CHIPS, BIOTECHS, FINANCIALS, AND TOBACCO LEAD MARKET HIGHER -- DOW AND S&P 500 CLEAR RESISTANCE -- IT LOOKS LIKE MARKET HAS BEGUN FIFTH WAVE OF FIFTH WAVE

SEMICONDUCTOR HOLDERS LEAD TECH RALLY ... For the first time in awhile, technology was the market's top sector. Most of that came from a strong semiconductor group which gained well over 4% in Friday trading. The top sector ETF was the Semiconductor Holders (SMH) shown in Chart 1. It broke through its 50-day moving average for the first time this year. And it did so on rising volume. Earlier today I wrote about the positive implications of its rising relative strength line. After a successful retest of its September low, it's rallying again. This is the first sign of semiconductor leadership in more than two months. That's good for the group. Chip leadership is also good for the technology sector and the rest of the market. Earlier today I showed strong action in Texas Instruments and National Semiconductor. I wrote that the only thing missing was volume. Charts 2 and 3 show that trading did pick up enough to support the strong price gains. NSM actually closed at a new six-month high.

Chart 1

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BIOTECHS TAKE SECOND PLACE ... Biotech iShares were the day's second strongest sector ETF and gained 2.7%. And it did so on good volume as shown in Chart 4. The IBB also closed back over its moving average lines. Its relative strength line, which had been dropping throughout January, turned up today. Two of the big biotech leaders were Biogen Idec and Genzyme. Chart 5 shows BIIB climbing back over its 50-day average on rising volume. Genzyme recently bounced off its 50-day lines. Their relative strength lines clearly mark them as market leaders.

Chart 4

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TOBACCO AND FINANCIALS HAVE STRONG DAY ... A drop in bond yields to a three-month low gave a boost to rate-sensitive stocks -- financials, homebuilders, utilities, and REITs. Tobacco stocks also jumped sharply on a favorable court ruling. Altria Group (MO) gained 5% and was the Dow's top gainer. Its monthly chart shows the stock trading at an all-time high. In the financial group, insurance stocks were among the top gainers. Allstate also closed at a new record high after recently exceeding its 1998 high at 50. At the moment, the market has a lot of things swinging back in its favor. Two of the biggest are leadership by financials and technology. Now it's a question of how long that will last.

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DOW AND S&P 500 CLEAR RESISTANCE BARRIER... The hourly bars for the Dow Diamonds and the S&P 500 SPDR show both having cleared initial resistance at their mid-January highs. [Both also closed back over their 50-day moving averages]. Small cap indexes accomplished that earlier in the week, which hinted that the large cap indexes were heading in the same direction. I also showed the improvement in market breadth figures earlier in the week. That greatly increases the odds that the blue chip averages are headed for a challenge of their old high.

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IT LOOKS LIKE MARKET IS IN FIFTH WAVE OF FIFTH WAVE ... From a longer-term perspective, very little has changed. I've written several times about the possibility of another upleg which could challenge (and maybe even exceed) the late 2004 peak. My work, however, still suggests that another upleg would probably be the final one in the cyclical bull market that started in October 2002. Or, to put it in Elliott Wave terms, I believe the market has begun the fifth wave of a fifth wave. [The fifth wave of the cyclical bull market started in August. The fifth wave of that fifth wave started this month]. I've been asked if there's a calendar date for a possible top. One possibility is March which would be the two-year anniversary of a major bottom. The other would be April. After January, April is the next strongest month in the first half of the year. One of the reasons I recently suggested some profit-taking during January was because that was the tail end of the strongest three month span of the year that normally starts in November. April ends the strongest six-month span that also starts in November. If the market does move to new high ground, my best guess for a top would be April.