BROKERS, DRUGS, AND CYCLICALS HAVE STRONG WEEK -- NASDAQ MONTHLY MACD TURNS POSITIVE

UTILITIES ARE TOP SECTOR... The chart of the Dow Utilities shows that Index heading toward its 200-day moving average. The relative strength line along the bottom shows the utilities outperforming the Dow Industrials since December. Two of the week's top percentage gainers were AES Corp. and Calpine Corp. Chart 2 shows AES breaking through its January high on Friday -- on very heavy volume. That puts AES at the highest level in nine months. Calpine broke through its 200-day moving average during the week -- also on good volume.

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BROKERS HAVE STRONG WEEK... Brokers (and financial stocks in general) had a strong week. The AMEX Broker/Dealer Index broke through its 200-day average before hitting the highest level since January. The relative strength line along the bottom (vs. the S&P 500) has also turned up. Ealier in the week we showed Merrill Lynch rallying nicely. The strongest chart pattern belongs to Bear Stearns, which has reached a 52-week high. The weekly chart shows the brokerage leader challenging the highs hit during the summer of 2000 in the low 70s. The volume on the weekly chart is more impressive than it is on the daily.

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DRUG LEADERSHIP... The Pharmaceutical Drug Index climbed to a three-month high on Friday. A couple of weeks back it broke its 200-day line and then retested it successfully -- before resuming its uptrend. The rising relative line (vs. the S&P 500) has already risen to a five-month high. That's a sign of leadership. Within the drug group, two stocks that are showing leadership are Pharmacia and Pfizer. PHA is right up against its August/November highs and is close to hitting a new 52-week high. The rising relative strength line plots PHA against the DRG Index. Pfizer isn't as strong, but is showing drug leadership as well.

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CYCLICAL LEADERS... A couple of the week's top performers in the cyclical area were Autozone and Home Depot. Autoze broke through its 200-day line and hit a four-month high. Volume picked up nicely. Home Depot also hit a four-month high and is nearing a challenge of its 200-day line. Its volume hasn't been that impressive. Groups that saw profit-taking this week were energy, healthcare, and technology.

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NASDAQ MONTHLY INDICATOR TURNS POSITIVE... Last Friday, we pointed out that the monthly MACD lines for the S&P 500 still hadn't crossed into positive territory, but were the closest to doing so in three years. The monthly MACD lines for the Nasdaq market have finally turned positive -- but just barely. This is first time that's happened since 2000 and it's an encouraging sign. The monthly bars put the chart action since last October into better perspective. The bars show a pattern of "rising bottoms". That's only half the requirement for an uptrend. We still need to see "higher highs" to confirm that the trend has turned upward. That will require a decisive close over 1500, which was the peak hit last December. If the Nasdaq can achieve that, a further rise to 2000 would seem a reasonable upside target. That was the high hit at the start of 2002. Chart 13 plots Bollinger Bands on the monthly Nasdaq bars. It shows the 20-month moving average (the middle line) sitting right at 1500. The upper band sits at 2000 which also shows up as the next prominent price peak. That seems like a reasonable upside target for Nasdaq -- but only if it can clear 1500. Needless to say, that would give the rest of the market a boost as well.

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