THE NYSE AD LINE VERSUS THE NYSE BULLISH PERCENT INDEX -- WHY TWO BIOTECH ETFS LOOK DIFFERENT -- FALLING SOX INDEX WEIGHS ON NASDAQ MARKET

TWO WAYS TO MEASURE MARKET BREADTH... One of our readers asked me to explain the difference between the NYSE Advance-Decline line and the NYSE Bullish Percent Index. They both tell us something about market "breadth", but in different ways. Chart 1 shows the NYSE AD line which is the most traditional method of measuring whether there are more stocks advancing than declining. The line has recently moved into new high ground, which is a healthy market sign. Chart 2 requires a little more explanation. The NYSE Bullish Percent Index is the percentage of NYSE stocks that are on point & figure buy signals. Readings over 70, however, usually means that the market is in a major overbought condition. Major buying opportunities usually take place when the reading is under 30. Intermediate support usually functions around the 50 level. Chart 2 shows the BPNYA over the last year. Notice that it's pulled back after climbing over 70 twice since last summer. It's bounced off the 50 level twice since last spring. While the long-term trend of the BPNYA is still up (over 50), its short-term trend at 65 is down. You can get a daily read on the NYSE BPNYA on the Market Summary page under Bullish Percent Indices. Many traders use a point & figure version of the indices which is also available. On its p&f chart, the BPNYA would have to rise to 74 to give another buy signal. Problem is that would also put it in overbought territory. I'd rate it as neutral right now.

Chart 1

Chart 2

DIFFERENCE BETWEEN BIOTECH ETFS ... Last week I showed the Biotech iShares (IBB) testing their spring 2004 high (Chart 3). Some short-term profit-taking is taking place today, but nothing serious so far. I've been asked to explain the very different look of the Biotech iShares and the Biotech Holders (BBH) shown in chart 4. It all comes down to one stock and that stock is Genentech (DNA). Genentech has little or no weight in the IBB. [It's not listed in the top ten holdings]. However, DNA is the biggest holding (32%) in the BBH. If you don't think that makes a difference, compare Charts 4 and 5. They look pretty similar. That's the big influence of Genentech on the Biotech Holders. Although the BBH had been a lot stronger than the IBB up until the end of last year, the IBB has done better this year. That also points out one of the pitfalls of using ETFs and why it's important to know what's in them. That's especially true when two ETFs are meant to cover the same industry group. That's also why I personally prefer the Biotech iShares. It seems to me that Biotech Holders (BBH) are too closely tied to the fortunes of one biotech stock.

Chart 3

Chart 4

Chart 5

SEMICONDUCTORS WEAKEN ... I recently showed the Semiconductor (SOX) Index testing a major chart barrier formed at the start of 2004 at 560. (See monthly bars in Chart 6). That's both good and bad news. The good news is that a close over 560 would represent a bullish breakout. The bad news is that a previous peak is also a logical chart spot for some profit-taking to appear. So far, the latter scenario appears to be the case. The short-term selling can be seen on the daily bars in Chart 7. After backing off from the 560 level, the Sox Index has fallen to the lowest level in a month and is bearing down on its 50-day moving average (blue line). Its relative strength line is starting to slip as well. Two of the big reasons for the SOX drop can be seen in the charts of Applied Materials and KLA Tencor. AMAT suffered a high-volume downside reversal day last Thursday and is testing its 50-day line. It was one of the day's most heavily traded stocks. KLAC has already broken that support line. A brokerage downgrade this morning is the main reason for the selling today. That cast a negative pall over the Nasdaq and the rest of the market.

Chart 6

Chart 7

Chart 8

Chart 9

NASDAQ 100 STILL BELOW 50-DAY AVERAGE ... It's no secret where most of the selling came from today. It came from the big stocks in the Nasdaq market. Their relatively weak performance can be seen in the downward slop of the Nasdaq 100 which failed an initial test of its 50-day average last Thursday (Chart 10). It was the today's biggest percentage loser. Right behind it was the Nasdaq Composite which fell back below its 50-day line (Chart 11). The downturn in the Nasdaq:S&P ratio line isn't a good sign for either. That means that the market is losing some of the technology leadership that contributed to the October/January rally. That's weighing on the S&P 500 (Chart 12) which is pulling back from its mid-January peak at 1294. The S&P is going to have trouble getting through that chart barrier without more help from the Nasdaq market. Two other factors weighing on the market today were higher gold and oil prices and the release of the Fed's last minutes which showed a bit more concern about inflation. [Please see our earlier article on the rebound in commodity prices].

Chart 10

Chart 11

Chart 12