STOCK INDEXES FLUCTUATE BETWEEN MOVING AVERAGE LINES AS TRADING RANGE CONTINUES -- TECH SECTOR SHOWS UPSIDE LEADERSHIP -- APPLIED MATERIALS AND LAM RESEARCH LEAD CHIPS HIGHER -- FINANCIALS NEED A BOOST FROM BOND YIELDS
STOCK INDEXES REMAIN IN TRADING RANGE...The three major U.S. stock indexes shown below remain in a sideways trading range between their 50-day moving averages on top and 200-day lines below. And they continue to trade between their July highs and August lows. While the short-term picture remains indecisive, the position of the moving average lines shows the major uptrend still intact. Chart 1 shows the blue 50-day line for the Dow Industrials still well above its red 200-day line which is indicative of a market uptrend. In addition, the Dow's green 20-day average remains above its 50-day line which is another positive sign. That could change in the weeks ahead. But right now they're in a bullish alignment. The same is true for the two other stock indexes in Charts 2 and 3. The big question now is which of the two major moving average lines is broken first. Technical odds still favor the upside. But the issue remains in doubt. Of the three charts shown, the third one is the strongest.
Chart 3 shows the Invesco QQQ Trust having a stronger day than the other two and the closest to its 50-day average. The QQQ represents the Nasdaq 100 which includes the biggest stocks in the Nasdaq market. And it's being led higher today by a strong technology sector; and semiconductors in particular.
SEMICONDUCTORS LEAD TECH SECTOR HIGHER...On a day when all eleven market sectors are in the green, technology is showing the biggest percentage gain. Chart 4 shows the Technology SPDR (XLK) trading back ab0ve its 50-day line around mid-day. At the same time, the XLK/SPX ratio in the upper box has touched a new record. That's an encouraging sign for the tech sector; and maybe for the rest of the market. Semiconductor stocks are leading the XLK higher.
Chart 5 shows the PHLX Semiconductor iShares (SOXX) remainingabove a rising trendline drawn under its May/August lows and its 50-day line. The SOXX/XLK ratio in the upper box shows a similar uptrend. That means that chip stocks are a major reason that tech stocks are holding up better than other sectors. Today's chip rebound is being led by two stocks in particular.
APPLIED MATERIALS AND LAM RESEARCH SHOW LEADERSHIP...Chart 6 shows Applied Materials (AMAT) bouncing off its 50-day moving average to lead the tech sector and semiconductor group higher today. The stock isn't far from a new high for the year. Chart 7 shows Lam Research (LRCX) in a similar position of relative strength.
FINANCIALS STALL AT OVERHEAD RESISTANCE...Just a month ago it looked like financial stocks might be on the verge of an upside breakout. The daily bars in Chart 8 show the Financial Sector SPDR (XLF) bumping up against previous highs set during July and the previous September (see circles). In addition, the XLF/SPX relative strength ratio (upper box) appeared to be turning higher as well. Both have backed off during October. No serious damage has been done to the XLF uptrend, however, which continues to trade above its summer lows and 200-day moving average (red arrow). A drop in bond yields this month is the main reason for the recent drop in the XLF. Financial stocks, and banks in particular, need higher bond yields to support higher prices. A modest rebound in bond yields today is giving a slight boost to the financial sector. But financials are going to need higher bond yields to overcome those overhead resistance barriers. And that may take some stronger economic news; or some kind of trade deal.
