MARKET RALLY BROADENS OUT -- DOW LEADS FRIDAY RALLY -- CYCLICALS HAVE A STRONG WEEK

DOW PLAYS CATCH-UP... A strong May jobs report and the passing of the debt ceiling bill have combined to give a big boost to stocks at week's end.   The rally has been enough to push the Nasdaq to a new 52-week high and a ten-month high in the S&P 500 which appears headed toward its August high (Chart 1).   The bigger news, however, may be that weaker parts of the market that have been lagging behind are finally show some signs of life.    That includes small cap stocks and more cyclically-oriented stock sectors (more on that shortly).   It also includes the Dow Industrials which are leading the day's rally.  Chart 2 shows the Dow surging well above its 50-day average after bouncing off its 200-day line and outperforming other stock indexes for a change.   Chart 3 shows the S&P Equal Weighted Index climbing as well.   It's also rising faster than the S&P 500 Large Cap Index.   That's another  encouraging sign that market breadth may be improving.

CONSUMER DISCRETIONARY SPDR NEARS BREAKOUT... Last week's message listed the XLY as one of the market's strongest sectors outside of technology and communication services.   That economically-sensitive sector is this week's strongest performer and on the verge of a bullish breakout.   Chart 4 shows the XLY rallying to the highest level since February.  An upside breakout would signal the start of a new uptrend.  Auto stocks continue to lead the XLY higher.

ENERGY AND MATERIALS HOLD SUPPORT... Chart 5 shows the Energy SPDR (XLE) having a strong Friday.  The most encouraging part of the chart is that energy stocks are bouncing off potential support along their March low.  Chart 6 shows the Materials SPDR (XLI) gapping higher on Friday.   It too has found support along it March low; and is trading above its 200-day average.   The XLB is being led higher by stocks tied to copper.  The fact that weaker parts of the stock market are finally attracting some attention is another encouraging sign that the current rally may be broadening out.