S&P 500 NEARS TEST OF OVERHEAD RESISTANCE -- TRANSPORTS ARE OFF TO A STRONG START -- FINANCIALS LEAD MARKET HIGHER -- BANK OF AMERICA MAY BE BREAKING OUT -- STATE STREET SURGES -- STRONG FINANCIALS MAY BE BOOSTING SMALL CAPS
STOCK INDEXES NEAR OLD HIGH...Stocks around the world are trading higher this morning. Chart 1 shows the S&P 500 nearing a test of a trendline drawn over its July/September highs. All other major stock indexes are also trending higher. A big drop in Boeing (BA), however, is causing the Dow Industrials to lag behind. Transportation stocks are also off to a strong start, while rate-sensitive utilities are lagging behind. An uptick in bond yields is weighing on bond prices and their stock proxies. Chart 2 shows the Dow Transports rising to the highest level in more than a month. Most stock sectors are in the black with the biggest gains in financials and energy. Another rebound in global bond yields is helping support financial stocks and banks in particular. Stronger financial shares may also explain why small cap shares have been doing better this month.
BANK INDEX NEARS TEST OF RESISTANCE...Bank stocks are helping make financials one of the day's strongest sectors. Chart 3 shows the KBW Bank Index (BKX) nearing a test of major overhead resistance along its May/July highs. That's a very important test for that group. The upper box shows the BKX/SPX relative strength ratio trying an upside breakout of its own. Rising bond yields here and in Europe are helping support financial stocks, with banks in the lead.
Chart 4 shows Bank of America (BAC) already trading above its intra-day highs for the year. A decisive close above those highs would be even more impressive. Chart 5 shows asset manager State Street (STT) surging to a six-month high. There's another part of the market that may be getting a lift from rising financial shares.
RUSSELL 2000 iSHARES TURN HIGHER...Chart 6 shows the Russell 2000 Small Cap iShares (IWM) off to a strong start for the week. The IWM has risen back above its major moving average lines. Its relative strength ratio in the upper box also shows the IWM doing better than the S&P 500 Large Cap Index over the past couple of weeks. Part of that may be tied to stronger financial shares. That's because financials account for 18% of the Russell 2000 and are the biggest part of that index. The IWM still remains well below its 2019 highs. But its recent strength is an encouraging sign.
NO BREXIT YET...The Brexit drama continues into the new week. The UK Parliament on Saturday postponed a vote on the October 31 Brexit deadline, but may vote again this week. Chart 7 shows the British Pound gaining more ground today and reaching the highest level in six months. British shares are also trading modestly higher today. Bigger gains are being seen in eurozone stocks and especially in Germany. Chart 8 shows Eurozone iShares (EZU) touching a new high for the year. But those gains may depend on how things go in Parliament this week. Which should determine whether or not Brexit can be completed by the end of this month.
