NETWORKERS STILL SHOWING LEADERSHIP BUT ARE UP AGAINST SOME RESISTANCE -- NASDAQ COMPOSITE IS ALSO TESTING EARLY 2004 HIGH

REVISITING NETWORKERS... Back in mid-November, I wrote about the Network iShares (IGN) breaking through their 200-day moving average (see red circle) and starting to move from technology laggards to leaders November 15, 2004. That leadership is continuing today. In fact, the IGN is the day's strongest sector ETF. The relative strength line along the bottom of the chart shows the change in the group's leadership role. The RS line bottomed in August, but didn't break its 2004 down trendline until mid-November (see green arrow). That's when the group really started to attract new money. The daily bar chart carries good news in that the Network iShares are still trending higher, and are still way off their early 2004 highs. A short-term concern, however, is the fact that the IGN is nearing its mid-year high just below 32. It has to get through that chart barrier to continue its uptrend. The three network leaders that I showed on November 15 were Avaya, Lucent, and Juniper Networks.

Chart 1

HOW THEY'VE DONE... Since mid-November, Avaya has been consolidating in a "pennant-like" formation, while Lucent has corrected in a bullish "flag" formation. [A pennant is a sideways pattern that resembles a small symmetrical triangle. A flag has a downward slope. Both are continuation patterns which, in this case, would be bullish]. Chart 2 shows Avaya stalled near its June peak around 16.5. Chart 3 shows Lucent finding support at its June peak near 3.8. Chart 5 shows Juniper Networks continuing to climb toward its early 2004 peak at 31.25.

Chart 2

Chart 3

Chart 4

TODAY'S NETWORK LEADERS ... The following charts show some of today's network leaders. The first two -- Qualcomm and Motorola -- have something in common. Both are testing overhead resistance barriers. Qualcomm is testing its October high (Chart 5), while Motorola is challenging its spring high near 18.5 (Chart 6). Nortel Networks (Chart 7) has been a laggard in the group and hasn't shown much upside leadership. Its RS line, however, is just starting to turn up. That may make NT one of the better network values. The fact that the Network ETF, along with several of its leaders, are testing resistance barriers carries a short-term warning. While an upside breakout would be bullish, resistance levels (even if they're eventually broken) often provoke short-term profit-taking.

Chart 5

Chart 6

Chart 7

CISCO IS TRYING TO TURN UP ... Because of its size, Cisco may be one of the more important stocks in the networking group. Its daily chart shows the technology bellwether trying to break through its November peak at 20. Its RS line, which has been declining, is also starting to turn up. I'd keep a close eye on CSCO. Not only is it important for the networking group, but it also carries a lot of weight in the Nasdaq market. How Cisco's try an at upside breakout turns out may carry implications for the Nasdaq market which is testing important resistance of its own.

Chart 8

NASDAQ COMPOSITE TESTING EARLY 2004 HIGH ... The chart of the Nasdaq Composite bears very close watching. That's because it's trying to hold its recent move above its early 2004 peak at 2153. The two indicators below the chart are giving a mixed message. The on balance (OBV) line is in new high ground, which is bullish. But is RSI line is showing a small "double top" over 70, which is a short-term caution sign. Personally, I wouldn't be committing new funds at this point. I'd watch and see if the Nasdaq can stay over 2153 during the rest of the week.

Chart 9

Chart 10

POINT & FIGURE NASDAQ CHART ... Chart 10 is a point & figure chart of the Nasdaq Composite. It is a three-box reversal chart with a box size of 15 points. [You can vary the box size to make the chart more or less sensitive. A smaller box size will reveal more short-term buy and sell signals]. I chose this chart because it captures the essence of the Nasdaq trend. It's given four buy signals since September. It recently moved one box over its early 2004 peak. A drop to 2115 from its recent high at 2160 is needed to suffer a three-box reversal into the down (o) column (which some traders use as a short-term profit-taking signal). For an actual sell signal to occur, the Nasdaq would have to drop to 2040 on this chart. As I suggested last Friday, I'd rate the Nasdaq a "hold" at this point with appropriate stoploss protection against any downturn.