BIG DROP IN OIL BOOSTS AIRLINES AND MARKET -- PHARMA HOLDERS ARE TOP ETF -- INTEL PULLS SOX HIGHER -- MAY LEADS RETAIL BOUNCE -- DOW HITS THREE-YEAR HIGH

DRUGS ARE LEADING MARKET HIGHER... In a continuation of yesterday's rebound in the big drug stocks, the Pharm Holders are the day's top sector ETF. Chart 1 shows them rebounding smartly off their 50-day moving average. Pfizer continues to lead the rebound with others that I've shown recently including Abbott Labs, Bristol Myers Squibb, Johnson & Johnson, and Schering Plough. Chart 2 shows the Healthcare Select Sector SPDR trading back over its 200-day line. New buying in this group is lending support to the blue chips. Note the big volume bar in yesterday's healthcare advance in Chart 2. As I suggested yesterday with Pfizer, there's been a lot of buying into last week's drug drop.

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OIL DROP HELPS AIRLINES ... A reported jump in oil inventories for the week is pushing crude sharply lower today. That's causing heavy selling in energy stocks. The Oil Service Holders (OIH) are backing off from chart resistance at their November high. Energy is the day's weakest sector. That's giving the fuel-sensitive airlines a big boost. The Airline Index (XAL) is up more than 2% today and is one of the day's strongest groups. The drop in oil is giving a boost to the entire market.

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RETAILERS GETTING IN THE SPIRIT... I'm not sure if it's the big drop in oil, but retailers are also rebounding nicely today. The Retail Holders (RTH) are bouncing off their 50-day moving average, which often provides a buying opportunity. Two of the day's retail leaders are May Department Stores and Radioshack. May is bouncing off its 200-day average, while Radioshack has completed a successful test of its 50-day line.

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INTEL PULLS CHIPS HIGHER ... Speaking of successful tests of 50-day moving averages, Intel has risen to a two-week high after bouncing twice off that rising support line. I suggested yesterday that would help the SOX Index which was also testing its 50-day line. Chart 9 shows the Semiconductor Holders (SMH) bouncing off that support line as well. That's helping to steady the technology sector.

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DOW REACHES THREE-YEAR HIGH ... Late last week I expressed some caution about the Dow being up against its early 2004 peak. I needn't have worried. The Dow has cleared that chart barrier and is now trading at the highest level in three years. The next resistance barrier is the mid-2001 peak at 11350. After lagging behind the rest of the market during the fourth quarter, the Dow is playing catch-up with everything else. With oil on the defensive -- and new signs of strength in the airline, drug, retailers, and semiconductors -- the yearend Santa Claus rally is off to a good start. The January Effectis also keeping small cap stocks in a leadership role. Looks like it's going to be a nice Christmas after all. We'll start worrying about the new year after all the partying is over.

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