MARKET PULLS BACK ON LIGHT VOLUME -- MICROSOFT BREAKS OUT -- RISING YEN HELPS GOLD
MIRCOSOFT BREAKS THROUGH MAJOR RESISTANCE... Yesterday IBM broke through some formidable resistance. Today it was Microsoft. The stock rose 1.56 on rising volume to make the Nasdaq's most-actives list. The weekly bars in Chart 1 shows MSFT breaking through the high reached during the fourth quarter of last year. The weekly volume wasn't great, but at least it increased over the previous weeek. The monthly bars in Chart 2 show the next resistance levels located at 35 and 35, which is the next upside target zone.
Chart 1
Chart 2
NIKE AND REEBOK JUMP ON VOLUME... Nike jumped to a new 52-week high today on massive volume. Its monthly chart, however, shows the stock moving up to challenge resistance at 64. That will be a much more important test. Reebock also jumped on strong volume.
Chart 3
Chart 4
YEN SURGES AGAIN TO TWO-YEAR HIGH... The Japanese yen surged again today to the highest level in two years against the dollar. An early draft of this weekend's G7 meeting calls for countries to allow market forces to determine the value of their currencies. The Japanese spent a lot of money intervening to keep the yen from rising. Not anymore. The Euro has also turned up against the dollar. Chart 6 shows the Euro trading over its moving average lines after breaking a three-month down trendline. Rising foreign currencies are bearish for the dollar. However, they're bullish for gold. Right on cue, gold jumped $5 today and gold stocks gained 3%.
Chart 5
Chart 6
WATCHING SUPPORT LEVELS... Even with Friday's modest setback, the stock market had a good week. All major averages hit new highs for the year. Not everything is perfect however. Yesterday, I suggested keeping an eye on support levels in the QQQ at the 20-day moving average and the mid-September low. The same holds true for the S&P 500. The latest move into new highs is the third upleg from the August bottom. Elliot Wavers will see that as a fifth wave. At the same time, the 14-day RSI is showing short-term negative divergence. That's a minor warning that the market looks over-extended. That being the case, it's a good idea to keep an eye on support levels as a defensive measure. The first support level is the 20-day average at 1016. The second is the mid-September low at 1007. We're still in the dangerous September-October period.
Chart 7
