MICROSOFT AND CHIPS LEAD TECH SECTOR HIGHER -- ASIA LEADS GLOBAL RALLY -- LOOKS LIKE THE FOURTH QUARTER RALLY IS STARTING
NASDAQ 100 BREAKING THROUGH 200-DAY AVERAGE... One of the points I've tried to make recently is that technology leadership is a necessary ingredient in any fourth quarter rally. On the first day of that fourth quarter, technology is spearheading a very impressive market rally. The next three charts point out some of the day's most important technology leaders. First of all, the Nasdaq 100 Shares (QQQ) are trading over their 200-day moving average. That means that the big technology stocks are leading the market higher. The QQQ is also the day's biggest percentage gainer. Speaking of big stocks, the one that's exerting the biggest Nasdaq influence today is Microsoft. Chart 2 shows MSFT breaking out of a two-month trading range to turn its short-term trend higher. The software leader recently found support at its 200-day average and is breaking through its 50-day line today. That's good for the stock, for the Nasdaq, and the entire market. Another positive development today is a 4%% gain in the Semiconductor (SOX) Index. Chart 3 shows that influential technology index breaking through its 50-day average today as well.

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BLUE CHIPS CATCH FIRE -- NYSE INDEX BREAKS OUT... With yesterday's Merck plunge behind it, the Dow Diamonds (DIA) are climbing back over their 50-day average (Chart 4). The S&P 500 SPDRs have jumped back over their 200-day moving average (Chart 5). Even more impressive is the NYSE Composite Index, which is breaking out to a new six-month high. If the the market can hold onto these gains through the balance of the day, that would be a strong indication that the fourth quarter rally that I've been expecting has probably kicked in.

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CHIPS LEAD ASIA HIGHER... The influence of a strong semiconductor group is being seen globally as well. The iShares Emerging Markets ETF is climbing to a new six-month high today and leading global markets higher - especially in Asia. Interestingly, the two groups with the heaviest weighting are semiconductors (16%) and materials (15%). That also explains today's strong gains in South Korea and Taiwan, which are dominated by chip stocks. Even Japan, which has been one of the year's worst global performance, is joining in the rally. Chart 8 shows the Japan iShares bouncing off their August low and climbing above their 50-day average. That may also be an indication that global markets are getting some relief from a softer oil market. MORE LATER.

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