STOCKS REGAIN MOST OF YESTERDAY'S LOSSES -- MOVING AVERAGES HOLD FOR DOW AND S&P 500 -- NASDAQ REGAINS 50-DAY LINE -- SMALL CAPS AND TRANSPORTS ALSO BOUNCE OFF MOVING AVERAGE SUPPORT -- JUMP IN BOND YIELDS HELPED LIFT BANKS
DOW AND SPX HOLD SUPPORT...NASDAQ REGAINS BLUE LINE...Stocks regained most of the previous day's losses. Chart 1 shows the Dow Industrials bouncing off their 20-day average. Chart 2 shows the S&P 500 holding support at its 50-day line. The Nasdaq turned in an even stronger performance. Chart 3 shows the Nasdaq Composite Index rebounding back above the blue 50-day line that it lost yesterday. That was largely due to a strong rebound in technology shares which were the day's strongest sector. Other leading sectors include communications, consumer cyclicals, financials, and industrials. The XLC and XLI also regained their 50-day lines. A rebound in transportation stocks helped support industrials. A jump in bond yields caused profit-taking in utilities, while giving a boost to banks which led financials higher. Stronger financials contributed to a strong day in small cap stocks.
SMALL CAPS AND TRANSPORTS REBOUND...Chart 4 shows the Russell 2000 iShares (IWM) bouncing impressively off their 50-day average after retracing nearly half of their September gains. Today's buying appeared just in time to keep their uptrend intact. They may have gotten help from rising financial shares which are the biggest part of that group. Chart 5 shows the Dow Transports also bouncing off their 50-day line after losing nearly half of their September gains. They were led higher by trucking stocks. The ability of both groups to rebound today above their moving average lines lent support to the broader market.
BANKS LEAD FINANCIALS HIGHER...Bank stocks also recovered today and helped make financials one of the day's best performers. Chart 6 shows the KBW Bank Index recovering some lost ground today. The BKX had recently backed off from overhead resistance near its July high. But the pullback has been relatively mild and has remained well above its moving average lines. Banks and other financials got a lift from a strong rebound in bond yields.
Chart 7 shows the 10-Year Treasury yield jumping 9 basis points to 1.73%. The upturn in bond yields at the start of September helped support an upturn in stocks with financials in the lead. And may have done so again today. That upturn in bond yields earlier in the month also supported a rotation back into cyclical parts of the stock market which included small cap stocks and transports. It remains to be seen if today jump in bond yields is signalling more of the same. One other market benefited from higher yields.
DOLLAR HITS NEW CLOSING HIGH... The U.S. dollar was one of the main beneficiaries of today's large jump in Treasury yields. Chart 8 shows the Invesco US Dollar Index (UUP) jumping sharply today to register the highest closing price in two years. The UUP rose against all major foreign currencies. That's reflective not just of higher Treasury yields, but a stronger U.S. economy. One of the more direct side effects of a rising dollar is lower commodity prices which fell today. The Gold Trust (GLD) had an especially bad day losing the equivalent of -$26 (-1.8%). Silver iShares (SLV) lost more than -4%. That may have had more to do with the selling of Treasury bonds and other safe havens as bond yields jumped. But a rising dollar didn't help.
