STOCKS SURGE ON FALLING BOND YIELDS -- REITS AND HOMEBUILDERS AMONG WEEKLY LEADERS --VIX TUMBLES AS STOCKS RISE

TEN YEAR BOND YIELD MEETS RESISTANCE AT 5%...  The 10-Year Treasury yield backed off sharply this week from long-term resistance near 5.00%.   The upper box in Chart 1 also shows its 14-day RSI line peaking from overbought territory over 70 and falling to the lowest level in several months.  The lower box shows its daily MACD lines falling to the lowest level in two months.   The TNX is also threatening to fall below its 50-day average.   A dovish Fed this week and today's weak jobs report probably contributed to the big drop on yields.   As a result, stocks had a very strong week.

S&P 500 REGAINS MOVING AVERAGE LINES... Last week's message showed the S&P 500 falling below its 200-day moving average and breaking some short-term support levels.   Chart 2, however, shows the SPX regaining its 200-day line in impressive fashion and trading above its 50-day line as well.   The SPX is also nearing a test of its October peak.  A close above that level would be another positive development.    Stocks may also be getting a boost from seasonal trends which usually turn more positive during November and December.

REITS AND HOMEBUILDERS SURGE ON FALLING YIELDS...While all S&P sectors gained during the week, REITS turned in the strongest performance.   That's not surprising considering that REITs are a very interest rate sector that do better when yields are falling and bond prices are rebounding.  Chart 3 shows the Real Estate Sector SPDR (XLRE) clearing its October high in heavy trading and rising above its 50-day line.   Its RSI line in the upper box has risen to the higher level  in three months.  Homebuilders also had a very strong week.

Homebuilding stocks are also very sensitive to the direction of the 10-year Treasury bond yield which helps determine the direction of mortgage rates which which fell sharply this week.  Chart 4 shows the U.S. Home Construction iShares (ITB) surging 13% this week making it one of the week's strongest groups.   It's also back above its moving average lines.

VIX TUMBLES...Another positive sign for stocks is the sharp drop in the CBOE Volatility (VIX)  Index.    Chart 5 shows it tumbling below its October low to the lowest level since September.   It's also fallen below its moving average lines.   The solid gray area shows the S&P 500 trending in the opposite direction of the VIX over the last three months.