TELECOM BREAKOUT -- PFIZER LEADS HEALTHCARE ETF HIGHER -- MONEY IS ALSO FLOWING INTO THE CHIPS
TELECOM HOLDERS HIT 52-WEEK HIGH ... Here's a group that I seldom write about. The reason I'm writing about it now is that it's the strongest group in the market over the last week. Chart 1 tells the tale. Telecom Holders (TTH) have broken through their summer highs to reach the highest level in a year. The dramatic change of fortune for the telecom group can be seen in the relative strength ratio which has surged to a six-month high over the past couple of weeks. While some of the bigger stock holdings in the TTH -- AT&T and Bellsouth -- are already trading at 52-week highs, the most dramatic chart action today came from Verizon Communications which is another one of the big three in the TTH. Chart 2 shows VZ breaking through its 200-day moving average and hitting a new six-month high. Upside volume has been impressive since the start of the year. Several readers have asked where some of the money that came out of commodity stocks is flowing. Some of it is flowing into telecommunications. Some of it is also going into healthcare.
Chart 1
Chart 2
PFIZER LEADS HEALTHCARE HIGHER ... Healthcare has been another winner for the week. Chart 3 shows the Health Care Sector SPDR (XLV) scoring an upside reversal today around its 50-day moving average. More important, its relative strength ratio bottomed during December and is rising again. That suggests new leadership in the XLV. Most of that new leadership is coming from drug stocks which were one of today's strongest groups. Chart 4 shows the Pharm Holders (PPH) closing back over their 200-day moving average line. Its relative strength line has also been rising of late. The biggest reason for the jump in both ETFs is seen in Chart 5. Pfizer gained over a dollar and closed at a new five-month high. That's after it bounced off its 200-day line. Upside volume was impressive. Here's another defensive group that's been out of favor for awhile that's starting to attract new money.
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Chart 5
THE SOX IS ALSO HOLDING UP ... Semiconductor stocks have been one of the most resilient groups over the last week. That can be seen in the relative strength ratio in Chart 6 which has moved to a new recovery high. That tells us that some of the money coming out of some sectors is finding its way into the chips. The daily bars show the SOX nearing a challenge of the 560 level. That's a very important technical test. The reason can be seen in the weekly bars in Chart 7. It shows that the SOX is also challenging its early 2004 peak near the same level. A close through that major chart barrier would constitute a bullish breakout for the chip group. Semiconductors have something in common with telecom and healthcare stocks. They've also been underachievers. The relative strength ratio in Chart 7 shows that the SOX has hardly even participated in the cyclical bull market that started in the spring of 2003. Its relative strength line, however, has how climbed to an eighteen-month high. If money coming out of former leaders is looking for new leaders, semiconductor stocks would seem to qualify. So would healthcare and telecom stocks.
Chart 6
Chart 7
