CISCO AND NSM PULLS MARKET LOWER -- HEALTHCARE BOUNCES -- WATCH WEEKLY MACD LINES FOR IMPORTANT MARKET TURNS

CISCO AND NSM PLUNGE TO 2004 LOWS... All one need do is look at the first two charts to see where most of today's selling came from. Cisco, which is often considered a bellwether for technology, plunged 10% today to register a new 2004 low. And it did so on massive volume. Cisco was also the day's most actively-traded stock. Over on the big board, National Semiconductor tumbled 13% to a new low for the year -- also on heavy volume. While the collapse in Cisco hurt the networking group, the plunge in NSM pushed the Semiconductor Index to a new 2004 low with a loss of 5%. Needless to say, the action in those two stocks got the day off to a bad start with most of the selling coming in the technology group. It also pushed the Nasdaq market to a new intra-day low.

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NIBBLING IN HEALTHCARE... One of the groups that attracted new buying today was healthcare. Chart 3 shows the AMEX Health Care Select Sector SPDR rising on the heaviest volume in nearly three months. The bounce in the 14-day RSI line shows that short-term momentum is turning to the upside. The weekly bars in Chart 3 show that the XLV is finding some support along the lows of last year's fourth quarter. Today's healthcare bounce came from the biotechs and drugs. Other defensive groups that attracted some buying today were consumer staples and utilities.

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JOHNSON & JOHNSON EXCEEDS 50-DAY LINE... The Dow drew some strength from its drug stocks. The best performer was Johnson & Johnson which rose to a two-week high and exceeded its 50-day moving average. Pfizer also bounced a bit.

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BIOTECH LEADERS... Chiron and Gilead contributed to today's biotech bounce. Both are trading above their moving average lines and are moving toward the upper end of their respective trading ranges. Volume was on the light side -- but did pick up from the previous day.

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NASDAQ LOSES GROUND ON HEAVIER VOLUME... Once again, the Nasdaq was the day's worst performing index, which reflected heavy selling in technology. The daily chart of the Nasdaq 100 Shares (QQQ) shows it touching a new low for the year earlier in the day. Volume picked up on the decline. A short-term oversold condition may have kept the day's losses from being even worse. I call your attention, however, to the weekly bars in Chart 9. They show that the Nasdaq is still caught in an intermediate decline after breaking its spring lows last week. The weekly indicator plotted below the price chart is called the Moving Average Convergence Divergence (or MACD) which happens to be one of my favorite trend indicators. That's especially true of the weekly signals which don't come too frequently and are generally pretty reliable. The MACD lines turned negative at the start of February -- and have remained so since then. The June Nasdaq bounce failed to push the short-term average over the longer one. I'd suggest keeping an eye on the weekly MACD lines on the Nasdaq and the other major stock indexes. No meaningful upside move can occur until those lines turn positive. And no meaningful upside move is likely until the Nasdaq bottoms. Although daily charts are useful for short-term market swings, weekly signals are much more helpful in spotting important trend changes. Right now, the trends are still down.

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