DOW JOINS OTHER MAJOR STOCK INDEXES IN RECORD TERRITORY -- TRANSPORTATION STOCKS NEAR UPSIDE BREAKOUT -- SO DOES THE RUSSELL 2000 SMALL CAP ISHARES -- FINANCIAL SPDR HITS NEW RECORD -- WITH A LOT OF HELP FROM BANKS AND HIGHER BOND YIELDS
DOW JOINS OTHER MAJOR INDEXES IN RECORD TERRITORY...Chart 1 shows the Dow Industrials trading above their July high to put them in record territory. The Nasdaq and S&P 500 hit new records last week. Financials and materials are hitting new records today as well. Other leaders include energy and industrials. Industrials hit a record on Friday. A rebound in bond yields is helping banks and other financials, while pushing bond proxies like staples, utilities, and real estate lower. Smaller stocks are nearing new highs for the year. Transportation stocks are testing overhead resistance.
TRANSPORTS TEST OVERHEAD RESISTANCE...The recent resurgence in transportation stocks is in evidence again today. The daily bars in Chart 2 show the Dow Jones Transportation Average trading above its July/September intra-day highs and approaching its highest close in six months. The relative strength ratio in the upper box shows the transports outpacing the Dow Industrials over the last month. Economically-sensitive transportation stocks are also starting to do better than rate-sensitive utilities. That's normally an encouraging sign for the stock market and the U.S. economy. So is today's strong action in small caps.
RUSSELL 2000 ISHARES MAY BE NEARING UPSIDE BREAKOUT... Chart 3 shows the Russell 2000 Small Cap iShares (IWM) trading at the highest level in six months and nearing a test of its early May peak. A close above that chart barrier would put the IWM at the highest level in a year. The gray line plots a relative strength ratio of the IWM divided by the S&P 500 Large Cap Index, and shows small caps lagging behind large stocks for the last year. The boxed area, however, shows the ratio stabilizing over the last two months. That suggests that money is starting to flow back into smaller stocks which are more closely tied to the fortunes of the U.S. economy. And may be sending a message of growing confidence. Previous messages have suggested that smaller stocks may be getting the benefit of rising financial shares which are the biggest part of the Russell 2000. Stronger industrial stocks are also helping. The Industrial SPDR (XLI) hit a new record on Friday. Financials (XLF) are in record territory today.
FINANCIAL SPDR HITS NEW RECORD...Chart 4 shows the Financial SPDR (XLF) trading above its early 2018 peak to put it in record territory today. After falling for most of the previous year, the XLF/SPX relative strength ratio in the upper box bottomed during March and has been trading sideways since then. Today's upside breakout puts the ratio at the highest level in ten months. Both breakouts paint a bullish picture for the economically-sensitive financial sector. And for the rest of the market.
KBW BANK INDEX IS IN NEW CHART UPTREND... Banks are the largest part of the XLF and are playing a big role in its recent breakout. The weekly bars in Chart 5 show the KBW Bank Index trading today at the highest level in a year. It recently broke above a falling resistance line extending back to the start of 2018. The BKX/SPX ratio in the upper box has also turned up. Banks and other financials are getting help from higher bond yields. Which is another vote of confidence in the U.S. economy.
