BASIC MATERIALS, ENERGY, AND TECHS LEAD MARKET HIGHER -- APPLE AND GOOGLE SUPPORT NASDAQ BREAKOUT -- AS DO INTERNET AND CHIP STOCKS
CRB INDEX MOVES OVER 50-DAY LINE... Last Friday I showed the Reuters/Jefferies CRB Index rebounding off its 200-day moving average and suggested that the commodity correction appeared over. In today's trading, the CRB is climbing above its 50-day moving average and appears to be starting a new upleg. It's getting a lot of help from energy and metals markets. Copper is trading at a new record; silver traded over $11 for the first time in twenty-three years; gold prices are up $9 and on the verge of a new twenty-five year high. Commodity strength is boosting related metal stocks in the aluminum, copper, gold, and silver markets. Energy markets are also rising. A drop in gasoline inventories pushed that market up 3.7% to make it the top CRB gainer. Gasoline also achieved a bullish breakout.
Chart 1
GASOLINE HITS SIX-MONTH HIGH ... The daily chart of unleaded gasoline puts its price trend since last August in better perspective. Gasoline futures peaked around Labor Day near 2.50 before dropping all the way to 1.55 in December. Since then, the commodity has traded sideways. Until today. A successful retest of its December low during February set up a possible "double bottom" reversal pattern (see circles). Today's breakout above the January peak at 1.89 has completed that bullish pattern. That explains why a lot of money has been flowing back into the energy patch and why most energy ETFs have turned up.
Chart 2
NASDAQ HITS NEW HIGH ... One of the more positive signs in today's market bounce is new leadership from the technology sector. The Nasdaq Composite is hitting a new five-year high today (Chart 3). Its relative strength line is also starting to bounce. Why that's positive for the rest of the market is because Nasdaq leadership is usually a sign of market strength. Although the Nasdaq Composite did better than the Dow and the S&P 500 today, the biggest percentage gainer was the Nasdaq 100. That's also showing signs of turning up. Chart 4 shows the Nasdaq 100 Shares (QQQQ) testing their early March peak at 41.98. A close over that barrier would turn the short-term trend back up again. The improving relative strength can be seen the QQQQ/SPX relative strength line at the bottom of Chart 4. The RS line has just broken a three-month down trendline. That means that some of the big tech stocks that have been weighing on the QQQQ are starting to do better. Two in particular are Apple and Google.
Chart 3
Chart 4
APPLE AND GOOGLE TURN BACK UP ... Back on March 21, I wrote that drops in Apple and Google were weighing on the Nasdaq market and were preventing an upside breakout in the Nasdaq Composite Index. Today's buying of both stocks had a lot to do with today's Nasdaq breakout. Both stocks are among the five biggest in the QQQQ and were also among the top three percentage gainers. The next two charts suggest that both stocks have bottomed. Chart 5 shows Apple scoring an upside reversal day on very strong volume right at its 200-day moving average. [An upside reversal day occurs when a stock opens in new low ground before reversing to close higher. The wider the price range and the heavier the volume, the more bullish the signal]. Also encouraging is the 9-day RSI line which is in oversold territory under 30. Apple's gain of 5.8% made it the day's top gainer in both the Nasdaq market and the S&P 500. Chart 6 shows Google also rallying back over both its moving average lines. The relative strength line beneath Chart 6 compares Google to the QQQQ. Google started to pull the QQQQ lower in January when it started its downside correction (down arrow). The ratio is now turning up which means that Google is now helping to support the Nasdaq rally (up arrow). Other tech stocks leading the Nasdaq higher today were Nvidia and Sun Microsystems both of which hit new 52-week highs.
Chart 5
Chart 6
OVERSOLD SOX BOUNCES ... INTERNET INDEX BREAKS OUT ... Charts 7 and 8 show two technology groups that are also supporting the Nasdaq rally. The first is the SOX. Chart 7 shows the Semiconductor (SOX) Index starting to find new support just above its 200-day moving average. The 9-day RSI line appears to ready to cross over its 50-day line which is a positive sign. And the daily MACD lines are turning positive for the first time since last November (see green arrows). New buying in the chips would certainly help extend the market's current rally. Internet stocks are much stronger. Chart 7 shows the Internet Index (IIX) on the verge of a new five-year high.
Chart 7
Chart 8
