that country's currency. Chart 11 shows the Aussie Dollar rising today in an apparent bottoming formation. A close above its 200-day line would be a bullish signal. The same things goes for other commodity-related currencies which are firming. Stronger foreign currencies are weakening the dollar today, which is helping boost commodity prices. Speaking of commodities, Chart 12 shows the Bloomberg Commodity Index ($BCOM) testing its 200-day line in afternoon trading. Energy prices are leading the BCOM higher today, while copper prices have also been rising. Iron ore (not included in BCOM) has rallied to the highest level in five years, with most of that buying coming from China.
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Chart 10
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Chart 11
