A LOT OF RESISTANCE LEVELS ARE BROKEN -- TRANSPORTS AND TECHNOLOGY LEAD RALLY
RESISTANCE LEVELS BROKEN... Last Friday, we showed three charts that were testing resistance barriers. This week all of the resistance barriers we showed have been broken. The Nasdaq Composite has cleared its January high and is now challenging the high hit near the end of November. The Bank Index has risen above its January peak. The NYSE Composite Index has broken the down trendline drawn along the highs of the past nine months. And, the Dow finally closed over the 8500 barrier. The big story wasn't in the Dow however. It was in the transports, which were helped by a late-week surge in airlines.
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DOW TRANSPORTS EXCEED JANUARY HIGH... We've recently commented on relative strength being shown by the transports. Chart 4 shows the Dow Transports breaking through their January high to reach the best level in nine months. We've commented mainly on strength in the rails and truckers. This week, airlines were the big story. A brokerage upgrade on Friday sent the Airline Index flying 10% higher. That strong action lifted it well above its 200-day moving average. Continental had the best overall chart performance. CAL broke decisively through its November/December highs on huge volume. Delta and Northwest also achieved bullish breakouts. Southwest isn't far behind.
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DRUGS GETTING STRONGER... We've commented on the relative strength being shown by drug stocks. That group also achieved a bullish breakout this week. The Pharmaceutical Index broke through its November high to turn its trend upward.
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MUTUAL FUND LEADERS... One of the simplest ways to participate in a leading market group is with a sector mutual fund. Not surprisingly, two of this week's top performing Fidelity sector funds are the Fidelity Select Pharmaceuticals Fund and the Fidelity Select Tranport Fund. The next two charts show those two mutual fund leaders plotted through Thursday. Both have broken out to the upside and are showing strong relative strength lines. Bond funds have the look of market leaders.
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TECHNOLOGY AND TRANSPORTATION LEADERSHIP... One of the more encouraging developments this week was the Nasdaq market regaining leadership over the NYSE market. The relative strength line along the bottom of the chart has been rising for the past two weeks. As we've said many times, the market usually does better when technology stocks are in the lead. The Nasdaq Composite Index is nearing a challenge of the high hit five months ago. Needless to say, that's going to be an important test. That's because an upside breakout would pretty much confirm the idea that the Nasdaq has bottomed. And, Nasdaq leadership would be a good sign for the rest of the market. There's a bullish message is this week's strong action in the transportation stocks as well. In the early stages of an economic rebound, transportation stocks assume a leadership role. That's partly because they're cyclical in nature. Another reason has to do with oil. At the end of an economic expansion, energy stocks take over market leadership as oil prices rise. That happened during the second half of 1999 and the first half of 2000. At the start of an expansion, falling oil prices put transports in the lead. That's an early sign that falling oil prices are having a beneficial effect on the economy.
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TECHNOLOGY LEADERS... With the technology being the strongest sector this week, we're showing charts of three of the top technology stocks for the week. Juniper Networks broke out to a new 52-week high. Siebel Systems is challenging its January high. Sun Microsystems surged through its 200-day moving on Friday on strong volume.
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