MARKET BREADTH IMPROVES -- SMALL CAPS TEST RESISTANCE -- ENERGY AND MATERIALS HAVE STRONG MONTH

NYSE ADVANCE-DECLINE LINE BREAKS OUT... Stocks gained more ground this week to continue their uptrend.   What's helping keep the rally going is the fact that more individual stocks are joining the uptrend.   Chart 1 shows the NYSE Advance-Decline line rising above several previous peaks to the reach the highest level in more than a year.  Although that's a late signal, it's still a bullish sign.   The NYSE Common Stock Only AD line has also broken out to the upside.  All the major stock indexes hit new highs for the year -- except one.   But it's getting close.

SMALL CAPS NEAR UPSIDE BREAKOUT... Chart 2 shows the Russell 2000 iShares (IWM) still in the process of testing its February high.  A decisive close above that previous peak would confirm that smaller stocks are finally joining the market uptrend.   The direction of small caps plays a pivotal role in market breadth.   With advance-decline lines already in uptrends, an upside breakout in small caps appears more likely.

MATERIALS AND ENERGY ARE LOOKING STRONGER...Another encouraging sign for stocks is that most sectors are also gaining ground.   All eleven S&P sectors rose during July with materials and energy showing new upside leadership.   Chart 3 shows the Materials SDPR (XLB) trading above  its 2023 peak to reach the highest level in more than a year.   Stocks tied to copper were this week's strongest commodity group.   Energy stocks are also looking stronger.

Chart 4 shows the Energy SPDR (XLE) testing its previous peak formed during April and nearing a potential upside breakout.    Oil Service stocks are leading the XLE highaer.   Both sectors are being supported by higher commodity prices.

COMMODITY BUYING...Commodity prices also had a strong July and may be bottoming.    Chart 5 shows the Invesco DB Commodity Index rising above its red 200-day moving average and in the process of testing its April high.  Rising energy prices are part of that rally.  A weaker dollar during July may also be attracting new money into commodity markets.