Dow Jones Industrial Average (DJI.I) & Crude Oil Continuous Contract (CL.F) 

For the most part, the equity market advance of recent weeks has paused, particularly in the United States and Europe. With earnings season well underway, investors have been sifting through the results. While results on balance have been coming in better than expected for the most part, reactions to the news have varied, but on balance, gainers and losers have offset each other leaving markets flat. Even US indices have been indecisive with the NASDAQ pulling back in a common correction, while the Dow Jones Industrial Average extended its winning streak to twelve days.

The strongest equity markets in the last week, Brazil, Canada, the UK, Australia, South Africa, and Saudi Arabia have one significant thing in common, a higher than average weighting to resource producing stocks. Commodity prices have been on a tear this week, with WTI Crude Oil and Natural Gas climbing about 5%, Wheat soaring more than 10%, and Copper gaining about 2%. Recognition of a robust economy in North America and speculation ongoing weakness in China may bring about more stimulus combined to boost expectations for resource demand. These gains have also helped CAD Equity and Commodities to post significant moves upward in the SIA Charts Asset Class Rankings this week.



Capital rotation and relative strength differences re-emerged between sectors this week. Of the 31 market sectors that SIA Charts tracks, 20 posted gains and 11 pulled back. The strongest groups have been Energy, Utilities, Conglomerates, Food and Drugs, followed by Financials. This suggests a late-cycle to slightly defensive tone to trading. Several of the weakest groups of the last week which include Media, Software, Semiconductors, Specialty Retail and Manufacturing, have been among the strongest year to date, suggesting in some cases, investors may be taking profits against earnings news, particularly in areas where strong gains have been made and higher expectations have been implicitly priced in.

The Fed raised the Fed Funds rate by 0.25% to 5.50%. Other than committing to continue inflation fighting the statement and Fed Chair Powell at his press conference were non-committal, indicating they are going on a meeting-by-meeting basis and future hikes would depend on data.

The rest of this week and all of next are particularly active for news.

Central Bank meetings continue with the European Central Bank today, the Bank of Japan tomorrow, the Reserve Bank of Australia on Tuesday and the Bank of England a week from today.

The turn of the month brings a flurry of economic announcements starting with US Q2 GDP today, US Core PCE inflation tomorrow, Chicago PMI Monday, Manufacturing PMI Tuesday, ADP Payrolls Wednesday, Service next Thursday and US Nonfarm Payrolls plus Canada jobs and wage inflation next Friday. Phew!

We also continue to move through the biggest two weeks of earnings season for big cap stocks with the upcoming calendar dominated by Big Oil, Big Tech, Big Pharma, Big Telecom, Big Insurance and so on. Headliners include: CP Rail, McDonalds and Intel today, Exxon Mobil, Chevron and Imperial Oil tomorrow, Merck, Pfizer, Caterpillar, and Starbucks Tuesday, Suncor Energy, Shopify*, Thomson Reuters*, MetLife, Dupont on Wednesday, Apple, Amazon.com, BCE, and Warner Bros next Thursday, wrapping up with Enbridge, Telus and Magna next Friday.

In this edition of Equity Leaders Weekly, we look at recent gains in the Dow Jones Industrial Average and the price of Crude Oil.

This may sound odd at first glance for a 30 mega cap stock index but the recent rally in the Dow Jones Industrial Average (DJI.I), which has extended into a thirteen trading day and counting winning streak, is another signal of growing bullish breadth in the US equity market.



In contrast with the high-growth, high beta NASDAQ Composite (NASD.I) which has been leading the charge and at some points doing most of the heavy lifting this year, the Dow Industrials, which is weighted more to more mature companies in cyclical, traditional sectors had been lagging for much of the year. The Dow Industrials soaring in recent weeks, now can be seen as a serious signal that bullish capital is no longer concentrated in Technology and Communications, that other sectors such as Industrials, Consumer Products, Financials and Energy are starting to soar.

Although the recent outperformance of the Dow Industrials relative to the NASDAQ could be seen as a shift from Growth to Value, this is different in that it doesn’t appear to be coming from a place of defense or fear. Rather, as we move through earnings season, we are seeing a recalibration of vaulations and expectations for stocks within an economic expansion. In many cases, sectors where high expectations had built up are seeing profit taking, and capital is rotating into areas where companies are exceeding lower expectations.



The rally in the Dow Industrials is also confirming a rally in the Dow Transports, which has been seen as a sign of a healthy bull market for over 100 years.



For DJI.I, the initial bounce up off of the October 2022 market bottom was brief, peaking in December 2022. The index spent the first half of the year in consolidation mode but has been trending upward since the March low. This month, accumulation in Dow stocks has accelerated with DJI.I staging bullish Triple Top and Spread Double Top breakouts.



Initial upside resistance appears at the January 2022 peak near 36,825, followed by 39,475 based on a horizontal count. Initial support appears near 34,000 where a round number, recent breakout point and 3-box reversal cluster.

The price of Crude Oil (CL.F) which has been in a general downtrend since a failed attempt at a double top breakout back in June of 2022, appears to be showing signs of life. On the supply side, production cuts at OPEC+ countries have been sticking. Meanwhile, a robust global economy and higher demand for energy from summer heat waves in North America and Europe have ratcheted up demand expectations even in the face of rising interest rates and China’s economy sputtering.

Since March, a downtrend in CL.F has been stopped by significant support near $66.85, which has now been successfully tested four times. This month Crude Oil has launched up off of that level, completing bullish Triple Top and Spread Double Top breakouts.

Previous column highs and lows suggest resistance may appear near $84.80, followed by $93.60, while horizontal counts suggest potential tests near $97.40 and $103.35. Initial support appears near $72.35 based on a 3-box reversal and a retest of a recent breakout point.

Rising Crude Oil and Natural Gas prices have also had a positive effect on Energy stocks with producers, midstream and services companies all starting to climb back up their respective relative strength rankings in recent days.