Monday, June 04, 2007

Shanghai Dodged Again

On Monday, Shanghai investors learned that Chinese stocks (not pictured at left) eventually get a little uncomfortable.

Monday was also the third time since Feb 27 that Shanghai tumbled but the US markets held their own. The Chinese economy is woven throughout the US financial system. However, the Chinese stock market isn't. The SSEC is closed to outsiders and isolated from the world markets, and it showed in Monday's trading. As Shanghai tumbled 8.3%, Australia, Singapore, Taiwan, Brazil, Austria, Spain, France, Germany, London, the NYSE, WLSH and MID all notched record highs. Also, Chinese ADR's trading in the US held up remarkably well.

US trading volume was low again, but the market internals were strong for the 6th straight day. As sellers continue to be scarce, New Highs crushed New Lows 545-73.

Leading stocks also continued their streak. The IBD100 outpaced the broader market for the 6th consecutive day, adding 0.8% as 67 of 100 stocks moved higher. Also, a hefty 25 stocks printed record highs. With this type of ongoing performance from stocks with the very best fundamentals, it's unlikely that the broader market has put in a top yet.

The NASDAQ closed one gap today as various technical indicators continue to point higher. The white candle is another promising sign.

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There's considerable debate about whether the looming 5% 10-year Treasury yield will spark an important selloff. For now anyway, the market itself seems to be saying that 5% is not the magic number. Utilities are taking higher yields hard of course, but the Financials are holding up well.

Even more revealing, Retail and Housing seem particularly unperturbed. Against both the yield rally and high energy prices, the RLX has posted gains in 10 of the past 13 sessions, and now sits just 0.5% below an new all-time high. The Housing Index has also stayed strong, and seems poised to break out of a 7-day bull flag. It appears strong employment data is trumping concerns about 5% yields.

If 5% Treasury yields were truly kryptonite, the RLX and HGX wouldn't be behaving this way. Both are included below.

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On the cusp of hurricane season, energy stocks continue to act bullish. The WTIC below shows that $67 crude is a critical line in the sand. Technically, a break higher seems almost inevitable. If/when this happens, crude will likely rally for quite a bit higher, and oil stocks should benefit.

A summer crude rally has the potential to create more problems for the stock market than 5% Treasury yields. 5% yields are historically low; $75 crude is not.

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While the indexes continue to look like they can move higher, they also show clear signs of wear. The problem for the bears is that vast numbers of individual stocks don't share that haggard look. A look through watch lists, index components and stock screens shows a majority of stocks under accumulation. This is why the internals have improved so much since mid-May.

Throw in the strength in leading stocks, and it all adds up to a continued pattern of dip-buying. Eventually it will stop of course, but the market will be acting differently by then.

Until tomorrow, have a great evening.




Bill Luby said...

Is there someplace I can go to nominate this for the "Best Use of Parenthesis in a Blog Post" award?

Seriously. That one got me in the gut in a big way as only non-PC humor seems to be able to do.

Trading Goddess said...

Welcome home. :)

dk said...

bill...glad you enjoyed the word play. In truth, I steal everything from other people. The paranthesis gag was inspired by two things:

1. your clever mark-up language gag, and

2. an Adam gag, where he posts a photo of a super hot babe, then in the accompanying text mentions Abby Joseph Cohen (not pictured). [I howl every time.]

goddess...thanks so much for the well-wishes. Unfortunately I'm still in Boston, extended until Sun (or Mon?). I miss the West Coast market (pajama) rhythms...waiting until 9:30 just