INTERNET LEADS TECH RALLY-- QQQ NEARS 200-DAY AVERAGE -- NYSE NEARS TEST OF SUMMER HIGH
INTERNET INDEX CLEARS 200-DAY LINE... Although most of the talk in the recent technology revival has been about the SOX Index, Internet stocks are doing much better. Chart 1 shows the IIX Internet Index closing over its 200-day moving average for two consecutive days. [By comparison, the SOX Index has yet to exceed its 50-day line]. The relative strength line bottomed in mid-August and has been outperforming the S&P 500 since then. That puts the Internet Index on course for a possible challenge of its June high. That's the short-term story. The weekly bars in Chart 2 paint an even more impressive long-term picture and show why the June high is so important. The early 2004 peak stopped right at the previous high hit near the start of 2002 (see first down arrow). The subsequent downside correction pushed the weekly stochastic lines into oversold territory below 20. Those lines have turned positive and are rising. The weekly RSI line has moved back over 50. Both are signs that the correction has ended. The weekly chart also shows a "neckline" drawn over the 2002-2004 peaks that coincides with the June high. Any close above that line would represent a major bullish breakout for Internet stocks. That would be bullish for the Nasdaq and the rest of the market.
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AMZN AND YAHOO LEAD S&P HIGHER... With the Internet group scoring big gains today, it's not surprising to see two of the top five percentage S&P 500 gainers in that category -- Amazon.com and Yahoo. Chart 3 shows Amazon climbing through its 50-day average on strong volume for the first time in two months. The AMZN/IIX ratio shows that the stock has been an Internet laggard, but is just starting to show some bounce. Yahoo is in a stronger position. Chart 4 shows Yahoo closing above a "gap" area formed at the start of June. Volume was also heavy. Yahoo is showing better relative strength than AMZN. The strongest of the three is Ebay. Chart 5 shows the Internet leader closing at a new multi-year high.
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NYSE INDEX NEARS JUNE HIGH ... The best indicator of the market's technical improvement is seen in the NYSE Composite Index. It's the first of the major stock indexes to break its 2004 down trendline. [The Dow is still testing that resistance line and the S&P 500 has yet to reach it]. What's more, the NYSE is nearing a test of its summer high just over 6600. That's going to be an important test for the index and the rest of the market. If it's able to break through it on the upside, that will give the entire market a big boost. It that were to happen, a move up to its early 2004 peak (possibly even by the end of the year) would be a reasonable expectation. Bear in mind that the November-January period is the strongest of the year. The market also has a history of rallying after an election -- no matter who wins. That increases the odds for a strong finish to the year.
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NASDAQ 100 TESTING 200-DAY AVERAGE... A big positive for the market has been the recent revival in the tech-dominated Nasdaq market. That's because the market usually does better when the Nasdaq is rallying. The Nasdaq/S&P 500 ratio turned up last week and is showing new leadership by the technology sector. That's a good sign. The Nasdaq 100 Shares (QQQ) are trying to get above their 200-day moving average. The Nasdaq is the only market that hasn't accomplished that bullish task. A close over the 200-day line (which appears likely) would put the upturn in the QQQ into higher gear and would give a boost to the entire market.
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