SOME ROTATION OUT OF CONSUMER STAPLES INTO TECHS MAY BE STARTING -- CHIPS AND INTERNET LEAD NASDAQ BOUNCE -- STOCK INDEXES ARE BOUNCING OFF 200-DAY AVERAGES
NASDAQ 100 SHOWING BETTER RELATIVE STRENGTH ... The Nasdaq 100 peaked during January and has underperformed the S&P 500 since then. That relative weakness in the technology sector was an early warning that the market was running into trouble. The good news is that we're now seeing the big technology stocks showing new signs of relative strength. A simple comparison of Charts 1 and 2 show the Nasdaq 100 (QQQ) trading well above its March low, while the Nasdaq Composite Index closed slightly below that level last night. That shows relative strength in the largest Nasdaq stocks. The relative strength line in Chart 1 also shows the QQQ doing better than the S&P 500 over the last week. That may be an early sign that money that left the large techs in January is now doing a little bottom fishing in the group again. That may also carry good news for the broader market if these early signs of tech leadership continues. Chart1 also shows the QQQ trading back above its 200-day moving average today. A lot of market indexes are testing that long-term support line.
Chart 1
Chart 2
CHIPS AND INTERNET LEAD NASDAQ BOUNCE... The Internet group is the day's technology leader. Chart 3 shows the IIX Internet Index trading well above its March low. Its relative strength line is also rising versus the S&P 500. Chip stocks are also showing new strength. Although the Semiconductor (SOX) Index is still trading under its moving average lines, its relative strength line is moving up. One of the biggest reasons for the SOX bounce is Intel.
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INTEL PULLING SOX HIGHER... Because of its size, Intel has a big influence on the SOX Index. To the left of the chart, Intel can be seen pulling the SOX lower since January. That's reflected in a falling Intel/SOX ratio line from January through the first half of April. That relative strength line, however, is now rising. That means that Intel is now pulling the SOX higher. The price chart shows Intel trying to move over its 50-day average for the first time in four months. Notice also the strong upside volume bars on Friday and Monday. Stronger action by Intel could boost the SOX even further which, in turn, would boost the Nasdaq market.
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YAHOO LEADS INTERNET GROUP... Helping to boost the Internet Index is Yahoo, which is the day's top percentage gainer in the Nasdaq 100. Its daily chart shows the Internet leader trading well over its 50-day line. Its relative strength line has been rising versus the S&P 500 since early March and has held up well during the recent market correction. Stocks that hold up the best during market corrections are usually upside leaders when the market correction ends.
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CONSUMER STAPLES BREAK 50-DAY LINE... While technology is the day's top sector, consumer staples are the weakest. There may be a message there as well. The daily chart of the Consumer Staples Select Sector SPDR shows this defensive group backing off from resistance near its March high. It's now trading under its 50-day average for the second day in a row. During the recent market correction, some money coming out of technology found its way into this defensive sector. It now seems that the reverse process may be starting. Some money coming out of overbought consumer staples is finding its way back into oversold technology. That may be good news for the entire market if it continues, because it shows that investors are turning more optimistic.
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200-DAY MOVING AVERAGES REPRESENT MAJOR SUPPORT... New signs of leadership by the Nasdaq market would come at a very good time. That's because a lot of major stock indexes are testing major long-term support at their 200-day moving averages. If the market is going to stabilize, this would be a logical place for it to start doing so. The next three charts show the S&P Small Cap, Midcap, and Large Cap Indexes all bouncing off their 200--day lines. Daily stochastics are in oversold territory under 20. A bounce today would negate some of the concerns caused by Monday's steep selloff. It looks like the market is trying to make a stand in in this area. New leadership by the technology sector would be a big help.
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