ENERGY SHARES DROP WITH CRUDE OIL --INTERNET LEADERSHIP CONTINUES -- EBAY HITS RECORD HIGH -- S&P 500 TESTS 50-DAY AVERAGE

ENERGY SHARES DROP WITH CRUDE OIL... Crude oil fell another $1.46 today (-4%%) to drop to the lowest level in more than a month. That had a depressing effect on the Energy sector which was the day's weakest group. Chart 2 shows the Energy Select Sector SPDR falling today to end just below its 50-day moving average. What was more dramatic was the unusually heavy trading volume. That's not usually a good combination and suggests that the rotation out of energy that started last week is continuing. Oil Service stocks were the weakest part of the emergy patch. Chart 3 shows the Oil Svc Holders falling on heavy volume. The 50-day average was broken last week and is now acting as a resistance barrier.

Chart 1

Chart 2

Chart 3

INTERNET HOLDERS CONTINUE RALLY... On Wednesday I talked about technology leadership coming from Internet stocks. That leadership continued today with the Internet Holders turning in the day's strongest performance. Their relative strength line continues to rise. Chip stocks didn't fare quite as well. Chart 5 shows that the Semiconductor iShares failed to clear their 50-day line. That keeps the Internet in a technology leadership role.

Chart 4

Chart 5

CHIPS ARE BEATING OIL... On Tuesday, I talked about a market battle being fought between the chip stocks and the oil service group. I plotted a ratio of the Semiconductor iShares divided by the Oil Svc Holders. After falling for three months, the ratio started jumping last week as money started rotating out of energy and back into technology. I suggested that the ratio needed to clear its 50-day average to turn its short-term trend up again. It managed to do that today. The IGW/OIH ratio still needs to clear the (red) 200-day average and the three-month down trendline to confirm a major upturn. But at least the ratio is now moving in a more favorable direction for the market. Technology leadership -- and energy weakness -- is a positive combination for the stock market.

Chart 6

TECH LEADERS --EBAY EXCEEDS 2000 HIGH... The Nasdaq was the day's strongest index. Some of its strongest performers are shown below. InterActive Corp surged through its 50-day line on rising volume. DENTSPLY Intl. reached a three-month high on heavy volume. The most notable advance, however, came from eBay which broke out to a new all-time high today on heavy volume. The monthly bars in Chart 10 show the eBay has surpassed the high reached during the early part of 2000. That's pretty impressive. EBay is the most heavily-weighted stock in the Internet Holders shown in Chart 4 and is largely responsible for the Internet ETFs leadership role.

Chart 7

Chart 8

Chart 9

Chart 10

S&P 500 TESTING 50-DAY LINE -- QQQ LEADERSHIP... Although it rose to the highest level in four weeks, the S&P 500 SPDRs were unable to close above their 50-day moving average. However, with small and midcap stocks having already broken that resistance line, odds are good for the large cap S&P 500 to do the same. Chart 12 shows the Nasdaq 100 QQQs moving up toward their 50-day line. Volume picked up today which is a positive sign and the daily MACD lines have turned up. The Nasdaq 100/S&P 500 ratio line is also turning up for the first time in nearly three months, which is an encouraging sign for the market. It will look even better when both averages clear their 50-day averages.

Chart 11

Chart 12