BANK BREAKOUT LEADS MARKET HIGHER -- SOX BOUNCES OFF 50-DAY LINE -- THE QQQQS MAY BE READY TO TURN BACK UP

BANK BREAKOUT ... Some good things happened to the market today. One of them was a bullish breakout in bank stocks. Earlier today I showed the Bank Regional Holders (RTH) hitting a new record high (February 22, 2006). They were the day's strongest ETF. Chart 1 shows the bullish breakout in the PHLX Bank Index. That helped make financials the day's strongest sector. The relative strength for the bank group appears to be turning back up after a sluggish January. It's normally a positive sign for the rest of the market when the financials are showing upside leadership. Chart 2 shows the S&P 500 hitting a new monthly high and moving closer to its mid-January peak at 1294. The odds for that high being broken were increased by today's financial breakout. I wrote yesterday that the S&P would have trouble reaching a new high unless it got some help from the Nasdaq market. It got that today. The Nasdaq 100 was the top percentage gainer of the market indexes. The NDX, however, still needs to get through its 50-day average to turn its short-term trend higher. The odds of that happening were increased by today's bounce in the Semiconductor (SOX) Index off its 50-day moving average (Chart 4).

Chart 1

Chart 2

Chart 3

Chart 4

THE CUBES ARE LOOKING STRONGER... There's a lot riding on what happens to the Nasdaq 100 Shares (QQQQ). Chart 5 shows the QQQQ having bounced off chart support formed at the start of January (green arrows). That's good. What it has to do now is close back over its (blue) 50-day average and last Friday's intra-day peak at 41.55. I think the odds of that happening are pretty good. The 9-day RSI line has already broken a two-month down trendline. The MACD histogram bars have just turned positive (but just barely). I think that tilts the scale to the upside. Yesterday I made reference to point & figure charts. That's what Chart 6 is. The beauty of a p&f chart is that it simplifies buy and sell signals. The x column represents rising prices, while the o column shows falling prices. The x and o columns alternate. A sell signal occurs when a o column falls below a previous o column. That happened in January at 42. A buy signal occurs when an x column rises above a previous x column. An initial buy signal has already taken place at 41.40. A more convincing buy signal would be a move up to 41.60. That would also put the QQQQ back over its 50-day average on the bar chart. Although a p&f chart doesn't require a close over a resistance barrier, I do. Therefore, a close at 41.60 or higher in the QQQQ would be a short-term buy signal (especially if it occurred on rising volume). That would undoubtedly give a boost to the rest of the market as well.

Chart 5

Chart 6