MARKET AVERAGES HIT NEW RECOVERY HIGHS -- FINANCIALS, TECHS, AND TRANSPORTS LEAD WAY -- YEN HITS 2-YEAR HIGH

MARKET AVERAGES RESUME UPTRENDS... All the major market averages hit new 52-week highs today to keep their uptrends intact. As has been the case throughout most of the rally since March, the Nasdaq 100 is leading the market higher. It did so again today. Chart 1 shows the Nasdaq 100 Shares (QQQ) closing above its previous September peak at 34.53 to resume its uptrend. Volume picked up as it did throughout the entire market. Breadth was positive. The first line of defense for the QQQ is 20-day moving average at 33.57. The first line of chart support is now raised to the mid-September low at 33.01. The Nasdaq Composite closed over 1900 for the first time in eighteen months. The weekly bars in Chart 2 show that the next potential resistance levels range from 1946 to 2098. Of the two, the latter numbers appears more formidable. That's still 189 points (or 10%) from current levels. The weekly RSI line has moved into overbought territory over 70 which is a sign that the Nasdaq rally is getting overextended. Keep that in mind if and when the Nasdaq moves into the indicated target range.

Chart 1

Chart 2

FINANCIALS BREAKOUT... Financial stocks gained over 3% today and were the day's strongest group. The Financials Select Sector Sector SPDR broke through it summer highs on very strong volume. The Broker Index closed at a new 52-week high and was the strongest financial group. Among the brokers hitting new 52-week highs today were Goldman Sachs, Merrill, Morgan Stanley, and Schwab. Within the Dow, American Express hit a new high for the year. Charts 3 and 4 show Citigroup and JP Morgan Chase jumping on strong volume. Some other Dow stocks hitting 52-week highs today were General Electric, IBM, and Microsoft. In the Nasdaq, new yearly highs were hit by Amazon, Cisco, Qualcomm, and Yahoo.

Chart 3

Chart 4

Chart 5

TRANSPORTS GAIN 2.3% ON FALLING OIL... The Dow Transports remain one of the strongest parts of the market. In my opinion, a large part of that is attributed to falling energy prices. The Dow Transports were again the strongest of the three Dow averages today and closed at 2825. The chart shows the next upside target to be in the vicinity of 3000. The rising relative strengh line along the bottom shows the transports outperforming the Dow Industrials. Please see our earlier update for charts of today's transportation leaders.

Chart 6

BIOMET LEADS NASDAQ 100 HIGHER... The top percentage gainer in the Nasdaq 100 was Biomet. Chartwise, the healthcare stock had a breakout day. Chart 7 shows the stock leaping through its March high on massive volume. The weekly bars in Chart 8 are even more impressive. They show that Biomet has also broken through the highs of the past two years.

Chart 7

Chart 8

YEN HITS TWO-YEAR HIGH... The Japanese yen closed today at the highest level in more than two years against the dollar. As I suggested in a recent report, it was just a matter of time before market forces (strong money flows into Japan) pushed the yen higher and overcame attempts by the Japanese central bank to keep the yen from rising. There may also be a political reason for the yen's recent strength. The Japanese recently joined with the American government in trying to persuade the Chinese to allow the yuan to float higher with market forces. The Japanese can hardly point fingers at the Chinese for keeping their currency down, when they've been essentially doing the same thing with the yen. The bottom line is the yen is now rising, which is a vote of confidence in Asian markets. It's also another bearish sign for the dollar.

Chart 9