ROTATION INTO TECH PICKS UP STEAM -- LED BY INTERNET AND SOFTWARE -- ALTERA PULLS SOX UP
QQQ LEADERSHIP CONTINUES... Money coming out of some parts of the market continues to rotate into technology stocks. That's being seen in the relatively strong action of the Nasdaq 100 Shares (QQQ) which is the day's strongest index. Chart 1 shows the QQQ continuing to stay over its 200-day average and moving up to test its recovery high. Even more important is its rising relative strength line. That's a ratio of the QQQ divided by the S&P 500. The ratio line turned up in August and is breaking its 2004 down trendline. It was the downturn in that same ratio in January of this year that signaled rotation out of tech stocks, which proved to be bad for the rest of the market. The recent upturn in the ratio line shows rotation back into technology which should be good for the market.
Chart 1
INTERNET AND SOFTWARE LEADERS ... The two strongest technology groups throughout the recent technology revival have been Internet and software stocks. The next three charts show Exchange Traded Funds (ETFs) for those two categories. On Monday I described the Software Holders plotted in Chart 2 as a leader in the technology area. And it's living up to that reputation. The chart shows the SWH breaking through its summer peak. Its relative strength line (plotted against the Nasdaq) shows that the software group has been leading the Nasdaq higher. That's what leaders are supposed to do. I've also mentioned Internet stocks as technology leaders. Two of today's top ETFs are the Internet Infra Holders (Chart 3) and Internet Holders (Chart 4). The IIH is the day's strongest group. It's chart shows why. The Internet ETF has cleared its summer high and its 200-day line. Its relative line is rising faster than the Nasdaq. The same is true of the HHH in Chart 4 which is even stronger. The biggest holding in the HHH is Ebay which is soaring today.
Chart 2
Chart 3
Chart 4
ALTERA IS PULLING SOX UP ... In my piece on the semiconductors yesterday, I identified Altera as a leader in the emerging chip uptrend. That stock is blasting off today and pulling the SOX up with it. Chart 5 shows Altera blasting through its 2004 down trendline today on very heavy volume. Its ratio (versus the SOX) has hit a new yearly high. That's leadership. Chart 6 shows the Semiconductor Holders moving up very close to a new three-month high. The big green volume bars are especially impressive. The SMH/Nasdaq ratio is also turning up. While the Internet and software rallies are well underway, the chip rally is just beginning.
Chart 5
Chart 6
FOLLOW THE ROTATION INTO TECHNOLOGY... I wrote yesterday that instead of focusing on the relatively soft blue chip averages, it was better to pay attention to money rotating into the technology sector. In my view, that's where the action is. And that's where money is being made. It's up to you how you want to do it. There are lots of stocks in the three groups shown above that are breaking out to the upside. I've shown several of them over the past week -- including Altera. If you haven't got time to do the stock research, or aren't a stock picker, simply buy one of the appropriate Exchange Traded Funds shown above.
