MARKET AVERAGES HIT NEW HIGHS -- NASDAQ MAY BE REGAINING LEADERSHIP ROLE

STRONG ECONOMIC REPORTS BOOST STOCKS... All the major stock averages have hit new highs for the year, thereby keeping their uptrends in intact. A couple of stronger-than-expected economic reports had a predictable effect on the various markets. Stocks and the dollar were strong, while bonds and commodities were weak. Leadership within the stock market was also consistent with economic strength. That leadership came from technology, financials, and small caps. The strongest group of the day were semiconductors, while the weakest was gold. The semiconductor rally was helped by strong gains in Asia. The Hong Kong Hang Seng Index gained 196 points (+1.6%) to reach a new multi-year high. Strong Asian markets usually translate into strong chip stocks. Even European markets showed impressive strength. The German DAX Index was the strongest in Europe and gained 2.4% to reach a new 52-week high.

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NASDAQ LEADERS... Chip stocks dominated the day's leaders in the technology sector. Earlier today we showed Xilinx breaking out. Novellus Systems also broke through its August high on impressive volume. Other tech leaders outside the chip area were Siebel Systems, Sun Microsystems, and VeriSign. Chart 5 shows VRSN breaking through its September high on rising volume. SUNW has been a Nasdaq laggard. Today, however, the stock surged to a three-month high on expanding volume. It was the day's biggest percentage gainer in the Nasdaq 100.

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NASDAQ MAY BE REGAINING LEADERSHIP... One of my recent concerns has been the lack of leadership by the Nasdaq market. Historically, the stock market does much better when the Nasdaq is outperforming the NYSE Index. The Nasdaq/NYSE ratio has been flat since the middle of September. After today's strong Nasdaq performance, the ratio may be moving into new high ground. That would be a positive sign for the market. Not only would it resume the uptrend started last October. Chart 8 shows that the Nasdaq/NYSE ratio is also testing the highs formed at the start of 2002 and the spring of 2001. An upside breakout from here would put the ratio at the highest level in more than thirty months.

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