OIL SECTOR NEARS UPSIDE BREAKOUT -- DUPONT PLAYS CATCH UP WITH CHEMICAL RALLY -- APPLIED MATERIALS UPSIDE TURNAROUND HELPS PUT SOX OVER 200-DAY LINE -- NASDAQ 100 HITS NEW HIGH -- WEEKLY CHART SHOWS FIFTH WAVE TARGET

ENERGY SECTOR IS RISING AFTER ALL ... With crude oil trying to stabilize in the $46-47 dollar range (and in an oversold condition), energy stocks are starting to climb again. In fact, Energy was the day's top market sector. Chart 1 shows the Energy Select Sector SPDR surviving another test of its rising 50-day moving average -- and on the verge of breaking through resistance near 36. Since that level has already turned back at least three previous attempts to rally, an upside breakout through that level would carry bullish chart significance. Chart 2 shows the Oil Service Holders already climbing to a three-week high. Its daily MACD lines have turned positive for the first time since early October. Chart 3 shows a less sensitive point & figure chart of the OIH. Twice over the past week I showed a more sensitive version of the chart and got whipsawed a bit. This less sensitive version shows today's green x's issuing the first buy signal since the OIH peaked at 85. Last week I suggested that it was time for an initial probe back into the energy patch -- although I had second thoughts on Monday. It looks like I may have had it right the first time.

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CHEMICAL BREAKOUTS HELP DUPONT... Chemical stocks continue to lead the Materials group higher. I recently showed upside breakouts in Dow and Eastman Chemical which hit new highs again today. DuPont, however, has been a chemical laggard. But it's starting to play catch-up with the rest of the group. It was one of the Dow's top percentage gainers today. Chart 6 shows DD having broken its 2004 down trendline and reaching a new six-month high today. It also did it on rising volume. That's a good combination. Since its uptrend is still in the early stages, and with other chemicals already at 52-week highs, DuPont may provide a less expensive way to participate in the chemical group rally.

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APPLIED MATERIALS SURVIVES EARLY SELLOFF... Applied Materials had a very good chart day. What's especially bullish is how badly it started. The stock tumbled in the morning and caused some early market selling. By day's end, however, it had bounced off its 50-day average and closed at the highest level in eight weeks (Chart 7). And it did so on very strong volume. In chart talk, that's known as a "bullish reversal day". The chart also shows that AMAT is on the verge of breaking through its September peak. That would complete a bullish "double bottom" reversal pattern on its daily chart (see circles). AMAT wasn't the only chip stock to rally today. Intel climbed to a four-month high and is challenging chart and moving average resistance near 25 (Chart 8). Chart 9 shows that Texas Instruments has already cleared its 200-day line. And, finally, Chart 10 shows the Semiconductor (SOX) Index closing over its 200-day average as well. [You may recall that yesterday I suggested that previous upside breakouts in Taiwan and South Korea (not to mention Taiwan Semiconductor) foretold similar bullish action by the SOX]. That puts the SOX in the company of Internet, Networking, and Software Indexes that have already broken through that long-term resistance line.

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NASDAQ 100 SHARES REACH 52-WEEK HIGH ... With a lot of help from Intel, the Nasdaq 100 Shares (QQQ) were to day's top percentage gainer. More importantly, the QQQ broke through prior resistance formed near the start of 2004. And it's doing so in the face of a continuing overbought situation. The 14-day RSI has remained above 70 throughout the last week. As I pointed out last Friday, however, that won't stop the rally until the ADX line turns down. The black line at the bottom of the chart shows the ADX line still rising. It has moved over 40, however, and is getting closer to the early 2004 peak in the mid-40s. Until the ADX line reaches that level near 45, or starts to drop, the overbought Nasdaq can continue to climb. The question is how far and for how long.

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WEEKLY BAR SHOWS FIFTH WAVE TARGET... With this year's high having been broken, we need to look at the weekly chart for the next upside objective for the QQQ. But first a reminder of where we are in the Elliott Wave count. A couple of months back I suggested that the market was about to enter its "fifth" and "final" upwave in this cyclical bull market. The previous four waves can be seen pretty clearly on the QQQ chart (see numbers). My next upside target for the QQQ is the late 2001 peak near 43 (see red circle). That's about 4 points (or 10%) from tonight's close. My time target for a possible top is during January. Coincidentally, that's about when the 2001 rally ended. That's also when the 2003 rally ended. That should make for a happy holiday season. But it could also lead to a market hangover after the new year starts. The rising Nasdaq/S&P 500 relative strength line is also positive for the rest of the market. And it will remain so as long as the Nasdaq rally continues. If my Elliott waves are correct, once the fifth wave has been completed, a correction down to the bottom of Wave 4 (near 32.5) would be the logical expectation during the first half of 2005.