AMGEN AND PFIZER LEAD STRONG HEALTHCARE GROUP -- STRONG OIL STOCKS ARE BAD FOR AIRLINES -- SBC AND GM ARE BEST AND WORST DOW PERFORMERS -- SOX STILL FALLING

TOP SECTOR... Once again Healthcare was the day's top sector. Much of the gains were seen in biotech and drug groups, both of which gained more than 1% today. Two of the day's standout performers are charted below. Chart 1 shows Amgen surging to a four-month high on rising volume. The stock has moved back over its 200-day moving average. The relative strength line is just starting to turn up after dropping for several months. That's another sign that Amgen is shifting from a market laggard to a potential market leader.

Chart 1

PFIZER LEADS DRUGS HIGHER... Pfizer is the most heavily-weighted stock in the AMEX Pharmaceutical Index. Chart 1 shows the stock hitting a new recovery high today on rising volume. Its relative strength line has also been rising. The more important chart, however, is Chart 3 which gives a longer-range view. The weekly bars show the drug leader breaking through the highs of last summer to reach the highest level in twenty-two months. The relative strength line in Chart 3 also shows a stock that's just starting to show market leadership. That's consistent with what we've been seen in the healthcare group in general. It underperformed the market last year, but is outperforming in 2004.

Chart 2

Chart 3

RISING OIL STOCKS ARE BAD FOR AIRLINES... Good news for oil stocks is usually bad news for airlines. And that's the message that the next two charts show. Chart 4 shows the Oil Service Index in the process of challenging the high hit last June. Rising energy prices over the past couple of months has had a bullish impact on the oil service stocks. [Energy prices were sharply higher today]. Chart 5 shows the Airline Index struggling since last October. After recently failing a test of its October peak, the XAL Index lost over 1% today and fell beneath its 50-day average. Compare the two relative strength lines. From the start of last year to the end of November, the RS line for oil service stocks fell while the RS line for airlines rose. The RS for the OSX turned up during the fourth quarter just as the RS for the airlines turned down. That means that good news for one is usually bad news for the other. Right now, the pendulum has swung in favor of oil stocks and away from airlines.

Chart 4

Chart 5

SBC IS UP, GM IS DOWN... These two stocks were the best and worst performers in the Dow today. Strength in SBC was symptomatic of a strong telecommunications group which gained more than 1%. The chart of SBC shows the stock bouncing strongly off its 50-day average on rising volume. Its relative strength line turned up last October. That's part of a new rotation into the telecom sector. The drop in GM is symptomatic of a weak auto group. GM has been dropping on heavy volume since last week and broke its 50-day line today. Its relative line is also dropping. Autos are one of those groups that would be hurt by rising rates, which is what the Fed hinted at last Wednesday.

Chart 6

Chart 7

SOX STILL FALLING... After a early pop this morning, the Semiconductor Index fell again today. The chart shows that the 50-day average is now acting as overhead resistance. Last week I talked about how relative weakness by the SOX was having a negative influence on the Nasdaq. We saw that again today as the Nasdaq market underperformed the blue chip averages. It's always a good idea to see where the strength is and where the weakness is each day. Today, the main weakness was in airlines and semiconductors. The main strength was in healtchare, energy, and telecomm. That's been the case for over a month. That tells where money is leaving and where it's going. That's what rotation is all about.

Chart 8