SOX LEADS FRIDAY RALLY -- MONTHLY MACD LINES FOR S&P 500 TURN POSITIVE

SOX NEARING BREAKOUT POINT... Semiconductor stocks were Friday's standout technology performer. The SOX gained better than 10% Friday to lead another strong market day, and is now within striking distance of its December 2 intra-day high at 394. Since the pattern of rising bottoms since last October has already been established, the odds are pretty good that the December high will be exceeded. That would establish a new uptrend in this key technology group. Earlier today we showed the strong action in Novellus. KLA Tencor is doing even better.

Chart 1

KLA TENCOR HAS ALREADY BROKEN OUT... KLA Tencor was one of the week's top SOX performers. A big jump on Friday pushed the SOX leader just above its early December peak near 46. Although the margin of the upside breakout was small, we think its for real. That's mainly because it has the power of a rising SOX Index behind it -- and a Nasdaq market that's already broken out to the upside.

Chart 2

NASDAQ EXCEEDS MOVING AVERAGE LINE... The Nasdaq Composite Index was the first of the major stock indexes to exceed the highs formed late last year. The Nasdaq ended the month of May at 1595. That's the highest close since last May. Friday's close also represents the first time since September 2000 that the Nasdaq closed above its 20-month moving average. That suggests a further rally to the upper Bollinger Band near 2000. Chartwise, that also represents the highs formed at the start of 2002. We think there's a strong chance the Nasdaq will get there. The Nasdaq is helping pull the rest of the market higher as well. Some other benchmark indexes achieved upside breakouts as well.

Chart 3

S&P 500 MONTHLY MACD LINES TURN POSITIVE... A strong Friday close pushed the S&P 500 above its early December peak near 950 to achieve a nine-month high. That puts the S&P in position to test its August intra-day peak at 965. A decisive close above that chart barrier would complete the upside breakout. [The Dow still needs to clear overhead resistance at 9000 as well]. A very encouraging sign is coming from the S&P monthly chart. The monthly MACD lines for the S&P 500 have turned positive for the first time in three years. We're also watching the 20-month moving average line very closely. It hasn't been exceeded since the fourth quarter of 2000. It currently sits just above 980. A close above that resistance line would be another positive sign that the market is turning higher. The Nasdaq exceeded that resistance line this month. It would be encouraging to see the S&P 500 do the same. That would be another indication that the market rally is broadening out.

Chart 4