NYSE COMPOSITE LEADS 2006 -- NASDAQ 100 LAGS -- TOP PERFORMING SECTORS -- HEALTHCARE LAGS -- GOLD LEADS INTER-MARKET GROUP -- OIL REMAINS WEAK - LOOKING TO 2007

NYSE TAKES TOP HONORS......

NOTE: Today's update is provided by Arthur Hill of TDTrader.com.

The NYSE Composite gained over 15% in 2006 and was the best performing index for the year. That's a pretty good feat for such a broad index. This feat is even more impressive considering the index was actually down for the year in mid June. The NYSE Composite started strong in the first quarter, fell sharply in the second quarter and then surged throughout the second half of the year. The index ended the year near its all time highs and remains in a clear uptrend.

Chart 1

TRENDING UP AND OVERBOUGHT...... The only caveat is the overbought condition. The Stochastic Oscillator has been above 80 since late August. Securities can become overbought and remain overbought, which is exactly what the NYSE Composite did from September to December. This is also testament to the strength of the underlying advance. Notice that the Stochastic Oscillator held above 80 the entire time. Look for a move below 80 to signal the start of a correction or consolidation to work off this overbought condition.

Chart 2

NASDAQ 100 IS THE LAGGARD...... The Nasdaq 100 gained less than 7% in 2006 and was the weakest of the major indices (least strong). This gain was less than half that seen in the NYSE Composite and big techs were relatively weak in 2006. Two factors contributed to relative weakness. The Nasdaq 100 did not rally in the first quarter of 2006 and the subsequent decline was much deeper. The Nasdaq 100 bottomed a month after the NYSE Composite and the gain from the July low to the December high was over 25%. This move is most impressive, but NDX barely exceeded its January 2006 high and has relatively little to show for the year.

Chart 3

NDX NO LONGER OVERBOUGHT ...... Like the NYSE Composite, the Nasdaq 100 remains in an uptrend with a large rising price channel. The second half surge carried NDX to the upper channel trendline in late November and the index stalled the last five weeks of the year. Notice that the January 2005 peak occurred after a surge and consolidation. Current stalling translates into less upside momentum and the Stochastic Oscillator moved below 80 this month. The indicator is trading below its red signal line and we should be watching the Nasdaq 100 closely in the coming weeks.

Chart 4

TOP PERFORMING SECTORS ... The Consumer Discretionary SPDR (XLY), Utility SPDR (XLU), Energy SPDR (XLE), Finance SPDR (XLF) and Materials SPDR (XLB) were the top performing sectors. All recorded double digit gains for the year and all five remain in uptrends. XLY, XLU and XLF are overextended after sharp advances in the second half of the year. XLE and XLB are running into some overhead resistance and enter 2007 with an immediate challenge.

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Chart 9

HEALTHCARE LAGS...... The HealthCare SPDR (XLV) gained less than 7% on the year and was the weakest sector (least strong). Despite this relatively paltry gain, the price chart for XLV remains bullish as the ETF consolidates above its prior highs. Broken resistance turns into support around 32 and XLV held this level after a dip in November. The ETF has basically consolidated between 32 and 34 the last few months. I would consider this trend up as long as key support at 32 holds.

Chart 10

GOLD LEADS INTER-MARKET GROUP...... Gold gained over 20% in 2006 and was the top performer in the inter-market group. In fact, stocks and gold were the only two groups to show serious gains. The long bond was down slightly, the US Dollar ended lower and oil was down sharply. I find the gold and oil charts the most interesting and will focus on these two today. Strength in gold could weigh on bonds (inflation) and weakness in oil could lifting stocks (lower input costs).

Gold surged in March-April and then corrected sharply in May-June. The Jan-Feb consolidation offered support around 550 and gold held this support area in June, September and October (green rectangle). Bullion surged off the 50-week moving average at the end of October and broke trendline resistance. I find this breakout bullish and the bulls are in good shape as long as 600 holds.

Chart 11

West Texas Intermediate Crude ($WTIC) moved higher the first half of the year, declined sharply in the third quarter and consolidated in the fourth quarter. Oil has yet to recover from the third quarter breakdown and this is bearish. WTIC broke the 50-week moving average and then found support between 55 and 60. This support zone stems from broken resistance and the November 2005 lows. West Texas Intermediate Crude (WTIC) needs to move back above 65 to revive the bulls.

Chart 12

TWO FACTORS FOR 2007....... Two factors helped stocks in the second half of 2006. First, bonds rallied in the second half of the year and this translated into lower interest rates. Second, oil fell sharply in the third quarter and remained down in the fourth quarter. There are more factors at work, but the combination of lower interest rates and lower oil prices certainly benefited stocks. We should keep an eye on these two factors in 2007. Happy New Year!