STOCK RALLY RESUMES AS MAJOR STOCK INDEXES DRAW CLOSER TO SUMMER HIGH -- BOEING, APPLE, AND CATERPILLAR LEAD DOW HIGHER -- THE INDUSTRIAL SPDR IS NEARING A MAJOR UPSIDE BREAKOUT TO RECORD HIGHS -- SMALL CAPS WERE THE DAY'S BIGGEST GAINERS
STOCK INDEXES GAIN MORE GROUND... The stock upturn that started last week when major stock indexes cleared their August trading range and 50-day averages gained momentum today. All three major indexes hit the highest level in more than a month. Chart 1 shows the Dow Industrials gaining 227 points (+0.85%) and drawing closer to its July peak. The Dow was led higher by Boeing (3.6%), Apple (+3.1%), and Caterpillar (+2.1%.). Chart 2 shows Boeing (BA) exceeding its July peak to reach the highest level in five months. Chart 3 shows Apple (AAPL) hitting a new high for the year and reaching the highest level since last October. Chart 4 shows Caterpillar (CAT) rising above its 200-day average to reach the highest level in more than a month. The stock is nearing a test of a falling trendline drawn over its April/July peaks. Those stocks also helped push the Industrial SPDR (XLI) closer to a major upside breakout (with help from transportation stocks that are also having a strong week).
INDUSTRIAL SPDR NEARS UPSIDE BREAKOUT...Chart 5 shows the Industrial SPDR (XLI) moving up to challenge four previous peaks formed since the start of 2018. An upside breakout (which appears likely) would put the XLI in record territory. The gray area plots a ratio of the XLI divided by the S&P 500; and shows the relative strength ratio turning up this week after declining for the previous six months. That's another recent example of money rotating into more cyclical parts of the market. The XLI is also benefiting from the recent surge in transportation stocks which are included in that sector SPDR. Trucker C.H. Robinson (CHRW) hit a new five-month high and was one of today's biggest XLI percentage gainers (+2.7%).
SMALL CAPS SURGE...Smaller stocks were the stars of today's stock action. Previous messages have noted signs of improvement in the group which has lagged behind large cap stocks since last September. The daily bars in Chart 6 show the Russell 2000 Small Cap Index gapping sharply higher today. The RUT now appears headed for a challenge of its falling resistance line drawn over its May/July peaks. The RUT/SPX relative strength ratio (solid line) has risen above a falling trendline which signals the end of six months of underperformance. That's part of the recent rotation into cheaper parts of the market that's taken place this month, and is helping to broaden out the stock rally. New buying in smaller stocks is a good sign for them; and for the rest of the market as well.
